Country Report Azerbaijan

Outlook for 2008-09

• The Economist Intelligence Unit expects the president, Ilham Aliyev, to remain the dominant figure on Azerbaijan's political scene during the forecast period.
• Mr Aliyev's main aim will be to ensure the continuing loyalty of the political elite in the run-up to the next presidential election, which will be held on October 15th 2008. We expect him to win a second term of office.
• Azerbaijan will continue to balance its foreign policy orientation, although it is likely to seek to strengthen security relations with the West, possibly at the expense of military ties with Russia.
• The government's principal policy challenge will be to maintain macroeconomic stability, as the booming oil sector drives rapid economic growth.
• High oil prices and increasing oil export volumes will bring strong growth in budget revenue and expenditure. However, a loose fiscal policy will exacerbate inflationary pressures.
• Foreign-currency inflows from oil exports will strengthen the manat in nominal terms against the US dollar. Together with high inflation, this will produce a cumulative real effective appreciation of around 35% in 2008-09.
• The current account will post surpluses of between US$24bn and US$32bn annually, equivalent to around 53% of GDP, as a large trade surplus more than offsets the deficit on services and income.

Monthly review

• In early May the Turkmen president, Gurbanguly Berdymukhamedov, visited Azerbaijan, in the first visit to the country by a Turkmen head of state since 1996. The two sides discussed energy and economic co-operation issues.
• Mr Aliyev participated in a summit in Kiev in May to discuss proposals to bring Caspian oil to eastern Europe through the Odessa-Brody pipeline—a project that enjoys Western backing.
• The government has revised the state budget for 2008, raising revenue projections by 42% and the expenditure target by 30%.
• The IMF has urged the authorities to adjust their monetary and exchange-rate policies in order to counter the inflationary pressure arising from a loosening of fiscal policy.
• Several of Azerbaijan's banks are planning to tap the international capital markets, but the government has still not announced a timetable for the launch of its debut Eurobond.
• Year-on-year real GDP growth was 15% in January-April 2008, but year-on-year inflation now exceeds 20%.