Country Report Azerbaijan March 2009

Outlook for 2009-10

• Having been re-elected in October 2008, the president, Ilham Aliyev, is likely to face a more testing second term of office, given the much weaker external economic environment, and, in particular, sharply lower oil prices.
• A constitutional referendum in March 2009 is likely to remove the two-term limit on the presidency. Opposition parties' attempts to defeat the referendum are unlikely to be successful, given their lack of grassroots support.
• Competition between the EU and Russia for Azerbaijani energy resources, particularly its gas, will intensify.
• Slower real GDP and money supply growth, and falling commodity prices, will contribute to disinflation in 2009. Weaker domestic demand will help to slow the rate of price rises to an average annual rate of around 8% in 2009-10.
• The manat is forecast to depreciate in nominal terms against the US dollar in 2009-10. Higher inflation than in the economies of Azerbaijan's main trading partners will still result in the manat strengthening in real effective terms.
• Real GDP growth is expected to slow to just 2.5% in 2009 as oil prices plummet, before picking up modestly in 2010, to 4.5%. The downside risks to this forecast are considerable, given the economy's reliance on oil.
• The current-account surplus is expected to contract from an estimated US$16.9bn in 2008 to US$2.4bn in 2009, owing to the collapse in oil prices. It should pick up to around US$7.5bn in 2010 as oil prices recover slightly.

Monthly review

• The murder of a senior military official and claims by the authorities to have detained more than 24 members of a militant network have exposed tensions underlying the country's apparent political stability.
• The National Bank of Azerbaijan (NBA, the central bank) has cut the refinancing rate from 8% to 5% and reduced reserve requirements in an attempt to ease liquidity constraints on the country's banks.
• The NBA has denied that it has any plans to devalue the manat in the short term, but its exchange-rate policy is likely to prove unsustainable in the longer term, particularly given the expected weakening of foreign-exchange inflows.
• Official data show that real GDP contracted by 2.6% year on year in January 2009—the first time that economic growth has turned negative since the mid-1990s—and that consumer prices dropped by 0.6% month on month.
• The authorities have increased the one-off payment that employers must make to hire a foreign worker, presumably owing to concerns that local unemployment is set to rise.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52