Country Report Azerbaijan September 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 in office, given the much weaker external economic environment, particularly the lower price of oil since end-2008.
• There will be an intensification of competition between the EU and Russia for Azerbaijani energy resources.
• Real GDP growth is expected to slow to 3% in 2009 as oil prices remain below the record highs of mid-2008, before picking up to 4.5% in 2010. There are downside risks to this forecast, owing to the economy's reliance on oil.
• Slower real GDP and money supply growth, along with falling commodity prices, will contribute to disinflation in 2009, before higher energy prices and a rebound in demand push consumer prices up again in 2010.
• The Economist Intelligence Unit expects the authorities to have to allow the manat to depreciate in nominal terms against the US dollar from the second half of 2009, owing to the likely sharp drop in foreign-exchange inflows.
• The current-account surplus is expected to fall from US$16.5bn in 2008 to US$6.9bn in 2009, owing to the fall in oil prices. It should pick up to around US$11bn in 2010 as oil prices recover slightly.

Monthly review

• The Council of Europe and human rights organisations have criticised Azerbaijan's human rights record, following the death in prison of Novruzali Mammadov, a defender of the cultural rights of the Talysh people.
• Azerbaijan has set out the conditions for the reopening of its border with Armenia, which include the return of five of the seven regions surrounding Nagorny Karabakh.
• Expenditure of the State Oil Fund of the Republic of Azerbaijan (SOFAZ) increased by 91.2% year on year in January-June as the authorities diverted SOFAZ's assets to support the government's spending commitments.
• The authorities will select a company to develop the plans for the "Regional Development Programme of Greater Baku" in September. Trade, health and entertainment complexes will be constructed under the programme.
• Real GDP growth slowed to 2.7% year on year in January-July 2009, a marked deterioration compared with the year-earlier period. Industry and investment remained sluggish.
• The current-account surplus totalled US$1.79bn in the first quarter of 2009, a 51% year-on-year reduction. The 64% fall in the trade surplus was a primary driver behind the fall of the current-account surplus.

Source: Country Report