IMF Assessment on Azerbaijan Economy

IMF Assessment on Azerbaijan Economy

Azerbaijan has to reconsider scope of monetary policy

The International Monetary Fund (IMF) recommends Azerbaijan reconsiders the scope of monetary policy, deputy director of the IMF Middle East and Central Asia Department Nadeem Ilahi said at a press conference in Baku on May, 2, 2012.

“Monetary policy may be toughened in case of pressure in terms of demand,” he said. “However, the existing tools are limited and require strengthening. The mission recommends redoubling efforts to develop a new framework for monetary policy to mitigate the volatility of inflation. It also urges official bodies to take active efforts to intensify the markets of debt obligations and capital and to improve the policy of disseminating the information.”

He said that the IMF mission held discussions with the Central Bank.

“Some work must be conducted to reduce inflation, to enhance these tools to reduce the impact of state expenditure as well as external factors such as food prices on the world markets and so on. In this area we are working with the Central Bank.”

He added that it is important for Azerbaijan to pass from monetary policy, based on the binding of the national currency to the dollar, to the monetary policy based on an interest rate corridor.

“For example, Russia has also experienced such a transition,” he said. “We have discussed this experience with the Azerbaijani Central Bank. Russia’s experience may be used in Azerbaijan. A monetary policy framework based on the interest rate corridor can allow regulating inflation more actively.”

He said that the IMF will continue rendering technical assistance in this area.

The fund has begun lending since 1995. Until now, the IMF has allocated loans to Azerbaijan within six programmes. Azerbaijan will continue repaying the loans previously borrowed from the fund until 2013.

For seven years the Azerbaijani government has been cooperating with the IMF at the level of consultations within Article IV, so the prospects for cooperation on a programme basis are virtually not touched upon during the visits.

The IMF Permanent Mission began functioning in Azerbaijan in 1993, but cooperation with the government begun in 1992. However, in 2009 the IMF decided to withdraw the head of the fund’s Azerbaijani office and reduce its staff in the country. Today, the IMF Baku office is managed by the regional office for Central Asia and Caucasus.

Crisis in Europe will not have direct impact on Azerbaijan’s economy

Azerbaijan’s economy is stable and resistant to the impact of the economic crisis in Europe- said Nadeem Ilahi.

“Impact of this crisis on Azerbaijan will not be serious as trade and economic relations with Europe are not too strong,” Ilahi said.

He said the IMF does not expect a direct impact of the European crisis to affect the economic situation in Azerbaijan.

“The 2008 crisis indirectly affected Azerbaijan. It had a great impact on the Russian economy and through it on Azerbaijan, on world oil prices and so on. Azerbaijan’s economy is ready for an indirect impact and serious consequences are not expected since the Central Bank of Azerbaijan and the State Oil Fund has sufficient reserves and the financial situation in the country is stable. We do not expect a direct impact,” Ilahi said.

The IMF mission has been in the country since April 24. Discussions have been underway on the macroeconomic trends in Azerbaijan to assess the short and medium term objectives of the government on the development prospects of the economy. This is necessary for determining priorities of discussions under item IV of the IMF agreement, consultations within which will be held in the autumn.

IMF sees no serious threat to banking sector of Azerbaijan

Assessment of the Azerbaijani financial system will be implemented at the end of this year to early next year in the frame of the planned renovation of the joint programme of the International Monetary Fund and World Bank to assess the stability of the financial sector of the country, the added Nadeem Ilahi.

“The study will involve experts from both organisations. Discussion with the Central Bank of Azerbaijan, private banks and with the government of the country will be held. This evaluation can be a good base for reform in this area,” Ilahi said.

Ilahi noted that the mission also discussed the problems in the banking system with the CBA.

“We continue to recommend professional regulation of the banking sector to the CBA. Regular monitoring is also required. This area is a priority for the government today and we see no serious issues that can create problems for the system,” Ilahi said.

The IMF and World Bank conducted the first evaluation within this programme in 2003. After the first evaluation the laws for banks, the National Bank and several regulations were adopted. The adoption of these laws eliminated deficiencies identified in the FSAP assessment on the first round.

The WB and IMF experts conducted stress tests within the Azerbaijani financial sector assessment programme and found they revealed a high capacity of the banking system to withstand the risks to reduce the total indices. They showed that if the indices reduce by 50-70 per cent, the banking system will not fall to a zero level and its assets will exceed liabilities. This is a very good index.



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