Adjusting to lower economic growth
Overview:
Azerbaijan has recorded spectacular rates of economic growth in recent times, even during the global financial crisis. However, with oil and gas production stabilising until the delayed start of Shah Deniz 2 the authorities must adjust to a world of lower economic growth, at least for the time being. Increases in oil and gas production and prices have led to large fiscal and current account surpluses. In turn the levels of FX reserves and the State Oil Fund have increased dramatically. Solid but unspectacular growth last year was led by non-oil GDP. Much of this has been driven by large public expenditure programs. However, inflation is high and rising. The central bank must certainly raise rates further to combat this. However, greater fiscal restraint by the government would also help restrain inflation.