Adjusting to more normal rates of growth
Overview:
After a massive growth surge in recent years relating to a large increase in oil and gas production, Azerbaijan will have to adjust to more modest economic expansion until the next stage of Shah Deniz comes on-stream. Its existing hydrocarbon production will, however, continue to deliver huge current account and fiscal surpluses assuming prices stay high. The authorities are saving much of this oil and gas windfall by diverting it into the Oil Fund. This is important for future generations and for diversification away from over-dependence on the oil and gas sector as long as the money is ultimately well spent. It aids macroeconomic stability as well. However, Azerbaijan’s record on fighting inflation is poor. Higher interest rates are needed even after the central bank’s recent 100bps rate hike.