EBRD, IMF and CBA upbeat on 2024 GDP growth of Azerbaijan Caliber.Az delves into drivers of country's burgeoning economy

The year 2023, as it draws to a close, was challenging for the global economy. EU, US and even China have been hit by recession and high inflation, and risks of financial bubble burst have increased. Unresolved military conflicts in Ukraine and the Middle East, sanctions and disrupted logistics and supply chains are expected to slow global economic growth next year, according to global analysts. However, our economy is expected to grow despite the negative external factors.

The Central Bank of Azerbaijan's (CBA) forecasts, published the day before, estimated real GDP growth at 3-3.5 per cent in 2024. Economic growth in our country is also mentioned in the reports of the European Bank for Reconstruction and Development (EBRD) and the International Monetary Fund (IMF).

In its forecast published recently, Bloomberg Economics said that "in 2024, the global economy will grow by only 2.7 per cent, down from 3.1 per cent this year". According to the agency, next year's global GDP growth could be the lowest (excluding the crisis years of 2009 and 2020) since the dot-com bubble collapse, which occurred in 1995-2001 amid a 400 per cent rise in NASDAQ-listed internet company shares.

"We expect a near-term recession in the US to begin around now and last several months. This downturn is a consequence of the lagged effect of the Fed's high-interest rates," say economists at Bloomberg Economics. - Similar problems in the UK and the European Union mean that 'developed economies will grow just 0.9 per cent by the end of 2024, down from 1.5 per cent this year'."

Bloomberg estimates that GDP is expected to slow in several developing countries, including China, where the continuing mortgage crisis is expected to be the main drag.

Under the current conditions, high volatility of hydrocarbon raw materials prices may remain next year, but their average level will be within the limits of this year's indicators. Therefore, Azerbaijan may rely on stable indicators of foreign trade and balance of payments, which are determinants of maintaining financial and monetary stability in our country.

"Based on the macroeconomic parameters presented together with the draft state budget for 2024, it is predicted that next year the country's economy will maintain a favourable macroeconomic environment, a surplus in the balance of payments and a stable exchange rate of the national currency," Vugar Gulmammadov, Chairman of the Chamber of Accounts of Azerbaijan, said recently.

CBA experts, who published data on the main directions of monetary policy for 2024 and forecasts of economic development of Azerbaijan a day earlier, are also optimistic: "In 2024, the real growth rate of the Azerbaijani economy is expected to be at the level of 3 to 3,5 per cent, including 5 to 5,5 per cent in the non-oil sphere.

In particular, it is reported that the growth of the real sector of our country's economy will continue depending on large-scale reconstruction works in liberated territories, positively stimulating economic growth. It should be recalled that in 2020-2022, about 6.6 billion manats ($3.8 billion) has been allocated from the budget to revive the Karabakh and Eastern Zangezur economic regions, and another 3.1 billion manats ($1.8 billion) is planned to be allocated this year. In 2024-2026 - during the second phase of reconstruction - up to 10.5 billion manats ($6.1 billion) of budget funds are planned to be attracted here, which will be an important incentive for the development of the non-oil sector of the economy.

"One of the main conditions for achieving the forecast economic growth will remain the maintenance of macroeconomic stability next year. In particular, inflation in the country is forecast at 5-5.5 per cent: the government's anti-inflationary measures and the slowdown in the impact of external factors (imported inflation) will bring price growth indicators closer to the medium-term targets (4±2 per cent)," the CBA said in a statement.

The central bank believes that certain risks to price stability will remain in 2024, including external factors, namely the dynamics of food prices on world markets, and inflationary trends in Azerbaijan's main foreign trade partners. In the context of the ongoing geopolitical tensions in the world, these external factors can be very volatile; in addition, certain risks may arise from sharp jumps in energy prices.

Nevertheless, the regulator's statement cites IMF forecasts that the average oil price in 2024 will be around $80 per barrel, which is quite comfortable for Azerbaijan. Moreover, according to the recently adopted law on the state budget for 2024, the revenue part was calculated based on the weighted average forecast oil price of $60 per barrel, i.e. this parameter was not increased, but remained the same as in the current year.

However, even taking into account the possible risks of falling prices in the energy market, the expectations of the government and the regulator, as well as the forecasts of international financial and credit organisations and leading rating agencies regarding the prospects for economic growth in Azerbaijan, are optimistic. In particular, the CBA estimates that next year's current account surplus will be $7-8 billion, and this forecast is based on the baseline scenario and amounts to up to 9-10 per cent of GDP expected next year.

Finally, even in the worst-case scenario, Azerbaijan has a very impressive financial "safety pool": for example, the country's strategic foreign exchange reserves (consisting of the Central Bank's gold and foreign exchange reserves, the assets of the State Oil Fund, and the treasury funds of the Ministry of Finance) grew by 16.6 per cent in the 11 months of the current year to $68.2 billion.

Another plus for the domestic economy next year is the recent decision by the CBA board to reduce the discount rate from 8.5 per cent to 8 per cent from December 21. This decision was based on the stabilisation of inflation expectations and oversupply in the foreign exchange market, and the regulator may ease monetary policy further in the future, helping banks and investors to inject money into the real economy.

At present, speculation about world oil prices or the rate of reduction of inflation in the coming year can be difficult, but on the whole, the projections for the development of the economic system look pretty good, which gives hope for economic growth.

In particular, even under a conservative scenario, the Ministry of Economy of Azerbaijan forecasts GDP growth in 2024 at the level of 2.4 per cent, which is generally not bad, especially in comparison with the dynamics of the current year. Azerbaijan's GDP growth in January-November 2023 was only 0.8 per cent.

The EBRD's recently published forecasts, according to which our country's GDP will grow by 2.5 per cent next year, prove the existence of positive trends: "Energy exports will continue to drive short-term growth, and the combination of stable prices and rising energy demand is expected to keep oil and gas revenues high. This should enable Azerbaijan to maintain current levels of public investment and spending.

In turn, IMF experts estimate the average growth of Azerbaijan's economy for 2025-2028 at 3.5 per cent per year, while next year it may reach 3.6 per cent and GDP will reach $79.7 billion. According to the IMF's forecasts, factors such as slowing inflation, relatively high oil and gas prices and an improving situation in the banking sector are working in the republic's favour.