Investor Presentaiton
TRANSITION REPORT
2021-22
SYSTEM UPGRADE:
DELIVERING THE
DIGITAL DIVIDEND
COUNTRY ASSESSMENTS: AZERBAIJAN
02
Covid-19: macroeconomic implications
The economic recovery in 2021 is being driven by the non-oil and gas sectors. After
being hit by a triple shock - the Covid-19 pandemic, a slump in oil prices and the flare-
up of the conflict over Nagorno-Karabakh - Azerbaijan's gross domestic product (GDP)
declined by 4.3 per cent in 2020. A strong contraction in the oil and gas sector of 7.2 per
cent was balanced by a softer decline in the rest of the economy, which was helped by the
government's extensive support package. Non-hydrocarbon sectors started to recover in
2021, posting 6.2 per cent year-on-year growth from January to September 2021. However,
overall GDP growth, estimated at 4.8 per cent year-on-year in the same period, continues
to be weighed down by lower oil and gas production on the back of the Organization of the
Petroleum Exporting Countries (OPEC) oil production cut. Exports, which are dominated by
hydrocarbons, remained at the 2020 level in real terms from January to August 2021 (year-
on-year). Monetary policy was loosened in 2020 as demand remained tightly constrained
and inflation low. However, in spite of currency stability, increasing global price pressures
are pushing inflation from an average of 2.8 per cent in 2020 up to 8.5 per cent in September
2021.
Large assets of the State Oil Fund of Azerbaijan (SOFAZ) helped to weather the
crisis. Lower oil revenues on the back of the price slump and the production decline turned
external and fiscal surpluses to deficits in 2020. The current account balance turned from
a surplus of 9.1 per cent of GDP in 2019 to a small deficit of 0.5 per cent in 2020, while the
fiscal balance went from a surplus of 9.1 per cent in 2019 to a deficit of 6.5 per cent in 2020.
However, Azerbaijan's public debt remained low at 23.4 per cent of GDP in 2020 despite
the ensuing gaps, as funding needs were met domestically by drawing on the large assets
of SOFAZ. International reserves remained relatively stable, at US$ 7.0 billion in September
2021, covering almost eight months of imports.
Recovery is expected to continue but risks remain significant. Rising demand for, and
higher prices of, oil, supported by an expected gradual increase of oil quotas in the coming
months, will strengthen the overall economic performance in the second half of 2021.
The non-oil and gas economy is expected to stay on the recovery path. On this basis, the
economy is forecast to grow by 4.0 per cent in 2021 and 3.2 per cent in 2022. Numerous risks
remain, related to structural weaknesses of the economy, geopolitical developments, the
speed of vaccinations and possible volatility in commodity prices.
Policy response to Covid-19
The authorities implemented a crisis response package of economic and social
support in 2020. The package was worth in excess of 4.6 per cent of GDP. It included wage
subsidies, support for micro entrepreneurs, extended payment deadlines for various taxes,
loans to businesses on preferential terms, state guarantees and subsidised interest rates on
the existing loan portfolios of small and medium-sized enterprises (SMEs). The Central Bank
of Azerbaijan relaxed capital requirements and risk weights on mortgage loans, introduced
a moratorium on late fees and interest rate penalties and suspended inspections of credit
institutions. The full deposit insurance scheme was once again extended in December
2020, until April 2021. The upper limit of the insured amount was increased and, to support
SMEs, deposits of individual entrepreneurs to a certain threshold have been included in
the scheme. Comprehensive social assistance measures bolstered the overall economic
support programme.
Efforts to support the economy continue in 2021. The 2021 budget allocated another
AZN 261 million (0.3 per cent of GDP) to fight the Covid-19 pandemic. Benefits to businesses
have been expanded and additional social assistance has been provided. At the beginning of
the year, the Central Bank of Azerbaijan lifted some measures introduced in 2020, including
resuming inspections of credit institutions and reinstating additional capital requirements
for consumer loans.
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