Our Analytics 9 july — 13:05

Figures say something else: Oil is Azerbaijan's yesterday (Our comment)

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BY MAMMAD EFENDIYEV, ECONOMICS SECTION

In recent years, the authorities have increasingly focused on the growth of the non-oil sector of Azerbaijan, which, according to their calculations, ensures the growth of the economy as a whole. Conversely, supporters of opposition circles are doubtful of this approach, insisting on the continued prevalence of the oil sector. So, who is right? Let us try to answer this question by comparing the findings of the most authoritative domestic and international institutions.

Last year, real GDP growth in Azerbaijan was 1.4% against the expected 2%. This is said in the report of the Accounts Chamber on the implementation of the state budget for 2018. Very high growth rates were recorded in the transport and warehousing sectors (37.4%), non-oil sector (over 24%), trade (over 22%), agriculture (over 18%). In the field of tourism, communications and other sectors of the economy, the growth amounted to 10-13%. And the only sector that seriously slowed down GDP growth was construction, where the decline was 9%. In monetary terms, the country's GDP amounted to 79.8 billion manats last year, which is almost 15% higher than the forecast. At the same time, the main share of GDP was taken by the non-oil sector - 46.89 billion manats, while the share of the oil sector was 32.9 billion manats. And that despite the fact that this figure exceeded last year's forecast by 51.2%.

You can talk for a long time about the structure of GDP over the past year, about the share of a particular industry in it. But the overall picture is clear. According to the Accounts Chamber, the share of the non-oil sector in the economic pie significantly exceeds the share of the oil sector. And the forecasts of the Minister of Economy, Shahin Mustafayev once again show that the growth rate of the non-oil sector of the economy has a strong upward trend. According to him, the latest calculations of the ministry give grounds to assert that this year the GDP growth will be 3.2%. At the same time, the growth of the non-oil sector will be 3.4%. For comparison, we note that in 2018, Azerbaijan's GDP grew as a whole by 1.4%, including by 1.8% in the non-oil sector and by 0.6% in the oil sector.

Shahin Mustafayev

Unfortunately, oppositional experts do not provide such abundant information, with the help of which one could indeed refute or suspect the government figures of something. But there are very reputable international institutions, in the conclusions of which there is no doubt. Among them is the International Monetary Fund, whose specialists monitor the economic situation of each country with the same care as the global one.

According to the head of the IMF mission in Azerbaijan, Natalia Tamirisa, the country's economy is gradually recovering from the shocks experienced, and a large number of social measures have been implemented in recent months. According to her forecasts, as a result of this year, in general, GDP growth in Azerbaijan is projected at 2.7%, and in subsequent years, economic growth will be in the range of 2.1% -2.5%. At the same time, the average annual inflation in the country in the current and next year will amount to an average of 3.3% per year. In short, with the main economic indicators, forecasts are normal. What role does the IMF allocate the oil and non-oil sectors?

Tamirisa believes that the oil sector should grow to 2.5% this year. This is due to the fact that this year hydrocarbon production will increase, which is associated with the beginning of the operation of the Southern Gas Corridor. But then this figure will decrease to 1.2% as oil production decreases. The fact is that the supply of Azerbaijani gas to Turkey in the framework of the project began in the summer of 2018, and the European consumer will receive 10 billion cubic metres in early 2020. Exporting 16 billion cubic metres of gas per year will, of course, lead to an increase in the oil sector. But the continued decline in oil production in the future will cause a decline in this industry - oil still costs more.

And the growth of the non-oil sector of Azerbaijan in 2019-2020, the head of the IMF mission forecasts at about 2.8%. In her opinion, the recent increase in wages, pensions and social assistance, as well as measures to reduce the tax and debt burden will have a positive impact on the growth of the non-oil sector over the next two years.

What happens? Only a small percentage fraction differentiate the levels of growth of the oil and non-oil sectors of the country, says the IMF in its short-term forecasts. There is no reason to doubt this, especially when these figures generally coincide with government forecasts. And this means only one thing: speaking of the non-oil sector, the government does not forget about the oil segment of our economy. Yes, the development of the non-oil sector at a higher rate does not mean at all that the oil sector is being relegated to the background. No, we need oil, this is the main source of our foreign currency earnings, accumulated in the Oil Fund.

But oil is an exhaustible resource, with all the respect for it, it is necessary to think about tomorrow, when dividends from it will become depleted. It is then that the non-oil sector, to which special attention is paid today, should take an empty place in the economy. In this case, our government resembles a caring grandparent, who equally loves both his child and grandchild. He is well aware that his child today is the breadwinner, but tomorrow this responsibility will be placed on his grandchild. How can one sacrifice one to please another? Therefore, we should, we think, generally abandon this comparison. As for official statistics, which focuses on the growth of the non-oil sector, there is nothing surprising here either. Thus, the government informs the public about what it is doing, so that we are confident in the future...

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