Higher oil and gas prices to support fiscal balance surplus in Azerbaijan

JULY 23, 2022

Higher oil and gas prices will support fiscal balance surplus in Azerbaijan, Trend reports with reference to the World Bank (WB). The Bank says in its report that economic growth is currently forecast at 2.7 percent in 2022.

“In the medium term, assuming a stabilization of the geopolitical situation, growth is projected to average at 2.4 percent during 2022-24, close to its potential, as oil and gas production stabilizes and the non-energy sectors face headwinds from low investment levels, subdued agriculture yields (due to still stressed water supplies) and remaining spillover effects from regional supply chain disruptions. On the demand side, consumption will remain the principal driver of growth in 2022, as there is still some pent-up demand accumulated from 2020 and early 2021. Investment is expected to remain subdued with public investment stable and private investment anemic amid persisting structural challenges,” reads the report.

WB experts believe that external demand is likely to moderate, as growth in major trading partners declines.

“The external balance is expected to record a sizable surplus in the medium-term, supported by high energy prices. Imports are projected to grow in 2022, in line with the continued recovery in domestic demand, and moderate in the medium term as growth slows. The fiscal balance is estimated to be in surplus in the medium term, averaging at 4.7 percent of GDP, supported by higher oil and gas prices even as spending remains elevated. The negative impact on poverty in 2022 is expected to be amplified by higher inflation and reduced remittances from Russia. Even though these remittances accounted for only about 1 percent of GDP in 2021, they disproportionally benefit the poor, especially those in small towns and rural areas. This forecast is subject to uncertainty given the evolving global and regional environment, with elevated downside risks around protracted war and disruption to global commodity markets,” the report says.