BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 5/1999:
Azerbaijan: Recent Economic Developments and Policy Issues in Sustainability of Growth
Rupinder Singh ()
and Juhani Laurila ()
Abstract: The macro economic stabilisation in Azerbaijan has been
successful. Following cessation of conflict with Armenia, and decline of
GDP by 60 per cent from 1990 to 1995, the government in effect implemented
a big-bang reform process in 1995. The inflation rate has now declined to
the lowest rate of any transition country and important reforms in the
monetary-fiscal mix have been undertaken. The second plank of first
generation reforms, liberalisation, has also been successfully implemented
with liberalisation of prices, the trade and foreign exchange regimes and
virtual completion of small-scale privatisation, although the onset of the
Russian crisis in 1998 has impacted negatively both internal and external
balances. The paper presents the current economic picture for Azerbaijan
and then assesses economic policy issues facing the country. Azerbaijan is
well endowed with natural resources, particularly oil but also gas. The
second part of the paper considers the question by focussing on policy
issues related to the potential flow of oil-based monies into Azerbaijan.
The possibility of the “Dutch Disease” syndrome impacting Azerbaijan
through a rising real exchange rate on the non-oil sector is not considered
to be a problem at present but is expected to become a policy concern in
the medium- to long term. Structural reforms in public finance to deal with
expected surpluses are lagging and are necessary in the next phase of the
transition of Azerbaijan. Moreover, significant reforms are required in
banking – privatisation, improvement in regulation and supervision and in
the implementation of supporting legal rights, given the current lack of
financial intermediation.
Keywords: Azerbaijan; economic development; oil; Dutch Disease; transition economies; (follow links to similar papers)
JEL-Codes: E60; P20; P30; (follow links to similar papers)
53 pages, September 14, 1999
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