WB: Azerbaijan's economic output to return to pre-COVID-19 levels by late 2022

Azerbaijan’s economic recovery is expected to be gradual, with output returning to pre-COVID-19 levels only by end-2022, Report informs citing the World Bank (WB).

“The early launch of Azerbaijan’s vaccination initiative and significantly higher public post-conflict reconstruction spending suggest that the recovery may materialize faster than previously anticipated.

In 2021, an acceleration of domestic demand will support economic growth, but this will be conditional on an improved health situation and increased public spending. Higher oil prices are forecast to narrow the fiscal deficit to 2.5% from 6.5% a year earlier and help the current account return to surplus,” reads the WB report “Europe and Central Asia Economic Update, Spring 2021: Data, Digitalization, and Governance”.

According to the WB, beyond 2021, without major structural reforms, the pace of the economic revival is likely to be moderate owing to a protracted recovery in oil output and anticipated fiscal tightening (amid rising fiscal pressures).

“Inflation is projected to rise in the medium term as a recent administrative price hike passes through to prices more generally, and demand begins to recover. Once the government phases out measures to support the financial sector, some banks are likely to experience a deterioration of capital and profitability ratios,” the WB specialists say.

According to them, downside risks to this forecast will remain substantial in the medium term.

“The existing oil market equilibrium is fragile and largely depends on the OPEC+ agreements. In addition, the evolution of the pandemic is still uncertain and will depend on the speed of the vaccine rollout. Finally, regional geopolitical risks will remain elevated in the foreseeable future.”

Significant SOFAZ reserves—over 100 percent of GDP at end-2020—will help shield the economy from these risks.

“The longer the pandemic’s duration, the deeper and broader the impact, particularly on employment and wages in the services sector.

Azerbaijan’s recently announced 2030 national development vision outlines a renewed, long-run commitment to addressing systemic macroeconomic, structural, and governance challenges. Addressing these challenges could unlock new nonhydrocarbon sources of economic growth and achieve sustainable, resilient, and inclusive development,” reads the report.

According to WB forecasts, the average annual inflation in Azerbaijan in 2021 will increase to 3.9% from 2.7% in 2020. However, in 2022 it will decrease to 3.2%, and reach 3% in 2023.

The surplus of the balance of payments of Azerbaijan in 2021 is projected at 2.8% of GDP (in 2020 - a deficit of 1% of GDP), 3.9% of GDP in 2022, and 3.1% of GDP in 2023.