IMF recommends support to Azerbaijan’s economy until sustainable recovery

Over the longer term, fiscal policy in Azerbaijan needs to shift to gradual and growth-friendly consolidation, Report informs referring to a report by the International Monetary Fund (IMF) following consultations with the Azerbaijani government under Article IV of the IMF’s Articles of Agreement.

“Given the projected decline in oil resources, oil wealth needs to be shared with future generations to ensure intergenerational equity. Improvements in the efficiency of public spending, generalized subsidies, public employment, and taxation could support fiscal consolidation,” reads the report.

Adequate and well-targeted social spending needs to protect the most vulnerable and improve inclusiveness and productivity, according to IMF analysts.

“The reintroduction of the fiscal rule, and improvements in public financial management and reporting, alongside strengthened fiscal risk and SOE oversight and governance, would help underpin a sustainable and credible fiscal policy course,” the IMF noted.

In response to the COVID-19 pandemic, the authorities suspended the fiscal rule and rolled out a substantial fiscal package.

“Allowing the fiscal balance to move from a surplus to deficit in 2020-21 was appropriate, given the severity of the shocks and the need to fight COVID-19 and mitigate the adverse impact on the population and businesses,” reads the report.

“In the near term, the priority is to defeat COVID-19 and support the economy until the recovery is firmly underway. Fiscal policy would need to remain flexible in the uncertain environment, and, if downside risks were to materialize, automatic stabilizers should be allowed to operate, and additional, targeted relief should be provided as needed.”