BAKU, Azerbaijan, Feb.19. Risk-based supervision, adoption of Basel III will strengthen Azerbaijan’s financial stability, said Anna Bordon, the International Monetary Fund (IMF) mission head to Azerbaijan, Trend reports.
“Looking ahead, GDP in Azerbaijan is expected to grow at 2.1 percent in 2026, amid continued weakness in oil and gas production and some acceleration of non-oil GDP growth, before moderating to 2 ½ percent in the medium term. Inflation is projected to fall to 5.0 percent by end-2026 and to 4.0 percent by end-2027, assuming the unwinding of external inflationary pressures and continued fiscal consolidation. The external position is expected to weaken, with shrinking trade surpluses due to declining oil production. However, the current account balance is still projected to remain positive in 2026-27. The combined CBA and SOFAZ reserves will continue to grow but at a slower pace. Risks to the outlook remain broadly balanced, but external uncertainty is high,” she noted upon completion of the mission visit to Azerbaijan during February 4-17.
Bordon went on to add that the medium-term fiscal consolidation is appropriate and will ensure intergenerational equity and support external sustainability.
“A clear and comprehensive strategy based on identifying concrete revenue and expenditure measures will enhance the credibility of fiscal consolidation. Efforts to improve SOE profitability and reduce their subsidies, rationalize tax incentives, and strengthen tax administration and compliance should continue.
While inflation is projected to fall, close monitoring of risks to inflation and responding to inflation surprises will be important, given elevated external uncertainty and still developing monetary policy passthrough. The interbank market rates remain close to the policy rate, reflecting successful management of excess liquidity by the CBA. Material improvement in the passthrough to the broader economy will require further development of a risk-free yield curve, and continuing progress in addressing long-standing structural issues such as dollarization, high operating costs, and low competition in the banking sector,” he added.
The IMF mission head believes that maintaining the current countercyclical capital buffer calibration is appropriate, given the slowdown in credit growth, while the implementation of the liquidity coverage ratio and the planned introduction of the net stable funding ratio will support the resilience of the banking sector.
“The recent adoption of risk-based supervision will strengthen prudential oversight and, along with the gradual adoption of Basel III and the ongoing enhancements to the financial safety net, will strengthen financial stability and further increase the public confidence in the banking sector,” she added.