Azerbaijan, Baku, Apr. 2 / Trend A.Badalova /
Trend interviewed Dev Kar, leading American economist at the Global Financial Integrity research group and former senior economist at the International Monetary Fund.
Trend : How do you estimate the country's current economic situation in the region?
Kar: Azerbaijan is a member of the Commonwealth of Independent States (CIS) which also includes Kazakhstan, Russia, and Turkmenistan. In addition, we may include Mongolia as part of the CIS for reasons of geography and similar economic structure. Azerbaijan has been growing strongly in recent years mainly because of its booming oil sector. Economic growth has afforded a significant reduction in poverty through fiscal and other macroeconomic policies.
Q: Azerbaijan has large reserves of hydrocarbon raw materials. The country's energy infrastructure is developed. Now the country is actively working to develop non-oil sector. How do you think, how attractive is non-oil sector in Azerbaijan for the foreign investors?
A: Diversification of an economy away from over-dependence on one commodity (such as oil) is very important if policymakers hope to make the economy more resilient to commodity price shocks. Such a strategy should involve a fiscal policy that utilizes oil revenues to generate investments in say, education of its workforce and infrastructure development. A comprehensive policy to attract foreign direct investment in the non-oil sector is also necessary. While tourism is a viable service sector for development, the government needs to explore other opportunities as well.
Economic reform is essential to diversify the economy away from over dependence on oil and make it more resilient to external shocks. However, there are many factors which foreign investors take into account before making an investment decision. The government, for its part, needs to make sure that foreign direct investment is governed by a transparent set of rules for foreign companies.
Q: Azerbaijan has successfully overcome the global financial crisis and maintained a high rate of economic development. In your opinion what are the main reasons for such positive results?
A: The main reasons are booming oil exports, related investments in that sector and an underdeveloped financial system with low exposure to foreign loans so that Azerbaijani banks suffered no spillover or contagion effects due to the global financial crisis. However, there is an urgent need to diversify the economy. The government is moving towards that objective but a lot remains to be accomplished.
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