Azerbaijan, Baku, April 23 / Trend A.Akhundov /
Despite the Azerbaijani central bank's goal of reducing inflation to 7-7.5 percent in 2012 and 2013, various factors could take inflation to 9.0 percent in 2012 before it subsequently recedes to 8.5 percent in 2013, Asian Development Outlook 2012 by the Asian Development Bank (ADB) says.
In 2011, the consumer price index rose by 7.9 percent, in 2010 - 5.7 percent, in the first quarter of this year inflation stood at 3.1 percent.
"Strong domestic demand fueled by oil income, rising public sector consumption (including
planned government salary increases), and expanded domestic credit to the economy may heighten inflationary pressures in 2012. The completion of grain-storage and improved food-processing facilities should, however, reduce food imports, helping moderate inflation in 2013," the report says.
The budget envisages a deficit of 1.3 percent of GDP in 2012, as total government spending is planned to rise by 10 percent, while revenue is forecast to grow by only 4 percent, based on a very conservative assumption for oil prices ($80 per barrel). Revenue, including SOFAZ transfers, is forecast at 37 percent of GDP in 2012.
Higher petroleum prices on the other hand could allow for even steeper increases in salaries and pensions in 2012, although a sharp fiscal expansion risks overheating the economy and stoking inflation," the report says.
Monetary policy will continue to focus on restraining inflation.
"The central bank plans to improve prudential and capital-adequacy control, as well as risk management, while strengthening the interbank market. Consolidating existing, small private banks and privatizing the state-owned International bank of Azerbaijan (the country's largest bank) should foster a more competitive environment and cut banking costs," the report says.