The oil-rich republic's 4.4 percent growth target for this year, announced in its budget in November, could also be at risk as it assumes an average oil price of $90 a barrel. Oil fell below $49 on Monday.

Azerbaijan, however, has been less affected by neighbouring Russia's economic problems than some other former Soviet states such as Belarus because it does not rely on Russia as much for trade. Belarus has been forced to devalue its currency due to the plunge in the Russian rouble.

"Despite a strong decline in oil prices, the Azeri economy expanded by three percent last year, which was a result of the growth in the non-oil sector, which expanded by 7 percent," President Ilham Aliyev was quoted by Azeri state news agency Azertag as saying at a government meeting on Monday.

"Events and developments that we have observed in 2014, prove that this year will be very difficult for the world economy," Aliyev said.

"But thoughtful economic policy, diversification and unity between the country's leadership and people guarantee that this year will be successful for us," he added.

Economic growth has slowed dramatically since an oil-fuelled boom of 2003-2007, when gross domestic product expanded by an average of 21 percent a year. In 2013 it grew 5.8 percent.

The International Monetary Fund, which forecasts 3.5 percent growth in Azeri GDP this year, has urged Azerbaijan, situated between Russia and Iran, to reduce its reliance on oil as global energy prices fall.

President Aliyev said that total investment in the Azeri economy fell to $27 billion last year from $28 billion in 2013. He forecast total investment of more than $25 billion this year, with about $7 billion from foreign investors.

The country's biggest bank announced on Monday a $200-300 million debut Islamic bond issue as the predominantly Muslim country of 9 million seeks to develop an Islamic finance market.

Crude oil and condensate production in Azerbaijan fell to 38.4 million tonnes in the first 11 months of 2014 from 39.5 million tonnes in the same period in 2013, driven by declines at fields operated by British oil major BP.

Government officials have criticised BP for cutting output at the main Azeri, Chirag and Guneshli (ACG) oilfields, which the British company operates with its partner, Azeri state energy firm SOCAR.

Aliyev said annual inflation was 1.4 percent in 2014, down from 1.5 percent in 2013. The government forecasts 2.3 percent annual inflation in 2015.

 

(Reuters)