Azerbaijan, slashing forecast, says economy to shrink 2.8 pct this year

The government's optimistic forecast had been out of step with international financial organisations, which were predicting a sharp slowdown because of the effect of low world prices for oil and gas, Azerbaijan's main exports.

The Azeri economy ministry, in a written response to Reuters questions, said difficult economic and geopolitical processes, as well as weakening currencies in countries with which Azerbaijan trades, had a negative impact on the economy.

"That's why this forecast (of 1.8 percent) has been revised and a contraction of 2.8 percent is now projected by the end of 2016," the ministry said in its emailed comments.

Explaining the need for the revision, the ministry said: "The growth at 1.8 percent was projected in 2015, when the International Monetary Fund had been projecting the oil price at $64 per barrel."

Azeri Light, the grade of crude oil produced by Azerbaijan, traded at $52.07 a barrel as of close of trade on Thursday.

Oil and gas account for about 75 percent of state revenues and 45 percent of gross domestic product, so the slump in crude prices since mid-2014 has hit the economy hard.

Azerbaijan has so far responded by cutting the base oil price assumed in the budget for this year to $25 per barrel, and moved the currency into a managed float, easing pressure on foreign exchange reserves.

The country's central bank raised its refinancing rate to 15 percent from 9.5 percent in September, at a time when the country's manat currency is under heavy pressure. The rate hike was the second in little more than a month. In early August it raised the rate to 9.5 percent from 7 percent.

Some commercial banks had halted or limited sales of hard currency to $500 per person in recent weeks, raising fears of another devaluation.