EIU forecasts "more challenging" 3rd term for Aliyev

The EIU also said:

 

• Tensions with Armenia will remain high, owing to the long-running dispute over Nagorny Karabakh. Talks aimed at resolving the dispute have resumed, but a resolution is unlikely in the forecast period. 

• Relations with Turkey will remain strong over the forecast period. Azerbaijan will aim to maintain cordial relations with Russia, which will continue to be a key player in regional security.

 

• Public spending will be tighter in 2014-15 as the government seeks to manage the impact of slower growth in revenue from the oil sector.

 

• Diversification of the economy away from oil will proceed slowly, as a result of which the budget deficit, excluding transfers from the State Oil Fund of the Republic of Azerbaijan (SOFAZ), will remain large.

 

• The economy is forecast to grow at an annual average of 3.5% in 2014-18, much more slowly than during the boom period of 2000-08.

 

• Oil output is forecast to rise modestly in 2014-15, to a peak of around 900,000 barrels/day, and to decline gradually from 2016. Risks are oriented to the downside, as stabilisation of production will depend on strong investment in the giant Azeri-Chirag-Guneshli oilfield.

 

• The operating environment for non-oil companies will be difficult, owing to pervasive corruption and the presence of large formal and informal monopolies. Diversification will become an increasingly pressing policy priority.

 

• The manat will continue to be stable in nominal terms against the US dollar during 2014-18. High oil prices and a rise in foreign capital inflows will provide support to export revenue and to the currency.

 

• Annual average inflation will remain in single digits in 2014-18 as weaker domestic demand limits inflationary pressures. However, continuing large inflows of oil-related foreign exchange will prevent more rapid disinflation.

 

• The current account should stay in surplus throughout the forecast period, but will decline as a share of GDP. Imports of geological and construction services will rise in the final years of the forecast period as preparations for Shah Deniz II pick up speed.