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EBRD: Global financial crisis impact will increasingly be felt in Azerbaijan

26 November 2008 07:13 (UTC +04:00)

Baku. Nijat Mustafayev â€“ APA-Economics. The EBRD said growth in the EBRD region was likely to fall sharply in 2009 in the face of global economic slowdown and financial market turbulence and it urged the countries where it invests to place a high priority on the stabilisation of their banking systems.

The EBRDâ€™s Transition Report 2008, which tracks the economic performance and progress on reforms across EBRD countries, predicted overall growth would fall to 6.3 per cent in 2008 from 7.5 per cent in 2007 and drop further to 3.0 per cent in 2009.

The EBRDâ€™s chief economist Erik Berglof said continued growth in the regionâ€™s economy in the early stages of the global crisis was a testament to remarkable reform achievements. But the region now faced a much less benign international environment and outflows of capital from emerging markets, risk aversion and the recession in key OECD economies would test the resilience of transition countries.

Mr Berglof added the rapid slowdown would mitigate the threat of inflation, while stabilisation of banking systems would become the key priority for governments across the region. â€œStabilisation measures will need to be coordinated with other countries â€“ both in western Europe and in other transition countries â€“ taking account of the inter-linking ownership structures in the regionâ€™s financial system,â€ he said.

The EBRD sees growth in Central Europe and the Baltics (CEB) slowing to 4.3 per cent in 2008 from 6.3 per cent last year and easing further to 2.2 per cent in 2009. Growth in south-eastern Europe is seen rising to 6.5 per cent this year from 6.2 per cent in 2007 and then falling back to 3.1 per cent next year. Growth in the CIS and Mongolia is predicted to slow to 7.3 per cent this year from 8.5 per cent and to drop to 3.4 per cent in 2009.

In Azerbaijan the economy is expected to grow 20.0 per cent in 2008 after growth of 23.4 per cent in 2007 and grow 15.0 per cent in 2009.

EBRD senior economist Anita Taci said: â€œAzerbaijan retains the title of the fastest growing economy in the EBRD region, and the top reformer of the year, but the impact of the global financial crisis will increasingly be felt. The sources for foreign investment will become much scarcer and Azerbaijan’s economic growth will be affected from lower export demand and falling prices for oil and gas.â€

The Transition Report said there was a risk of even slower growth in the region next year if external funding suddenly fell away. â€œIn particular, some countries continue to run excessive current account deficits combined with high foreign currency debt and are therefore prone to significant output reductions if capital inflows fall off rapidly,â€ it said.

In a separate chapter on the impact of the global credit crisis on the region, the report said the deterioration in the overall financing environment could now result in a lasting and substantial slowdown in credit expansion. â€œIf so, the consequences for the overall growth of economies in the transition region will undoubtedly be severe,â€ it warned.

However, the report also noted that several factors could help the region avoid this worsening scenario or at least help it cope with the effects. It pointed out that government debt levels had been falling continuously since 2000, giving more policy flexibility should greater policy intervention be required. Business conditions had generally improved in recent years and labour markets were relatively flexible, which would allow for a faster recovery to potential growth.

The report also noted the continued progress over the past year in market-oriented reforms, especially in south-eastern Europe and in parts of the Commonwealth of Independent states and Mongolia.

Some of the least reformed countries such as Belarus and Turkmenistan have taken positive steps to open up markets and reduce the role of the state, while reforms have been particularly significant in EU candidate and potential candidate countries in the western Balkans. Given the strong link between reforms and growth, this bodes well for the regionâ€™s resilience to short-term fluctuations and prospects for long-term growth.