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AZERBAIJAN:

ECONOMIC IMPACT AND RESPONSE TO THE GLOBAL

ECONOMIC CRISIS

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PRESENTATION OVERVIEW

GOAJ RESPONSE

IMPACT OF THE CRISIS ON AZERBAIJAN

USAID RESPONSE

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Country Background

• Highest GDP growth rates in the world in recent years:

2006 - 30.5%

2007 - 23.4%

2008 – 11.6%

• Primary Engine: Oil, Oil, Oil!.....but strong growth from non-oil sector as well

• Official reserves exceeded $5 billion in May

As a major oil producer, Azerbaijan is in better condition to withstand the crisis

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Country Background

• Ironically, Azerbaijan also shielded from full impact of crisis because:

its underdeveloped capital markets low dependency of domestic banks on "hot"

capital inflows

• Despite strong position, no country is immune:

growth will slow down significantly in 2009 to 4-6% unorthodox revenue collections, threatening businesses liquidity impact affecting international loans and liquidity

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GOAJ Response

• Azerbaijan National Bank (Central Bank) took following steps since August 2008:

Reduced reserve requirements from 12% to 0.5%;

Lowered discount rate from 15% to 3%

Provided liquidity to a few banks that were beginning to experience difficulties

Made strong statements that it is ready to assist banks facing short-term liquidity problems

Ministry of Finance injected additional capital in the largest state-owned bank, thus increasing system liquidity

GOAJ hopes that these steps that will support banks and limit the need for a sharp contraction in the availability of credit for the domestic economy.

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USAID Response

• Under Trade and Investment Reform Project, developed partial equilibrium economic model to assess impact on economic variables on overall economy. Based on model, provided assistance to GOAJ to assess impact of tax revenues and most effective responses

• Public Expenditure Program assisting GOAJ on evaluating public expenditure priorities, critical at a time of revenue short falls

• Financial Stability Program assisting participating banks on risk management

• Private Sector Competitiveness Enhancement Program working with participating banks in new trade finance loan products to more specifically meet SME demands