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Azerbaijan’s Central Bank Forecasts Continued Growth in 2011

The Central Bank of Azerbaijan expects an even stronger economy in 2011, the bank said in a statement on monetary policy for the coming year.

The statement issued last week forecasts stable world prices for Azerbaijan's main exports of oil and gas in 2011. The statement also forecast an increase in oil revenue as well as additional foreign investments entering the country.

"The significant surplus in the balance of payments is forecast to continue with an even greater increase in Azerbaijan's strategic currency reserves.

The increase in the country's credit rating will help increase the flow of foreign capital into the economy. These are all fundamental factors that will influence the manat exchange rate and the money supply in 2011," said the CBA statement released on Dec. 30.

Azerbaijan's oil-driven economy had a trade surplus of $12.23 billion in the first 10 months of 2010, an increase of 42.5% over the previous year.

The Central Bank forecast continuing economic growth in 2011 with a "moderate" increase in domestic demand and gradual increase in foreign demand.

With the oil sector forecasted to be stable, growth is expected to come from the non-oil sector, driven primarily from increased domestic demand.

"The main factors behind growth rates in the non-oil sector include the single-digit increase in state spending and the gradual increase in non-oil exports. In these conditions, the gap between GDP potential and its actual level is expected to fall in 2011," the CBA statement said.

The Central Bank said that conservative growth in state spending in 2011 will be an important component of fiscal stability. Bank analysts note that with recent achievements in modernizing infrastructure in the country, now is the time for internal fiscal consolidation as well as for government spending in new areas of development. Those new areas include diversifying the economy, increasing export potential and developing human capital.

The statement noted that high oil revenues could bring the potential for inflation. It said that inflation in 2011 could be caused by increased domestic demand and a growth in external prices from partner countries and among world food markets.

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