Vusal Gasimli, Executive Director of the Center for Analysis of Economic Reforms and Communication (CAERC), stated that global shocks and the pandemic are negatively affecting the growth rate of aggregate demand and supply in Azerbaijan:

“Globally, the demand-supply spiral is trending downward. Nevertheless, real GDP growth in Azerbaijan is expected in the first quarter of this year. Non-oil industry, crop production, and information and communication services will be the main drivers of this growth. However, against the backdrop of a sharp decline in oil prices, the GDP deflator is also projected to fall in the first quarter. The GDP deflator, which has been declining since 2017, is expected to reach its lowest level this quarter. This will negatively impact the nominal value of goods and services produced domestically. A lower GDP deflator also affects the balance of payments, international investment position, and the level of savings.

In the current global economic crisis, macroeconomic policy choices are essentially between two options: preventing the pandemic and avoiding a recession. The Azerbaijani government has chosen a path that uses all available tools to control the pandemic while supporting market participants, thereby minimizing potential losses.

Some European countries, facing liquidity traps and near-zero policy rates, have been forced to mobilize financial resources through “helicopter money,” eurobonds, and “coronabonds.” Meanwhile, 80 developing countries rely on IMF support. The G20 has also allocated a 5-trillion-dollar fund to assist countries in managing the crisis. Of course, “free cheese is only in a trap.” Meanwhile, the rating agency Standard & Poor’s, considering Azerbaijan’s significant foreign exchange reserves, strong fiscal position, and low external debt, maintained the country’s international credit rating at “BB+.” If current account deficits or capital and financial account shortfalls arise under global shocks, the reserve assets will be sufficient to cover them. Both globally and domestically, economies will experience losses; the key issue is minimizing those losses, controlling external debt, and preparing for the post-coronavirus period.

It is also important to note that the slowdown in Azerbaijan’s supply growth is due not to the domestic business cycle but to external shocks. Once the impact of these shocks reaches its peak and begins to subside, Azerbaijan’s economy will resume development in line with its own business cycle. Even before the coronavirus crisis, global economic growth had already been slowing.

By combating the crisis with its own resources rather than relying on external debt or monetary easing, Azerbaijan is positioning itself for a stronger post-crisis recovery. According to Keynesian theory, government intervention during a crisis is necessary, provided that support programs are efficient and results-oriented. At the same time, the Ricardo-Barro effect suggests that debt-financed government spending increases future tax burdens to repay the debt. Considering both approaches, Azerbaijan is in a favorable position: the support provided to the economy today will not require citizens to repay it as taxes tomorrow. This is possible because Azerbaijan has established a social market model, with citizens at the center of government policy.”