Page 22 - Caucasus Outlook 2023

2.3.2 External environment
Being a major hydrocarbon exporting country, Azerbaijan posted a
significant current account surplus equal to 22.4% of GDP in the first
quarter of the year, because of the high oil prices. The country had a
current account surplus of $6378.10mn – a record high number – in
2Q22. According to the Asian Development Bank, it will benefit from
higher oil and gas exports and reach 21.2% in 2023. Meanwhile the
EBRD forecasted an even higher surplus of 31.7%, while the IMF
forecast 31.4%. According to the EBRD, the current account surplus will
be driven by high demand for alternative gas supplies on the European
market and facilitated by the Trans Adriatic Pipeline, which was
completed in 2020.

2.3.2 Inflation and monetary policy
Inflation increased to 12.9% y/y in January-June 2022, up from 4.3% in
the same period in 2021. Rising global food and energy costs as well
as supply interruptions accelerated inflation in Azerbaijan later to 14.2%
in August 2022. Food costs increased the greatest, while service prices
increased by nearly double digits as well.

Food prices increased by 18.4%, other commodities by 6.7%, and
services by 10.3%. Food price inflation was prompted by high global
food price inflation, while increasing fuel and utility costs in 2021 fuelled
service inflation. A steady exchange rate prevented inflation from
increasing.

Because of the increase in inflation, the government increased the
monthly minimum wage by 20% to 300 manats. Furthermore, the
central bank boosted its policy rate by 50 basis points in two increments
to 7.75% in March, which it kept until July when inflationary pressures
eased.

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