President of the Republic of Azerbaijan Ilham Aliyev has chaired a meeting on economic and social issues.

President Ilham Aliyev addressed the meeting.

Speech of President Ilham Aliyev:

- In 2015, in the aftermath of a sharp decline in the oil price on world markets, oil-exporting countries encountered certain difficulties. The oil prices continues to decline to this day. We are seeing this process in 2016. Over the past year, the price of oil has dropped fourfold. In other words, the incomes of all oil-exporting countries have declined significantly. Just imagine that if income is reduced four times in any family, the budget of this family would, of course, have to be revised. Of course, most of Azerbaijan’s revenues are connected with oil. For many years, we have been trying to reduce our dependence on oil. To a certain extent, we have succeeded in doing that, but have not been able to fully achieve this yet. This being the case, the fall in oil prices is having an adverse impact on our economic situation. In any country and any family, one needs to stretch one's legs according to the coverlet. I can say that Azerbaijan is taking serious steps to get out of this situation. Among the countries that are in the same boat with us, Azerbaijan was able to get out of this crisis with minimum losses.

At a meeting of the Cabinet of Ministers dedicated to the results of 2015, we analyzed the situation and issued appropriate instructions. Those instructions must be implemented by all means. Only then will Azerbaijan's economy maintain its momentum in 2016 and our country will come out of this difficult situation with its head high. We were faced with an even more difficult situation earlier. On all such occasions the Azerbaijani people and the Azerbaijani state demonstrated strong will. We made huge strides in building an independent state. Today, Azerbaijan is a rapidly developing country on a global scale. Over the past 10 years, there has been no other country in the world that would develop as fast as Azerbaijan. This is a reality confirmed by all indicators. The reports of international financial institutions always acknowledge the successes Azerbaijan has achieved.

I can say that the current global economic recession could not be predicted by anyone. No-one could imagine that the oil price would fall four times over the course of one year. I want to say again that the world economy is gripped by a crisis. Large countries are going through very painful processes in the field of economy. At the same time, however, the global recession is not so deep for the oil prices to fall four times. Of course, there are other reasons for that – geopolitical reasons. This is not the topic of today's meeting though. The main topic on our agenda is to come out of this situation with minimal losses and to take further measures in this direction. The first step is to deepen the reforms, and appropriate instructions have been given. Over the past week, I held several meetings with government members. Different opinions and suggestions have been made, and the implementation of these proposals has already begun.

Additional instructions will be issued at today's meeting. I am sure that when these orders are fulfilled, the country's economy will get a new breath, economic activity will be increased and, of course, social protection of our people will be secured at the proper level. First of all, our focus should always be on the social protection of our people. In essence, this has been one of the top priorities of our policy. Azerbaijan conducts a large-scale social policy. I have repeatedly said that our policy is focused on the people of Azerbaijan. The main objective of the work carried out in the country in recent years has been to improve the well-being of the Azerbaijani people and eliminate unemployment and poverty.

Therefore, in the current circumstances, we must first address issues of social protection, and we are doing that. I should note that the increase of pensions and salaries by 10 per cent is an important step in this direction. This is what we have the resources for now. I want to say once again that every country should stretch its legs according to the coverlet. I would also like to note that most oil-rich countries, the vast majority of countries suffering from the falling oil prices today are not taking similar steps. In any case, I have no information that any country in the current crisis would raise salaries and pensions. This is a very serious social step. I want to say yet again that it is a manifestation of our strong social policy. In order to implement this initiative, hundreds of millions of manats will be spent from the state budget. I think there is no need to explain what this means in the present circumstances. It is possible that within this year this issue will be considered again. Of course, this issue is related to our capabilities.

Serious struggle must and is conducted against artificial price rises. Unfortunately, in some cases, unscrupulous people and dealers have taken advantage of the situation, trying to artificially inflate prices. Government agencies, the prosecutor’s office and the bodies exercising control over the consumer market are seriously dealing with this issue. As a result of the measures taken, including the decisions made, the prices of bread and flour have fallen dramatically. This is also a social initiative. We are doing this primarily in the interests of our people who are in a difficult situation. We must try to achieve maximum transparency in this area in the future. If someone tries to cash in on this situation for their own economic or political interests in the current environment, these people will be punished. The provocateurs, dealers and speculators are and will be severely punished.

We will preserve the successes Azerbaijan has achieved in recent years and provide for a rapid development of our country. We can’t allow anyone to exploit this situation for their own benefit. This year, all social programs will be implemented. Let no-one doubt this. Additional measures should be taken for the social protection of our population.

At the Cabinet meeting, I stressed the need for deepening structural reforms. Steps have already been taken in this regard. In fact, this process should become permanent constant. The structure of state bodies shall be such as to enable them to carry out rapid and flexible policies that would have a great impact. Therefore, overlapping or redundant state bodies should either be merged or abolished. Additional instructions have been issued. These instructions are being discussed now and proposals should be submitted in the near future.

Appropriate instructions have been issued in relation to the regulation of the currency market. Proposals are being prepared. It is necessary to make changes to the legislation, and the Milli Majlis will hold an extraordinary meeting. After all, without these steps the successful implementation of our economic reforms may be delayed. We should apply the experience of developed countries and the best international practices in this area. Unfortunately, in some cases and for certain reasons, we could not apply these practices. It is now time to fully apply the experience of developed countries.

The steps taken by the developed countries during the global economic crisis of 2008-2009 are being analyzed. We also need to take deliberate steps with a view to the domestic economic situation. Of course, given the fact that our foreign exchange earnings have significantly reduced, the regulation of the currency market is one of the key steps in this direction.

It is necessary to prepare an extensive program of privatization. Appropriate instructions have been issued given. We need to attract both foreign and local investors to this. There are many enterprises in Azerbaijan that have not been privatized and whose activities have been suspended. In some cases, these enterprises are in a dilapidated state. They own large tracts of land. In order to improve the business environment and accelerate economic recovery, we must implement a broad program of privatization. This program should be completely transparent. We need to engage international experts in this. We need to create suitable conditions for local and foreign investors to show great interest and want to invest. If we consider the fact that no investors have any doubts regarding the long-term successful development of Azerbaijan, the Azerbaijani economy will develop in a sustainable manner. There is the oil and gas factor. Moreover, the non-oil sector is dynamically developing in Azerbaijan. Last year, non-oil industry growth in Azerbaijan amounted to more than 8 per cent. This result is associated with the work done. So I want to say once again: we have to create conditions for foreign and local investors to participate in the privatization program with great interest.

After a sharp drop in the oil price and the devaluation of national currencies in neighboring countries, we, of course, also failed to keep the manat at the same level. We tried very hard. I can say that in comparison with the currencies of neighboring countries, the Azerbaijani manat showed the greatest resistance. However, devaluation was inevitable and the reason for that has nothing to do with the domestic situation in Azerbaijan. These reasons were generated abroad.

Under the current circumstances, confidence in our national currency has decreased to a certain extent. We need to restore this confidence. The manat is a stable currency. Over the past 10 years since the currency reform of 2005, the manat has not only retained its exchange rate, but also rose against the dollar by 30 per cent. If we look at the dynamics for the decade, the manat lost 5 per cent of its value every year after the currency reform. But since this occurred within one year, of course, the implications have been more serious. Therefore, under the current circumstances we need to restore the confidence in the manat. By saying "we", of course, I mean the state, the government, the economic entities, the banking sector and all our citizens. All of us must work in this direction.

Unfortunately, Azerbaijan is going through a process of dollarization. This has no economic justification. If we look at the foreign exchange market of some other countries affected by devaluation, we will see that there is no dollarization there. In Azerbaijan, there was a certain degree of anxiety. And this anxiety was also associated with processes taking place in other countries. As an example, we can refer to the late 2014 and early 2015. There were no problems with the manat in Azerbaijan at the time. The national currencies of neighboring countries depreciated. Unfortunately, some agencies and people attempted to transfer this situation to Azerbaijan. After that, in the summer of last year, the foreign exchange market registered some observed positive trends. This was natural, as it was dictated by the measures taken. But the national currency of some neighboring countries plummeted again, immediately causing anxiety in Azerbaijan. Therefore, the emergence of the current situation has nothing to do with any factors within Azerbaijan. All of these factors were generated outside. Unfortunately, the falling oil prices and the devaluation of national currencies in neighboring countries which occurred in several stages caused panic and excitement on the foreign exchange market in Azerbaijan.

The process of devaluation of all currencies against the dollar is under way. Even the euro has failed to preserve its value – it fell by almost 30 per cent. Therefore, the stability of the manat rate depends not only on the government. Of course, we will deepen the reform and take additional steps, but our people should also act in unison with the government. In this case, after the confidence in the manat is restored, I am sure we can get out of this situation with minimal losses.

Issues of regulation of the banking sector will also be addressed. Proposals are being considered. There must be a process to invigorate problem banks. Banking consolidation should be carried out and the issue of deposit insurance addressed. Several years ago, Azerbaijan started to introduce this practice, and now additional measures will be taken to insure deposits. I am confident that the measures to be taken will greatly enhance the credibility of the banking sector have, and our national currency. I am convinced that these steps will yield positive results.

The situation in the Azerbaijani economy is very strong and positive. This is evidenced by all economic indicators. The Azerbaijani economy developed even in the crisis year. The gross domestic product, the non-oil sector and industrial production increased. Growth in agriculture amounted to almost 7 per cent. Our foreign exchange reserves are at a good level. We are protecting them. Our foreign debt is at a very low level – at about 12 per cent. Before devaluation it was less than 10 per cent. It is one of the best indicators in the world. Considering all these factors, the economic stability and the low level of our external debt, I believe that we can attract the required resources from foreign financial markets to Azerbaijan. Appropriate instructions have been issued in this regard. I think we will soon need to consider this issue, too. I personally have never been in favor of increasing our external public debt. I have always wanted it not to exceed 10 per cent. But in the present circumstances, given the fact that it is at the level of only 12 per cent – in some developed countries it accounts for 100, 120 and 150 per cent, which means that there are very few countries where external debt is at the level of ours – I can say that the attraction of additional foreign exchange reserves from foreign exchange markets would not create any problems for us. So I think it is necessary to take steps in this regard.

We may also consider the issue of issuing state loans. This is also a phenomenon that happens in the world quite often. This is done even by countries producing and exporting far more oil than we do. This is done by major oil-exporting countries, which thus attract foreign currency from financial markets. Therefore, we need to go for it, too. There are no problems here. In fact, this will enable us to give an even greater impetus to the economy.

Of course, the development of the non-oil sector in the current conditions should become an even greater priority. I have been talking about the development of the non-oil sector for many years. Practical steps are being taken. The development of regions, the creation of regional and social infrastructure, the construction of roads, gas lines, power plants, schools, hospitals and rural roads, the creation of businesses and jobs – all this has reflected the realities of Azerbaijan in recent years. If we hadn’t tackled non-oil sector development earlier, we would not be able to meet the needs of the country today.

Unfortunately, we have not fully ensured our food security. This has objective reasons. We can’t yet access world markets with our non-oil export commodities. The reason is that, first of all, we need to reduce imports. In the early years of independence Azerbaijan did not produce anything. All consumer goods, including the goods of daily consumption, were imported from abroad. Today, Azerbaijan can largely meet its need for building materials and food. But there is a foreign component within these locally produced goods. In the coming years we need to try to eliminate this external component, so that the raw materials of all food produced in Azerbaijan was of Azerbaijani origin. Therefore, non-oil sector development should go fast.

This year, farmers and business people will be provided with preferential loans through the National Fund for Entrepreneurship Support worth at least 250 million manats. If we take into account their own funds, the amount of investment in the real sector of the economy, including the regions, should be about 1 billion manats. The Ministry of Economy has prepared investment projects in the amount of 1 billion 500 million manats. These projects will soon be implemented. I believe that Azerbaijani businessmen should first invest in Azerbaijan, so that we could fully meet our needs in the shortest possible time, in one to two years. This is the goal.

Thus, the development of the non-oil sector will enable us not to depend on imports. In this case, price control will also be provided at the appropriate level. I have mentioned that as a result of the measures taken we have managed to significantly reduce the price of flour. However, we can’t provide ourselves with flour and grain. Therefore, there are certain problems. But the large farms being created today, the farms engaged in grain growing, the businesses to be created will help us resolve this problem in a short time. The government, for its part, is taking the necessary measures. Farmers are also actively involved in this work. A huge role in this will, of course, be played by the banking sector. I am sure that after the regulation of the banking sector is completed, it should pay special attention to this area. This is my order to them. The state provides support to private banks, in some cases it even save them. In turn, they should also protect the interests of the state. They should invest in spheres necessary for the state and provide loans. Speaking of the non-oil sector, I primarily I mean agriculture, industrial production and the processing industry. It is also necessary to provide additional funds for the industry.

We need to enhance economic activity. Naturally, as revenues decline, so do our investments and the volume of investment made through the state. This, in turn, reduces economic activity to a certain extent. This is a reality, issues associated with each other. Therefore, as a result of the additional measures to be taken, we need to increase economic activity, including the construction sector. Business people in Baku and all the other cities should be provided with ample opportunities to implement large-scale construction projects. Sometimes business people are faced with various difficulties – bureaucracy and corruption. They are facing unreasonable demands. All this must stop. The construction sector should develop absolutely freely. Of course, the rules of town planning must be observed. We can’t allow a chaotic situation. But all artificial barriers should be eliminated.

If there is a need for making any amendments to laws or regulations, we should do that. I should also note that reports such as Doing Business of the World Bank have given high assessments to the reforms carried out in Azerbaijan in different directions. But most of all we are affected by this abnormal situation in the construction sector, because it requires too many permits. There are so many violations that this is observed even by international organizations. So today I am instructing all executive authorities of cities and districts, especially the Baku City Executive Authority, to get rid of all artificial interference in connection with construction. I also want to urge business people: if someone requires you to do anything illegal, report on them, and those committing these illegal acts will be severely punished. I should be regularly provided with information on how many construction projects are implemented on a quarterly basis, where they are implemented and how this is reflected on the labor market.

Of course, first and foremost we expect business activity. At the same time, major construction projects can be implemented on a mortgage line. Unfortunately, there is stagnation in this sector. I have repeatedly expressed my thoughts on mortgages, including those expressed at the meetings of the Cabinet of Ministers. But this process has yet to become widespread. It should start and be continued immediately. Urgent action must be taken. I should receive information on these measures. What do we need to do to accelerate the construction of buildings that will be constructed on mortgage?

In short, economic reforms should be deepened. We must take into account the good practices of developed countries. Our entire economic and financial system should be more transparent. The banking sector should be developed. The business environment should be improved. You must create the best conditions for business people. All bureaucratic obstacles should be eliminated. These instructions must be fulfilled. Then we will be able to speed up the positive momentum in the short term.

The policy pursued in the economic area as a whole in recent years is paying off. Over the last 10 years, Azerbaijan has been the most rapidly developing country in the world. In the current circumstances, we must further improve our performance. Azerbaijan pursues a thought-out policy and economic reforms. The patriotic feelings of our people are at a high level. The unity between the people and the government is quite firm. These are the key factors of our success. The state, the government and all our citizens should together find a way out of this unexpected situation. The government has a very serious program in that direction. I am sure that under such circumstances Azerbaijan will have no problems with economic development in 2016. All our social and economic objectives will be met. I am sure that this will be the case.