Outlook for 2011-15

• The Economist Intelligence Unit expects the incumbent president, Ilham Aliyev, to face a more testing second term in office, as slower economic growth will raise the risk of social protests.
• Competition will intensify between the EU and Russia for Azerbaijani energy resources during the forecast period. Azerbaijan will play off these competing interests against each other to secure political advantage.
• The economy is forecast to grow at an annual average of 4.5% in 2011-15, down from an average of 16.4% in 2006-10. Slower expansion in oil production in the coming years will act as a considerable drag on growth.
• Annual average inflation rose to 5.7% in 2010, from 1.5% in 2009. Annual average inflation will stay in single digits in 2011-15, but consumer demand growth will exert inflationary pressures in the later part of the forecast period.
• The manat will remain largely stable in nominal terms against the US dollar in 2011. The manat will resume an appreciating trend against the US dollar from 2012 onwards as capital inflows rise.
• The current account will remain firmly in surplus in 2011-15, averaging 19% of GDP. High oil exports will continue to be the main driver of the substantial trade surplus.

Monthly review

• In late May Mr Aliyev pardoned 90 prisoners, including Eynulla Fatullayev, a well known journalist and political prisoner. The international community and human rights organisations welcomed the decision.
• Azerbaijan joined the Non-Aligned Movement (NAM) in May, hoping that the body may help to solve its dispute with Armenia over Nagorny Karabakh.
• The government amended its budget projection for 2011, and now targets revenue of Manat15.55bn and expenditure of Manat15.94bn. The authorities said that higher than expected global oil prices were behind the alteration.
• The Central Bank of the Azerbaijan Republic raised the refinancing rate by 0.25 percentage points at the start of May, to 5.25%. The Central Bank is concerned by the recent surge of inflationary pressures.
• Real GDP grew by 0.8% year on year in January-April. The non-oil sector expanded by 6.2% year on year; the oil sector, which was previously the main driver of growth, contracted by 4%.
• The trade surplus rose to almost US$3.6bn in the first quarter. Imports grew by 63.3% year on year, outpacing export growth. However, exports exceeded imports in value terms.

The president, Ilham Aliyev, has been in power since 2003, following the death of his father, Heydar Aliyev. Power is concentrated in the president, and Mr Aliyev appears to have control over the country's political structures. However, the fundamental shift and potential democratising wave that could be under way in the Middle East and North Africa (MENA)-which has resulted in protests against, and the removal of, long-standing authoritarian leaders-raises the question of whether authoritarian countries in the Commonwealth of Independent States (CIS) such as Azerbaijan could be affected by similar trends.

The wave of protests in MENA has inspired opposition groups in Azerbaijan to hold similar protests. Since March 2011 several opposition parties and movements have staged anti-government protests in the capital, Baku. So far the number of protesters has been small. Further protests are likely to be held in the near term. The small number of people participating in the demonstrations indicates that the opposition's ability to pose a threat to the status quo is limited. However, the same applied in Tunisia and Egypt, only to change rapidly. Should the opposition hold protests on a more frequent basis and the number of people participating in the demonstrations increase, the risk to the Aliyev regime would rise.

Mr Aliyev will face a more testing second term in office. The development of the energy sector led to rapid economic growth in the past decade. As oil production growth will be much slower over the forecast period, this will weigh on economic growth prospects, increasing the potential for further unrest as real wage growth slows. Aside from the experience of the corrosive effect of energy-based development, the Aliyev regime and those in MENA also share the similarity of entrenched corruption. (Signalling their concern over how they are perceived by the public, the authorities began implementing an anti-corruption campaign in February 2011.)

Unlike the MENA states, Azerbaijan remains an overwhelmingly secular society. However, the strength of the Islamic community, which is drawing inspiration from Turkish and Iranian religious groups, has grown in recent years, and is a cause for concern for the authorities. In late December 2010 and January 2011 there were protests, albeit significantly smaller than in MENA, against the administration's earlier decision to ban the wearing of the hijab in schools. There is a risk that the government's mishandling of issues deemed sensitive by the growing community of practising Muslims, and any encroachment on religious liberties, could become a source of social unrest. The risks to the Aliyev regime would also increase if the economic slowdown were to be more severe than the Economist Intelligence Unit currently forecasts.

The next presidential poll is scheduled for October 2013. Although the risks to Mr Aliyev's position will be higher over the forecast period, the regime's dominance over the media and ability to use administrative resources will mean that when Mr Aliyev decides to stand, he is highly likely to win. The next parliamentary election is scheduled for November 2015. At the legislative election in November 2010 Mr Aliyev's New Azerbaijan Party (NAP) won a landslide victory, although international observers raised concerns over the NAP's use of administrative resources and the bias in media coverage. The opposition failed to win a single seat. This will make it impossible for traditional opposition parties to express their points of view in state institutions, and will increase the potential of the opposition holding protests and demonstrations in order to get its voice heard. Over the forecast period the opposition's operations will nonetheless be hampered by a lack of access to the media, restrictions on demonstrations, and limited financial resources.

Azerbaijan will find it more difficult to balance its foreign policy orientation in the coming years in the wake of attempts by Turkey and Armenia to improve relations, and increased interest from the West and from Russia in Azerbaijani energy resources. The authorities have so far taken a careful approach, seeking stronger energy and security ties with the West, but at the same time maintaining military and economic links with Russia. However, Azerbaijan is now coming under greater pressure from the West to sign up to new energy projects, and from Russia to reject such initiatives in favour of closer energy ties between Azerbaijan and Russia. Although Azerbaijan will continue to pursue a cautious, balanced approach towards Russia and the West, its foreign policy decisions will be heavily influenced by its desire to secure a reliable transit route for the gas from the second phase of the Shah Deniz project, which is expected to come on stream in 2016-17.

The decision by Azerbaijan's long-standing ally, Turkey, to pursue better relations with Armenia-which culminated in the signing of two protocols in October 2009, aimed at establishing diplomatic relations and developing bilateral ties-increased tensions between Azerbaijan and Turkey. However, relations between Armenia and Turkey have since soured, with the Armenian president, Serzh Sargsyan, suspending ratification of the protocols in April 2010, claiming that the Turkish administration had dragged out the ratification process beyond a reasonable timeframe. Mr Sargsyan also raised concerns over the Turkish administration's decision to attach preconditions, probably referring to the Turkish authorities' assertions that a settlement of the Nagorny Karabakh dispute between Azerbaijan and Armenia was crucial to an improvement in Turkish-Armenian relations.

Following the setback in attempts to improve ties between Turkey and Armenia, relations between Turkey and Azerbaijan have improved. The two countries signed a gas deal in June 2010, ending a long-running gas dispute. In August Azerbaijan and Turkey signed a "Strategic Partnership and Mutual Co-operation" treaty, which reconfirmed the friendly links between them. However, if Turkey were to seek to improve ties with Armenia without a breakthrough in the Nagorny Karabakh talks, this would have a negative impact on Azerbaijani-Turkish relations. Talks between Azerbaijan and Armenia aimed at resolving the Nagorny Karabakh conflict are ongoing, but progress has been limited in recent months. In early 2010 Mr Aliyev and Mr Sargsyan reached an agreement on a preamble to the Madrid Principles, which outline a step-by-step approach to resolving the conflict. Further progress in restoring ties will remain slow over the forecast period.

Azerbaijan has been more open towards Russia's offer to buy all of its gas, as a result of the attempts to improve Turkish-Armenian relations. The decision has the potential to render commercially unviable the EU-backed Nabucco pipeline, which would take Caspian gas to Europe, bypassing Russia. Azerbaijan will continue to hold out the promise of closer energy co-operation with Russia in exchange for greater Russian support for its position in the conflict with Armenia. Azerbaijan raised its exports to Russia to 2bn cu metres of gas per year in 2011 (from 1bn cu metres). This will increase pressure on Turkey, which hopes to become a main transit country for the transport of Caspian gas to Europe. In this respect, Azerbaijan will hope that Turkey does not move too far away from supporting its position over Nagorny Karabakh.

Azerbaijan experienced the repercussions of the global downturn through weaker oil prices and heightened risk aversion towards emerging markets. Although global oil prices will be higher in 2011-15 than in 2009, slower real GDP growth in Azerbaijan owing to lower oil production growth will weigh on budget revenue, particularly in the initial years of the forecast period. In 2011-15 the government will continue to draw on the State Oil Fund of the Republic of Azerbaijan (SOFAZ, the overseas windfall fund) to help to finance social spending and infrastructure projects. A lack of effective instruments will constrain the conduct of monetary policy. The business environment will remain difficult, owing to entrenched corruption, as well as the presence of formal and informal monopolies in many sectors. In conjunction with a less favourable global environment than before the global crisis, this will hamper the authorities' goal of increasing investment in non-oil sectors such as agriculture and manufacturing.

State budget revenue rose to Manat11.4bn (US$14.3bn) in 2010 (including transfers from SOFAZ) and expenditure increased to almost Manat11.8bn, resulting in a deficit of Manat363.5m (US$454m), equivalent to 0.9% of GDP. The data in our annual tables refer to the state budget excluding transfers from SOFAZ; on this basis, the 2010 deficit widened to 15.1% of GDP.

The government amended its 2011 budget projection in May 2011. The authorities now target revenue of Mant15.55bn (revised up from Manat12.06bn) and expenditure of Mant15.94bn (up from Manat12.75bn), resulting in a deficit equivalent to 0.9% of the government's GDP forecast. The rise in revenue is primarily due to an increase in transfers from SOFAZ, which it expects to reach Manat9.2bn (up from its earlier forecast of Manat6.5bn). Almost 60% of state budget revenue will come from SOFAZ in 2011, indicating the government's reliance on the fund for its expenditure plans. As was expected, the government has increased spending on social benefits and public-sector wages in a bid to mitigate the risk posed by recent anti-government protests. The sharp increase in transfers from SOFAZ to the budget has led us to change our budget deficit forecast for 2011, and we now expect it to widen to 21.5% of GDP (excluding transfers from SOFAZ).

As the outlook for the economy begins to improve from 2012 onwards, we expect that the government's reliance on the fund as a source of revenue will begin to wane. We forecast that the budget deficit (excluding transfers from SOFAZ) will begin to narrow from 2012, contracting to 10.4% of GDP in 2015.

The conduct of monetary policy will remain difficult, given the limited tools available to the Central Bank of the Azerbaijan Republic, and the lack of co-ordination between fiscal and monetary policy. The Central Bank's monetary policy committee raised the refinancing rate by 0.25 percentage points, to 5.25%, effective from May 2011. The increase is only the third time that the Central Bank has raised the rate since May 2009. The Central Bank remains concerned over inflationary pressures, and this has been the main factor behind its decision to increase the rate on two occasions in 2011. If conditions do not improve, further increases in the refinancing rate cannot be excluded. Nonetheless, the increase in the refinancing rate will have only a limited impact, as the domestic debt market is underdeveloped. At the monetary policy meeting in May, the Central Bank also increased the reserve requirements on banks' external and domestic liabilities from 2% to 3%. The Central Bank has reiterated its commitment to maintaining the stability of the banking system and to ensuring sufficient liquidity in the financial system, which will provide some support to economic growth over the medium term.

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The impact of the global economic downturn was much less severe on Azerbaijan than on other countries in the region. Real GDP expanded by 9.3% in 2009, the fastest rate in eastern Europe. However, growth slowed in 2010, to 5%, as output growth from oil production slowed to 0.9%, from a 13.5% expansion in 2009. The slowdown in real GDP growth in 2010 marked a shift in the underlying economic dynamics. In recent years, the oil sector had been the main driver of the economy; however, in 2010 the oil sector expanded by 1.8%, whereas the non-oil sector grew by 7.9%. We forecast that oil prices will average US$108.5/barrel in 2011, up from US$79.6/b in 2010. Oil production will continue to expand much more slowly over the forecast period than in recent years, and this will act as a significant drag on economic activity. As such, we forecast that real GDP growth will decelerate further in 2011, to 3.5%.

Compared with the historical period, growth will remain sluggish in 2012. Although oil prices are forecast to fall to US$94.5/b in 2012, oil production will remain fairly stable, and this should be sufficient to support budget and export revenue, which are heavily reliant on profit from the oil sector. Although the expansion of hydrocarbons output will be much slower than in 2005-09, it will increase steadily. The Chirag oilfield is scheduled to come on stream in late 2013, which will provide a boost to oil production from 2014. In the final years of the forecast period, growth will also be supported by increasing investment in the hydrocarbons sector as preparations for the second phase of the Shah Deniz project, which should come on stream in 2016-17, are undertaken. The continuing development of the hydrocarbons sector will have spillover effects in services sectors such as transport, communications, and wholesale and retail trade.

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Higher energy and food prices, combined with the continuation of higher government spending, contributed to a pick-up in the pace of price rises in 2010. Recent data have revealed that food prices have spiked, probably because of the negative impact of the regional drought, as well as flooding in 2010, which damaged crops. The resurgence of inflationary pressures in the final months of 2010 helped to push annual average inflation up to 5.7%. A surge in food and energy prices occurred in the first half of 2011; however, we expect prices for both these commodity groups to ease moderately through the second half of 2011. Supporting this, consumer price inflation appears to have peaked in February 2011 at 9.3% year on year and fell only gradually in the following two months. Over the forecast period, slower economic growth, and weaker domestic demand and money supply growth than in the boom years, will help to limit inflationary pressures. However, large inflows of oil-related foreign exchange and a loose fiscal policy will continue to exert substantial upward pressure on prices throughout 2011-15, preventing more rapid disinflation. Export revenue will be partly sterilised through the use of the offshore oil fund, although transfers from the fund to the state budget will remain high.

The authorities appear to have supported the currency in 2009, as the manat remained stable against the US dollar at around Manat0.8:US$1, even though oil prices were lower than in 2008. As a result, foreign reserves fell to a 14-month low of US$4.9bn in July 2009. However, foreign reserves have since recovered and climbed to almost US$7.4bn in April 2011, nearly US$1bn above the peak recorded in December 2008, before the impact of the global economic crisis was felt. We expect the currency to remain stable in 2011, at around Manat0.8:US$1. The Central Bank's continuing intervention in the foreign-exchange markets in the initial part of the forecast period will prevent rapid fluctuations in the exchange rate. From 2012 onwards a return of investor risk appetite and higher capital inflows will put the manat on a modest appreciating trend, to Manat0.74:US$1 in 2015.

The current account will stay firmly in surplus throughout the forecast period. We forecast the current-account surplus to average around 19% of GDP in 2011-15, driven by a substantial trade surplus as export revenue, which is overwhelmingly derived from the oil sector, continues to dwarf import spending. Imports for transport, communications and construction will rise, although expenditure on imported consumer goods will be lower than before the crisis. Growth in services imports related to the oil sector will rise in the later years of the forecast period as the second phase of the Shah Deniz project intensifies. After narrowing sharply in 2009 as the contraction in the global economy led to a fall in imported services in the hydrocarbons sector, the services deficit will widen more markedly from 2012 onwards. Over the forecast period the high cost of developing oilfields and gasfields will keep gross inflows of foreign direct investment (FDI) comparatively high, albeit much lower than in the peak years of 2003-04.

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On May 26th the president, Ilham Aliyev, pardoned 90 prisoners, including Eynulla Fatullayev, a journalist and political prisoner. Mr Fatullayev was imprisoned in 2007, convicted on charges including defamation and supporting terrorism. Civil society and human rights groups have claimed that the charges were false and a response to Mr Fatullayev's investigation into the murder in 2005 of a fellow journalist, Elmar Huseynov. After pressure from the European Court of Human Rights (ECHR), the original charges were revoked and Mr Fatullayev was then charged with drug possession, an allegation that provoked widespread criticism among international human rights groups.

Several international human rights and media groups have campaigned for Mr Fatullayev to be released. In April 2010 the ECHR said that Mr Fatullayev should be released from prison and paid EUR25,000 (US$33,000) in "moral damages". The court reiterated this view again in a statement on May 12th 2011. Shortly before Mr Fatullayev's release, Amnesty International launched a Twitter campaign ahead of its 20th Media Awards ceremony, which saw members of the public and well known journalists in several countries tweeting pictures demanding that Mr Aliyev free Mr Fatullayev. Unsurprisingly, international groups praised the decision to release Mr Fatullayev. The Organisation for Security and Co-operation in Europe (OSCE) chair, Audronius Azubalis, said that the move is a "long-awaited day for freedom of speech and freedom of the media".

Mr Fatullayev's release is a positive move towards political freedom, but much room for progress remains. On May 18th Baxtiyar Haciyev was sentenced to two years' imprisonment for evading military service. The decision to jail him appears to be primarily motivated by his move to use Facebook to urge Azerbaijani citizens to hold a protest against Mr Aliyev and the government. There will be greater focus on Azerbaijan's record on human rights and anti-government discontent in the coming months. The recent uprisings in the Middle East and North Africa (MENA), which have led to the overthrow of several authoritarian regimes, could mean that the international community watches political developments in authoritarian states in other regions more closely. Azerbaijan's victory at the Eurovision Song Contest (an event that attracts viewers from around the globe) has focused international attention on the country. Azerbaijan will host the contest in 2012. Winning the event is a success for the authorities. Mr Aliyev described it as "a great success of the Azerbaijani state and people". The event will give Azerbaijan a unique opportunity to promote itself as a tourist destination, but it will also attract attention to the country's poor record on political and media freedoms. Given that Azerbaijan wants its hosting of the contest to be a success, it could encourage the regime to improve its record on political freedom.

Azerbaijan joined the Non-Aligned Movement (NAM) at the organisation's latest meeting, in Indonesia on May 25th-27th. Azerbaijan's accession brings the total number of members to 120. Previously, Azerbaijan had observer status. According to the Azerbaijani authorities, the rationale behind joining the NAM is that it will offer Azerbaijan an alternative forum for representing its views on its long-running dispute with Armenia over Nagorny Karabakh. Azerbaijan's decision to join may also reflect the general decline in its relations with Euro-Atlantic countries. Highlighting this, in April Azerbaijan announced that US-Azerbaijan military exercises supposed to be held in Azerbaijan on May 15th-25th were delayed. No new date has been set for the exercises. The same event was cancelled in 2010, apparently owing to Azerbaijan's anger at US support for the signing of the protocols between Armenia and Turkey (Turkey closed its border with Armenia in support for Azerbaijan's position over Nagorny Karabakh in the early 1990s). Given that Belarus is the only other European member of the NAM (several countries have observer status), and that most other members are concentrated in Africa and Asia, it is questionable how much interest Azerbaijan will be able to generate in the issue of Nagorny Karabakh among NAM members.

On May 27th parliament approved amendments to the 2011 budget. The government now targets budget revenue of Mant15.55bn (US$19.68bn; up from its earlier target of Manat12.06bn) and expenditure of Mant15.94bn (revised up from Manat12.75bn). The authorities expect the budget deficit to narrow from Manat363.5m (US$454m) in 2010 to Manat387m in 2011 (equivalent to 0.9% of GDP, based on the government's GDP forecast).

In April officials signalled that the budget target for 2011 could be revised, as oil prices are much higher than they originally forecast (May 2011, Economic policy). Following the approval of the amendment to the budget by parliament, the finance minister, Samir Sharifov, said that the conditions in the global oil markets had created favourable conditions for Azerbaijan. To highlight this, Mr Sharifov said that higher oil prices had led to an increase of Manat193.5m in revenue to the budget and an increase of Manat976.4m in revenue to the State Oil Fund of the Republic of Azerbaijan (SOFAZ, the overseas windfall fund). In line with their previous pronouncements, the authorities raised the official oil price forecast for 2011 to US$80/barrel, from a conservative forecast of US$60/b.

Nonetheless, although higher oil prices will boost revenue, the main reason behind the increase in the authorities' revenue target is the planned rise in transfers from SOFAZ to the budget. In the initial 2011 budget, transfers from SOFAZ were set at Manat6.48bn, over one-half of budget revenue. The government now plans to transfer Manat9.2bn to the state budget, equivalent to almost 60% of the revenue target. The increase in SOFAZ transfers and in subsequent budget expenditure has primarily been driven by the government's plans to raise social spending, including a rise in public-sector wages and benefits payments. The government's decision to increase spending in such areas has probably been driven by concerns over the increase in social unrest, albeit on a small scale, since the start of 2011.

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SOFAZ assets rose to US$25.8bn at the end of the first quarter of 2011, an increase of 59% year on year. Since the end of 2010 SOFAZ revenue grew robustly, and reached over Manat3.2bn in the first three months of 2011. At almost Manat3.08bn, the largest source of revenue was from the sale of profit oil and gas. SOFAZ also received Manat16.3m in dividends generated from its share in the Baku-Tbilisi-Ceyhan (BTC) oil pipeline.

Continuing a long-running trend, SOFAZ's greatest expenditure in the first quarter of 2011 was the transfer of Manat1.3bn to the state budget. Although transfers in the first quarter are only modestly higher than the year-earlier level, they will increase more sharply in the later part of the year, as in previous years. The Economist Intelligence Unit forecasts that oil prices will average US$108.5/b in 2011. High oil prices will go some way towards mitigating the government's decision to increase transfers to the state budget to Manat9.2bn in 2011, up from its earlier target of almost Manat6.5bn, in the short term. Nevertheless, as growth in oil production has steadied, the heavy drawdowns on the fund (which is supposed to "preserve oil revenue for future generations") in recent years will raise concern over the authorities' ability to ensure economic sustainability over the longer term, particularly if such sizeable drawdowns on the fund's assets were to continue.

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The Central Bank of the Azerbaijan Republic raised the refinancing rate by 0.25 percentage points on May 6th, to 5.25%. The increase marks the second time that the Central Bank has increased the rate since the start of 2011. The Central Bank also increased reserve requirements (both domestic and foreign) for banks operating in Azerbaijan to 3% (up from 2%). The authorities have been concerned by the surge in inflationary pressures since late 2010. Prices have been driven up by the increase in world food prices and global oil prices, which has boosted the flow of foreign currency into Azerbaijan. The rise in consumer price inflation appears to have peaked in February 2011, when inflation was 9.3% year on year. Since February, inflationary pressures have started to ease. According to data from the State Statistics Committee (SSC), the increase in year-on-year inflation slowed to 9.1% in March and 8.8% in April. Nonetheless, if inflationary pressures were to pick up again, it is likely that the Central Bank will decide to tighten monetary policy further.

Real GDP grew by 0.8% year on year in the first four months, slower than the 1.6% expansion in the first quarter and the 5% expansion in January-April 2010. Continuing the trend of recent months, the smaller non-oil sector was the driver of growth in the first fourth months. The non-oil sector expanded by 6.2% year on year, whereas the oil sector contracted by 4%. The non-oil sector accounted for around 47% of nominal GDP in the first four months.

Reinforcing the buoyant conditions in the non-oil sector, data from the SSC show that all components of the services sector grew in January-April. The communications sector recorded the largest year-on-year increase, expanding by 18.7% (although its contribution to headline growth is small, as it accounts for around 2% of total GDP). Hotels and restaurants, and trade and warehousing, also grew significantly in real terms, by 16.2% and 10.1% year on year, respectively. The government forecasts that real GDP will expand by 3.8% in 2011. The IMF raised its real GDP forecast to 2.8% (from 1.8%) in April 2011.

The trade surplus rose to almost US$3.6bn in the first quarter, up from US$3.35bn in the year-earlier period. Exports expanded by 20.7% year on year, to reach US$5.4bn. Mineral products, which are overwhelmingly comprised of oil products, continued to comprise the largest proportion of total exports, accounting for almost 95% of the total. Oil exports were worth US$4.7bn and natural gas products were worth US$152.2m. The value of oil exports was boosted by higher global oil prices in the first quarter. We forecast that oil prices will gradually fall in the second half of 2011 as the impact of slowing consumption growth and reduced investor risk appetite feed through. Nonetheless, we forecast oil prices to average US$108.5/b in 2011, up significantly from US$79.6/b in 2010, and this will provide a boost to export revenue.

Imports rose by 63.3% year on year in the first quarter, substantially faster than exports. However, the value of imports continues to be dwarfed by exports: imports totalled almost US$1.9bn in the first quarter. Machinery (up by 88% year on year, to US$604.8m), transport equipment (up by 96.5%, to US$280.9m) and base metals (up by 135%, to US$269.8m) were the largest components of imports. The increase in demand for such products has probably been driven by faster real growth in the non-oil sector in recent months.

In the first quarter Italy was the largest destination for Azerbaijani exports, absorbing US$1.8bn of exports, around one-third of the total. Italy primarily imports oil and oil products from Azerbaijan. The second-largest destination was France, which imported goods worth US$815m. The largest sources of imports in value terms were Russia and Turkey, with US$352.9m and US$236.8m, respectively. Azerbaijan's trade turnover with the Commonwealth of Independent States (CIS) rose to US$1.47bn from US$801m in the year-earlier period. Azerbaijan exported goods worth US$856.9m to the CIS in the first quarter, and imported goods worth US$614m. The resurgence in exports to CIS countries (exports increased by 103.8% year on year in the first quarter) can be explained by the improvement in domestic demand in these countries as the impact of the global recession of 2009 continues to fade.

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Please see graphic below

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Please see graphic below

Total area

86,600 sq km

Population

8.9m (January 1st 2010)

Main towns

Population in '000 (January 1st 2008)

Baku (capital): 1,917

Ganja: 310

Sumgait: 300

Climate

Ranging from cold in the Caucasus mountain range in northern Azerbaijan to temperate in the Kura plain (average July temperature of 27°C, January temperature 1°C) and subtropical in the Lenkoran lowlands in the south-east; average temperatures in Baku, on the Caspian Sea, range from 7°C in January to 27°C in August

Language

Azeri (a Turkic language) is the state language; the use of Russian is being phased out, but it is still widely spoken

Weights and measures

Metric system

Currency

Manat, introduced as legal tender in 1993 to replace the rouble; in January 2006 a new manat was introduced, replacing the old manat at a rate of 5,000 old manat = 1 new manat

Time

Four hours ahead of GMT

Fiscal year

Calendar year

Public holidays

Fixed: January 1st-2nd (New Year), March 8th (Women's Day), May 9th (Veterans' Day), May 28th (Republic Day), June 15th (National Salvation Day), June 26th (Armed Forces Day), October 18th (National Independence Day), November 12th (Constitution Independence Day), November 17th (National Revival Day), December 31st (Worldwide Solidarity of Azerbaijanis Day)

Movable: Ramazan Bayram/Id al-Fitr, Novruz (Iranian New Year), Kurban Bayram/Id al-Adha

Official name

Republic of Azerbaijan

Form of state

Azerbaijan existed as an independent republic between 1918 and 1920, before becoming part of the Soviet Union as the Azerbaijan Soviet Socialist Republic in April 1920. In September 1989 Azerbaijan proclaimed its sovereignty, and on October 18th 1991 it declared full independence. A new constitution was adopted in November 1995

National legislature

National Assembly of 125 members elected from single-member constituencies

National elections

November 2010 (legislative) and October 2008 (presidential); next elections in November 2015 (legislative) and October 2013 (presidential)

Head of state

The president, Ilham Aliyev, was elected for a second five-year term in October 2008

National government

The president appoints the cabinet of ministers, and in co-ordination with parliament, the president appoints the prime minister and heads of local government

Main political parties

New Azerbaijan Party (NAP), led by Mr Aliyev; Azerbaijan National Independence Party (ANIP); Party of the Popular Front of Azerbaijan (PPFA); Musavat (Equality); Democratic Party of Azerbaijan (DPA); National Unity Party; Azerbaijan Democratic Independence Party (ADIP); Islamic Party of Azerbaijan (IPA); The Party of Hope (Umid)

Council of Ministers

Prime minister: Artur Rasizade

First deputy prime minister: Yagub Eyubov

Deputy prime ministers:

;Abid Sharifov

;Elcin Efendiyev

;Ali Hasanov

Key ministers

Agriculture: Ismed Abbasov

Communications & information technology: Ali Abbasov

Culture & tourism: Abulfaz Garayev

Defence: Safar Abiyev

Defence industry: Yaver Jamalov

Ecology & natural resources: Huseyn Bagirov

Economic development: Shahin Mustafayev

Education: Misir Mardanov

Emergency planning: Kemaleddin Heydarov

Finance: Samir Sharifov

Foreign affairs: Elmar Mammadyarov

Health: Oqtay Shiraliyev

Industry & energy: Natiq Aliyev

Interior: Ramil Usubov

Justice: Fikret Mamedov

Labour & social protection: Fizuli Alekperov

National security: Eldar Mahmudov

Taxes: Fazil Mamedov

Transport: Ziya Mamedov

Youth & sport: Azad Rahimov

Parliamentary speaker

Ogtay Asadov

Central bank chairman

Elman Rustamov