Lecture notes_Strategic Road Map.docx

Action 112 identification and adoption of golden rule

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Action 1.1.2: Identification and adoption of golden-rule mechanism and parameters. Option 1: Fixed transfer amount – on the basis of stable and conservative oil prices, as well as on expected avergae volumes of export. Option 2: Transfer based on the stable oil price – on the basis of stable and conservative prices, as well as actual volumes of oil sale. Option 3: Stable return generated on investments – transfers are made in the form of stable revenue generated from SOFAz asset management.. Option 4: Investment financing - gradual approach towrds the introduction of ‘golden rule’. As Azerbaijan is an early stages of economic development, this approach provides for possible non-oil sector development and diversification enabled by capital investments.
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Priority 1.2: Establishing mechanism to ensure expenditure/investment discipline Action 1.2.1: Medium Term Expenditure Framework. MTEF stipulates allocation of budget proceeds in accordance with the key targets established by the government in its strategy. It ensures fiscal discipline, foreseeable state budget indicators, adequate distribution of budget proceeds between the sectors and within each sector, increased efficiency of state budget expenditure. Priority 1.3: Introducing effective monetary policy regime in the new economic model. Modernizing monetary policy Modernizing monetary policy: The price stability mandate of the CBA will be reinforced; Dealing with excess liquidity from the system. The transition to the Inflation Targeting Regime can be ensured as a part of monetary policy regime. So far exchange rate targeting regime acted as a monetary policy anchor. But now due to known reasons money supply targeting regime started to apply. Implementation of IT regime necessitates selection of Interest rate AS monetary polciy anchor.Selection of interest rate as an anchor will allow to ensure price and financial stability. In order to coordinate macroeconomic and financial stability and to ensure effective communication between monetary and fiscal entities Financial Stability Council was established. Public institutions performing various aspects of macroeconomic policy are represented in FSC and fiscal and financial policy is coordinated under the leadership of Prime Minister. Action 1.3.3: Transition to a floating exchange rate regime. In order to achieve implementation of fully floating exchnage rate regime there is a need for further adjustment. Priority can be given to import substitution policy which allows to reduce the share of import in consumption basket. Other condition of this transition is a developed condition of internal financial market, submission of other financial tools allowing hedging and exchange rate risk insurance at the market. Floating exchnage rate and financial institutions development are strongly dependent on each other.
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Action 1.3.5: Development and management of adequate economic expectations.
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