The symptoms of Dutch disease Essay
The symptoms of Dutch disease, 487 words essay example
Secondly, continuous cash flow may weaken government policy on spending policy from budget. Delusion in spending policy may end up large budget deficit and long standing interest payments in any fluctuation in oil export transactions. Consequently, the economy will be more dependent and fragile because of the oil-gas sector. Colossal revenues coming into the country may cause misbalance of payments. Countries which form its budget at the expense of "easy money" tend to get unreasonable credits and spend on prestige projects. In the end, unstable oil prices and other conditions, such as war condition in our case should leave the country in overwhelming debt burden.
Thirdly, Dutch disease in country may increase misbalance of work force in labour market. Highly qualified workers inclined to work in respective field in order to fulfil personal interests and maximize earnings. The deviation of highly skilled worker to oil sector has increased in Azerbaijan in accordance with the development of oil sector. It can be easily inferred that such unstable tendency in the labour market will hamper the development of non-oil sector.
Early symptoms of Dutch disease are observable in recent years in Azerbaijan. In addition to the examples above it would be given two more examples that underpin the threat of Dutch disease in the country.
National currency, "Azerbaijan Manat" is exposed to denomination in 2006. Five thousand (5000) former Manat was counted as one (1) new Manat after denomination. Denomination has strengthened the position of domestic currency against foreign currencies. On the other hand the appreciation of domestic currency made import actions more attractive than export. As a result, non-oil sector drop far behind in comparison of oil-gas sector where the country import textile, agriculture, industry goods presently. For example, about half of the import transaction consists of the agriculture products in Azerbaijan. It shows that the government must strictly contemplate of modern agriculture construction plan as one of the main directions of strategic economic policy.
Another symptom of Dutch disease is increasing oil dependence in budget formulation. According to the statistics of 2012, the formulation of 2013 budget heavily rely on oil sector. 73.9 % of budget incomes are directly supplied by respective sector, as for the role of oil sector in budget increase, which is estimated to be 2.1 billion, is 90% (Gubad Ibadoglu, 2012). Share of oil export in entire export operations is equal to 90%. Considering the reason above we can say that the country suffers the Dutch disease which is the big threat post-oil economy. As it is seen from the figure 2 oil sector increases its share against non-oil sector year by year. Such tendency creates relevant atmosphere for appearance of Dutch disease in the country. Admittedly, growth rate in oil sector is not sustainable. After certain period growth index will drop. Strategic approach to the transition process of Azerbaijans economy requires more sophisticated planning and measures to be taken. , it is not a secret that oil prices are instable. Price of oil in international