BAKU, Feb 3 (Reuters) - The International Monetary Fund urged Azerbaijan on Wednesday to boost reforms and diversify its economy in order to withstand a plunge in global crude prices which has badly hit growth, budget revenues and the manat currency.
The Caucasus nation of about 10 million people relies on oil and gas exports to cover 75 percent of its revenues and the nosedive in oil prices has triggered a sharp fall in the manat, further increasing pressure on the state budget.
Azerbaijan's currency reserves tumbled by 65 percent to $4.398 billion as of Feb. 1 from $12.680 billion a year earlier, mainly due to market interventions by the central bank.
Azeri gross domestic product (GDP) grew last year by just 1.1 percent, down from an original target of 3.3 percent and from 2.8 percent in 2014.
"Looking ahead, economic growth and balance of payments pressures are likely to remain major challenges for the authorities in the near term," Mohammed El Qorchi, the head of the IMF's fact-finding mission, said in a statement.
"However, the authorities are well placed to overcome these challenges, provided they further strengthen their policy response and given Azerbaijan's substantial buffers."
The government has approved amendments to the state budget, changing its oil price estimate to $25 per barrel from a previous $50. It also revised its annual inflation rate forecast for 2016 to up to 10-12 percent from a previous 3.3 percent.
Parliament has still to approve these and other amendments.
Policy priorities for Azerbaijan include formulating a multi-year fiscal consolidation plan, bolstering the monetary policy framework to support the move to exchange rate flexibility, strengthening the financial sector and pursuing structural reforms, the Fund said in its statement.
The IMF said it supported the government's intention to further reduce public investment to more sustainable levels in 2016, with greater focus on project efficiency.
Earlier Azeri officials said they had held talks with the Fund's mission on possible financial aid, although Finance Minister Samir Sharifov said last week he saw "no urgent need" for loans.
The government had planned to ask the IMF for $3 billion in financial aid and a further $1 billion in World Bank loans, a source familiar with the matter told Reuters last week.
The Fund said its visit to Baku was strictly a fact-finding one and would not lead to an IMF board discussion.
(Writing by Margarita Antidze and Dmitry Solovyov; Editing by Gareth Jones)
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