Our Analytics 4 august — 15:01

Elman Rustamov encouraged President too: Azerbaijan returns to pre-crisis period (Our afterword)



The macroeconomic stability of the country is ensured by the balance of its foreign trade and domestic financial balance sheets. What is the situation with those in Azerbaijan, which is experiencing favourable conditions? Head of the Central Bank Elman Rustamov reported on this to President Ilham Aliyev at a meeting related to the socio-economic sphere.

Today, Azerbaijan's foreign trade balance has a surplus of $2.9 billion, and the external balance of payments is also at surplus. In general, this year the country's exports increased by more than 15%. But it is more pleasing that non-oil exports no longer lag behind the total, it also increased more than 15% and has already exceeded the value of non-oil imports. That is, according to the country's chief banker, it turns out that the non-oil sector has already become self-sufficient. But just recently, the entire economy of the country was being pulled by just one locomotive - the oil sector, which provided almost 100 per cent export. But other times have come, requiring deep diversification of the economy.

No, oil is not forgotten today. Since the beginning of the year, its prices have risen 20% and fluctuate above the $60 mark. This exceeds the domestic, that is, budget and socio-economic forecasts. And it is no coincidence that in recent years, strategic foreign exchange reserves have grown significantly - up to $49 billion. The country is confidently moving towards restoring the pre-crisis level as a whole. Forty-nine billion dollars is more than our gross domestic product. And this ensures both high international purchasing power and high financial security of Azerbaijan.

Against the general background, foreign exchange reserves of the Central Bank itself are growing. In the first half of the year, it increased its foreign exchange reserves by more than $330 million, which, of course, was not affected by any oil factors. Thus, the chief banker wanted to draw the attention of the head of state and the public to the fact that the question raised by President Aliyev about improving the management of foreign exchange reserves is extremely important. And, what is particularly interesting, more than $100 million of this amount was obtained through external management. And this is against the background of a rather complicated situation in international financial markets and low interest rates. In general, the Central Bank expects to complete the year with an income of 3.2%.

And the rate of the manat continues to be stable. The positive external balance, the work being carried out to diversify exports and the expansion of the currency supply, the positive expectations in the market created a significant surplus in the domestic foreign exchange market. Today, along with the sterilisation of the Central Bank in the domestic foreign exchange market there is a surplus of more than $1 billion. And this already guarantees not only the present, but also the expected stability of the manat rate. But, despite exchange rate stability, the Central Bank does not forget to track external competitiveness with partner countries, trading partners. The result is that the real rate of the manat for the six months fell by 1.2%.

As for inflation, within the target range, it is below the target of both the government and the Central Bank. Even the adoption of unprecedented social measures, the strengthening of social policies, the expansion of domestic needs did not change the situation, improving governance in general, the measures taken and the stability of the manat rate determine the formation of inflation at a low level. As shown by surveys conducted by the Central Bank together with the State Statistics Committee, 98% of the population do not believe in accelerating inflation by the end of the year. The belief in macroeconomic stability as a whole and the dynamics of inflation in business is quite high — surveys were conducted there as well.

In such conditions of low inflation, the Central Bank consistently softens monetary, credit policy. Since 2018, the discount rate has been reduced from 18% to 8.25%. Another direction of this policy is quantitative easing as a whole, that is, the amount of money provided to the economy this year is 9%.

The chief banker also reported to the head of state that over the past two years the main indicator, called the monetary base, increased by more than 37%. This is also done to revive the economy as a whole, increase credit activity in conditions of low inflation, so that banks have enough of their own resources and they can use these funds. And this factor, one thinks, will completely discourage various experts from ranting about the fact that the Central Bank does not contribute to an increase in credit activity.

Yes, the decline in interest rates in the economy is observed, although high consumer loans spoil the general background. The average interest rate of recently granted business loans has declined in the current year by more than 5% and is 11%. This figure is close to the discount rate of the Central Bank and very far from 20-30%, which experts like to draw. Hence, the discount rate, the interest rate policy of the Central Bank began to play an important role in the formation of the percentage of household deposits on business loans.

Credit activity continues, loans have increased by 3.6% since the beginning of the year. But at the same time there was an increase of more than 9% in consumer loans. And business loans, loans in the real sector declined slightly - by 0.3%. Even with significant liquidity in the banking sector, business loans do not grow. Apparently, it is necessary to take comprehensive regulatory, stimulating measures so that these loans as a whole flow into the real sector and support the process of domestic investment in the country. At the same time, the main banker urges to closely monitor the growth of consumer loans, both an increase in the debt burden of the population and its approach to 50% in the portfolio of the banking sector, since in the future this may create certain problems.

Thus, Azerbaijan has achieved sustainable economic growth. Already 6 quarters, general economic growth continues and 10 quarters - growth in the non-oil sector. And the main task today is to preserve and maintain the further development of macroeconomic stability. In September, the second stage of the social package defined by the presidential decree begins. In general, the main banker considers this to be not only a social package, but also a factor in the new model of economic growth, as the revival of the domestic needs of the population will support the revival of domestic production, export diversification.

And the most important task is to support these social programs, the process of increasing real incomes of the population, to achieve low inflation. This refers to the well-coordinated work of the Central Bank with the government. These issues are regularly discussed at the Financial Stability Board. And further coordination will allow to achieve this...

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