Our Analytics 3 may — 18:37

Ilham Aliyev negated risk for Azerbaijan (Our comment)



Azerbaijani economy is one of the three least affected by the pandemic among the economies of energy-exporting countries in the Middle East and Central Asia. This is written in a statement by the Centre for Analysis of Economic Reforms and Communications of Azerbaijan. Thus, it confirmed our latest materials on this subject.

According to the forecast of the International Monetary Fund, as a result of the coronavirus pandemic, the global economy will shrink by 3% in 2020, and the economies of oil-exporting countries in the Middle East and Central Asia by 3.9%. Azerbaijan is also cutting oil production under OPEC+ agreement, but the economic downturn in the country is being prevented by the rapid growth of the non-oil industry and other effective anti-crisis government measures. An important detail: among the countries of the post-Soviet space, we have the smallest difference in forecasts of economic growth from the IMF before and after the pandemic. That is, the pandemic has affected the country's economy less than other economies.

And the measures really deserve attention. The country's budget to combat the pandemic is about 3.5 billion manats, anti-crisis measures are timely identified, more than 3 billion manats are directed to the country's foreign exchange market to ensure the stability of Azerbaijan's national currency. And the Azerbaijani government is the only one in the post-Soviet space that took the main risks upon itself and maintained macroeconomic stability, ensuring the stability of the national currency against the background of the fact that the currencies of all the oil exporting countries and those that have fully floating regime were devalued. Thus, it is necessary to note the commitment of the government to adhere to a controlled rate of the manat.

In particular, one can compare the sovereign funds of Azerbaijan and the Persian Gulf countries, which play an important role in their economies. Currently, low oil prices are reducing the income of sovereign funds amid increasing their costs of fighting the pandemic and depreciating assets in the securities market by 20-25%. According to some estimates, under the influence of the global pandemic, sovereign funds in the world suffered capital losses worth about $1 trillion.

And the assets of sovereign funds in the Persian Gulf by the end of the year could be reduced by $296 billion. Even the world's largest sovereign fund, the Pension Fund of Norway, lost $113 billion in the first quarter, almost three times the total assets of our Oil Fund.

Of course, global shocks in the first quarter caused a negative difference in short-term market value caused by the revaluation of the assets of our Oil Fund, which amounted to 2.1 billion manats. And since more than 80% of the State Oil Fund's investment portfolio are liquid and stably profitable instruments, the impact of global shocks on its assets can be minimised. At the same time, 66% of the fund's investment portfolio is in US dollars, and the real effective exchange rate of this currency has risen by 8.5% since the beginning of the year. The real effective exchange rate of the euro (22.8% of the Fund's currency resources), has also risen by 3% since the beginning of the year.

It is important to remember that the term for the placement of 37.8% of bonds and money market instruments of the State Oil Fund is up to one year.

And this allows us to satisfy liquidity needs as soon as possible. That is, the fund is able to put in the foreign exchange market of the country or direct to satisfy urgent requests of the government as much money as is needed. Reasonably, of course. That is, Azerbaijan today is able to solve the most difficult problems on its own.

And the fight against the crisis at the expense of the country's internal capabilities, without resorting to external borrowing and devaluation, will in any case have a positive impact on the process of economic recovery in the post-pandemic period. After all, the fight against the consequences of the pandemic in the economy consists of two stages. So, at present, the deepening of the crisis is prevented and stability is maintained, and at the second stage, economic recovery will begin. For economic recovery, access to markets that create cheap financial, light tax burdens and demand is more important. And we must be ready for this. President Ilham Aliyev minimised the damage from the pandemic and took all measures for a painless way out of the situation caused by the pandemic.

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