By Aynur Karimova
Azerbaijan's national currency, the manat, will not devalue neither before the end of this year nor the next year, economic expert Fuad Alizade believes.
"When observing the results of the first half, we can see that many leading companies have reduced their investments in the oil and gas sector. This will lead to a decrease in oil production, and accordingly, the process of supply and demand will be balanced," he told local media.
Azerbaijan is the third-largest oil producer in the former Soviet Union after Russia and Kazakhstan. Oil and gas make up 95 percent of Azerbaijan’s exports, over 65 percent of its state revenues, and 40 percent of its GDP.
Azerbaijan’s manat had been stable at just over 0.78 per dollar since mid-2011 until the recent slump in global oil prices put downward pressure on the currency.
Meanwhile, Samir Aliyev, an expert at the "Support for Economic Initiatives" public union, believes that three important factors – global decrease in oil prices, capital inflows, and devaluation process in neighboring countries – put pressure on Azerbaijan's national currency.
"Firstly, an increase in the oil prices is not expected in the near future and saving the current strap will create problems for Azerbaijan's state oil fund SOFAZ, the budget deficit of which could reach 4 billion manats ($3.81 billion) by the end of the year," he said. "The second factor pressing Azerbaijan's manat is the capital inflow. In July last year, the currency reserves of the Central Bank of Azerbaijan demonstrated maximally high indices of over $15 billion. Later, this increase trend was followed by a decrease, amounting to $11 billion After the February devaluation of manat, the panic among the population finally stopped and the purchase of dollars stopped as well. However, the decrease of the currency reserves of the CBA continued."
According to Aliyev, the devaluation processes taking place in the neighboring countries are also affecting the exchange rate of the manat.
"Two weeks ago, the panic among the population was formed due to the reason that the national currencies of Kazakhstan, China, and Russia depreciated. If the Azerbaijani government decides to move to the floating exchange rate of the manat, then one U.S. dollar will be equal to three manats, and maybe higher," he stressed.
The expert also said that the CBA did not devalue the manat in the previous economic crisis of 2008-2009, and this risk eventually proved to be justified – the price of oil in the world market began to increase. Thus, the country's central bank was able to maintain a stable exchange rate of the manat.
"However, all the events taking place in the world allow saying that the decrease of the oil prices will be long-term. The price of oil will not exceed $70 per barrel at least in the next two years. However, the optimal exchange rate of the manat is also an important factor in the development of the non-oil sector of Azerbaijan, as it also depends on the oil sector" the expert added.
Although Azerbaijan’s economy is less affected than other CIS states by the economic crisis in neighboring Russia, its economy depends on the oil and gas sector. Thus, Azerbaijan, the biggest economy in the South Caucasus, was forced to devaluate its national currency.
The CBA set the manat at 1.05 against the USD in February 2015, compared to 0.78 earlier. The move aims to strengthen “international competitiveness,” amid pressure on the country’s finances from falling oil prices.
Since the beginning of 2015 foreign exchange reserves owned by the CBA, decreased by $5.37 billion (42.3 percent).
The official exchange rate for September 8 was 1.0482 AZN/USD.
Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova
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