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PM: Azerbaijani economy developing despite negative global trends

13 March 2020 19:40 (UTC+04:00)
PM: Azerbaijani economy developing despite negative global trends

By Ofeliya Afandiyeva

Azerbaijani Prime Minister Ali Asadov has said that Azerbaijan’s economy is developing despite the negative economic trends in the world, the official website of the Cabinet of Ministers reported on March 11.

Asadov made the remarks during the meeting at the Cabinet of Ministers on March 11, to discuss the situation in the global energy market and its impact on the country’s economy.

The PM reminded that the coronavirus outbreak worldwide and the sharp drop in oil prices has negatively affected the global economy.

“Thanks to the measures taken, the country’s economy is more stable than during the global financial and economic crisis that began in 2014. I want to note that despite the negative economic trends in the world, our economy is developing, and the country's financial capabilities are expanding. As the head of state emphasized, the country's economy has a fairly high financial immunity and an 'airbag'. The positive international investment position of Azerbaijan indicates that it acts as an international creditor,” Asadov said.

The PM noted that currently oil prices in the global energy market are about $18 less than $55, the envisaged figure in the 2020 state budget.

“The positive development dynamics continues in the country this year. So, in January-February 2020, GDP increased by 2.8 percent and non-oil GDP by 6.7 percent. Inflation is 2.8 percent,” he emphasized.

The prime minister, underlying the complexity of the global economic situation, said that the government monitors the situation on a daily basis and the current situation in the national economy is manageable.

“The country has sufficient financial resources against events taking place in the oil market and the global economy. Our strategic currency resources exceed 100 percent of the gross domestic product (GDP), and are six times higher than foreign public debt. In this regard, I urge the business community and the population to demonstrate restraint amid occurring changes. At the same time, I want to inform you that control over the foreign exchange market will be strengthened, illegal actions and cases of abuse of the situation will be resolutely suppressed,” Asadov called.

Currency reserves

The Chairman of the CBA Elman Rustamov spoke about the recent tension on the foreign exchange market and the current situation in this area in connection with the fall in oil prices. He stressed that the country is ready for such challenges.

“We have sufficient experience in crisis management. On one hand, during the period of high oil prices, our strategic currency reserves were increased. Currently, there is a growth of about $10 billion. It enables us to afford the means and tools to influence such situations. The source of the ongoing events is abroad – it does not stem from the economic, social and political processes happening in Azerbaijan. On the other hand, the sharp drop in oil prices in the world market for short term has not considerably affected trade or on the balance of payments in Azerbaijan”, Rustamov underlined.

Answering to the prime minister’s questions on whether any restrictions are applied in connection with the foreign currency sale and what measures can be undertaken to mitigate the negative impacts, Rustamov noted that in such cases the demand for currency in foreign exchange auctions and market grows.

“The Central Bank held an auction on March 10 to meet this demand. Moreover, an extraordinary auction was held today. At both auctions, we fully covered the market's demand. In addition, a sufficient amount of cash currency was imported into the country in advance and all the needs of banks in cash and non-cash currency were fully met,” he stressed.

Stating that there are no restrictions for interbank exchange or conversion of physical and legal entities’ deposits within the possible resources of the banks, Rustamov noted that there is observed queues in banks.

“It was decided to extend the daily working hours of banks by an hour. Moreover, the Central Bank and entities of the financial and banking sector will be open on both Saturday and Sunday in usual working schedule. Therefore, our citizens, using these opportunities, can exchange their money at currency exchange points in non-working days, too. On the other hand, following the Government’s instructions, we will plan our working schedule for holidays as well,” Rustamov added.

Speaking about the current economic situation in Azerbaijan and the possible impact of declining oil prices in the short and medium run, the Minister of Economy Mikayil Jabbarov said that today, in general, two factors have potential to affect the country's economy - the coronavirus epidemic and the failure of the OPEC + agreement.

“I want to note that the economy of Azerbaijan will remain stable in the beginning of 2020. The GDP growth rate for the last two months was 2.8 percent; the GDP growth rate in the non-oil sector was 6.7 percent. In the non-oil industry, production growth rose to 21.7 percent, while the non-oil sector increased its investment volume by 21 percent. Obviously, the spread of the coronavirus epidemic has had a negative impact on some areas of activity, for instance, tourism and air transport. In other areas, however, we observe a certain increase. At the same time, the nominal growth rate of cash income of the population rose from 5.1 percent to 8.9 percent,” Jabbarov pointed out.

He stressed that the amount of strategic currency reserves is sufficient for continuous three-year financing of goods and services. It implies that reserves are 5 times greater than the volume of all manat in circulation and 9 times greater than the volume of cash manat mass. This is a fundamental condition for ensuring the balance of the foreign exchange market and maintaining macroeconomic stability.

“At the same time, the relevant agencies of the Ministry jointly with the Central Bank are taking flexible measures to maintain the balance and stability of the manat in the foreign exchange market. In accordance with the legislation, control over the sphere of cash flow will be strengthened, attempts to unjustifiably raise prices and create an artificial shortage in the consumer market will be severely suppressed. At the same time, measures to combat unfair competition and tax discipline will be intensified,” the minister said.

Speaking about the impact of a decrease in oil prices on revenues and expenditure of the state budget for 2020, the Minister of Finance Samir Sharifov stressed that a decrease in oil prices on the world market will undoubtedly lead to a decrease in Azerbaijan’s income.

“While considering the state budget approved for the current year, we see that the main sources of budget revenues are tax revenues, tax payments by SOCAR and the companies operating under the production sharing agreements. Most of SOCAR’s revenues accounts for the domestic market revenues. Therefore, the decline in oil prices does not affect this. As for the companies operating under production sharing agreements, of course, their tax payments may accordingly reduce due to the decrease in oil prices. However, the situation is quite normal because the decline in this income is at the level of 1-1.3 percent of revenues which are projected in the state budget,” Sharifov informed.

The minister stressed that the forecast indicators of the tax agencies for two months of this year have been fulfilled and at the same time, the customs authorities’ revenues have also been realized. The amount now exceeds $ 2,357,805.96.

“Furthermore, the transfer from SOCAR plays an important role in budget formation… That is, the current state budget has been insured against short-term foreign shocks and no great impact will be observed. It should be noted that following the president’s instructions, work on cost optimization is underway. Moreover, in connection with coronavirus in the world, the number of certain international events and some business trips is also expected to be postponed in Azerbaijan. This savings will also be used effectively,“ Sharifov noted.

Head of the Department of Economic Issues and Innovative Development Policy of the Presidential Administration Shahmar Movsumov, noting the volatility observed in oil prices in 2014-2016, said that at that time oil prices had fallen from $140 to $30.

“It was a dramatic volatility. Compared to that, the observed changes today are not so great. Naturally, the dependence of Azerbaijan's economy on oil prices has also considerably decreased during these years. This, of course, became possible as a result of a well-thought-out policy of the head of state. Today, Azerbaijan’s economy is quite stable. The exchange rate pressure is also based on psychological factors. Although Azerbaijan does not make any changes today, our resources will allow us to operate more sustainably over the next 20 years. I believe that there is no reason for concern”, Movsumov said.

A number of decisions were made during the meeting.

The Central Bank and the SOFAZ were instructed to continue to take the necessary measures to maintain stability in the foreign exchange markets.

The meeting was attended by Assistant to the President of Azerbaijan - Head of the Department of Economic Issues and Innovative Development Policy of the Presidential Administration Shahmar Movsumov, Minister of Economy Mikayil Jabbarov, Minister of Finance Samir Sharifov, Chairman of the Central Bank of the Republic Azerbaijan (CBAR) Elman Rustamov, CEO of the State Oil Fund of Azerbaijan (SOFAZ) Israfil Mammadov and Assistant to the Prime Minister Fakhri Ismailov.

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