By Leman Mammadova
The annual Fitch Ratings conference discussing the situation in the banking sector, including the existing challenges, the macroeconomic indicators of Azerbaijan, reforms and the development of the country’s economy, as well as trends in the global oil and gas market took place in Baku on April 4.
Deputy director of the State Debt Management Agency of the Azerbaijani Ministry of Finance Azer Mursagulov said that the reforms carried out in Azerbaijan have helped stabilize the economy, reduce inflation, and increase foreign exchange reserves.
In particular, he noted the reforms carried out in the financial sector.
"Among them, new fiscal rules and government debt management strategy are of special importance," he said.
According to Mursagulov, the limit on the use of oil revenues will be calculated annually in accordance with the rules.
He also remarked that the public debt management strategy was approved last August by President of Azerbaijan Ilham Aliyev, and aims to improve the macroeconomic situation in the country.
Speaking at the event, Director of the Monetary Policy Department of the Central Bank of Azerbaijan (CBA) Azar Alasgarov noted that inflation rate in Azerbaijan will remain at a stable level during the year.
He said that the current account balance is 13 percent of GDP.
“Azerbaijan is one of the few countries where the current account balance of total GDP is equal to a two-digit number,” he said.
He further added that the work also continues in order to develop the non-oil sector and non-oil exports, tourism is developing.
He noted that the foreign exchange market functions in a balanced mode, and Azerbaijan’s foreign exchange reserves continue to grow, dollarization is declining.
The monetary policy of the CBA is aimed at stabilizing prices in the market, he said.
Alasgarov further added that the CBA plans to issue long-term notes.
“We plan to issue notes for three, six months, as well as for a year,” he said.
The circulation period of the CBA notes is 28 days. Average interest rates on notes are about 7 percent.
Short-term notes are a tool of monetary policy to regulate money supply in circulation. Only banks can obtain notes.
Speaking about the oil and gas production in Azerbaijan, Director of natural resources and commodities group at international rating agency Fitch Ratings Dmitry Marinchenko noted that the average daily oil and condensate production in Azerbaijan will reach 880,000 barrels by 2022.
He said that further production will gradually decrease until 2028 - 860-870,000 barrels per day.
Gas production in Azerbaijan from this year will grow with the second stage of the Shah Deniz field development, he noted.
Production growth will continue to remain at a stable level until 2026, he added.
According to Azerbaijan’s State Statistics Committee, in January-February 2019, Azerbaijan produced 6.4 million tons of oil and gas condensate. Over the same period, the volume of gas produced amounted to almost 5.9 billion cubic meters, including 3.9 billion cubic meters of commercial gas.
In 2018, Azerbaijan produced 38.76 million tons of oil and gas condensate, which is approximately equal to the production volume in the previous year. Gas production amounted to 30.59 billion cubic meters (an increase of 7.1 percent) in 2018,while commercial gas production stood at 19.2 billion cubic meters (an increase of 5.8 percent).
He went on to say that global oil prices will soon be in the range of $50-75.
Marinchenko noted that Fitch expects that the lower limit of oil prices will be $50-55, with the upper limit standing at about $70-75.
He underlined that oil prices have significantly increased since the beginning of the year, which was promoted by the OPEC+ agreement and the current political landscape.
He added, however, that there are factors that could lead to lower oil prices.
In particular, the situation in Iran and Venezuela may affect the oil prices, should it remain unchanged over the next 2 years.
An agreement on reducing daily oil production by 1.2 million barrels was reached at the 5th OPEC and non-OPEC Ministerial Meeting in Vienna on December 7, 2018. As part of the agreement, Azerbaijan has reduced daily production by 20,000 barrels since January 1, 2019.
Representative of the Financial Market Supervisory Authority of Azerbaijan (FIMSA) Ayten Mammadova said that FIMSA proposed to reduce the average interest rate on loans
"We think that interest rates are high, so we have proposed to reduce them," she said, adding that the proposals are being discussed.
Mammadova also stressed that the reforms being carried out in Azerbaijan had a positive impact on the country's economy.
“The reforms have had a positive effect on almost all sectors of the economy,” she said.
She stressed that there are a stable macroeconomic sphere and a balanced banking sector in the country.
“The savings in the national currency are increasing every year,” she said.
According to the CBA, the average interest rates on loans in the country amounted to 14.4 percent for manat loans and 7.89 percent for loans in foreign currency in January 2019.
The rates for loans to individuals in manat amounted to 17.34 percent, while in foreign currency - 14.55 percent. For legal entities, the rates amounted to 9.31 percent and 5.95 percent, respectively.
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