On February 21, 2015 the Board of the Central Bank of Azerbaijan (CBA) made a decision to fix the official Azerbaijani manat rate at 1.05 AZN to 1 USD, which means 33.86% of devaluation.
According to the official CBA statement, the decision has been made to give an additional incentive for diversification of the national economy, strengthening of its competitiveness and export potential and ensure strategic stability of payment balance and international paying capacity of the country.
“The thesis that reduction of the national currency stimulates export justifies itself only in case, when the country manufactures competitive products. At present Azerbaijan lacks such products, except for oil and gas. In this case sharp devaluation of manat rate will neither diversify economy, nor stimulate local manufacture,” said Azer Mehdiyev, chairman of the Public Union “Assistance to Economic Initiatives.”
He believes that CBA and the government have decided to fill the quantitative parameters of the state budget using incomes from inflation.
Mehdiyev added that in 2015 transfers from the State Oil Fund of Azerbaijan (SOFAZ) to the budget of the country are forecast to be 10,388,000,000 AZN. With the current rate it would have been 13,318,000,000 AZN. However, with the current rate SOFAZ will need $9.9 billion, which is less $3.4 billion.
According to the Caspian Barrel Oil Studies Centre, at the expense of devaluation the government will resolve several issues at once: first of all, costs of SOFAZ (expenses of the Oil Fund’s budget are approved in AZN, while proceeds are in US dollars). On the other hand, the state budget for fiscal year 2015 was approved with the deficit of 1.6 billion AZN with the average export oil price of $90.00 per barrel. The forecasts of the world energy agencies show that this year average oil price could be about $60.00-65.00 per barrel. This means that real budget deficit would have been no less than $3 billion at the old currency rate. With the new currency rate it is less than $2 billion.
On the other hand, the Oil Fund’s total costs for fiscal year 2015 are approved at 11,813,900,000 AZN. It would have made $15,061,000,000 at the previous rate. With the current rate SOFAZ will need $12,404,000,000. This means that savings will total $2,657,000,000. The Oil Fund’s deficit with the average export oil price of $90.00 per barrel was forecast to be 1.57 billion AZN or $2 billion. But now it is $1.65 billion.
According to the Caspian Barrel’s estimates, with the average annual oil price of $60.00 per barrel the Oil Fund’s budget deficit would have totaled about $4 billion. If the government would not have chosen devaluation, then the budget deficit would have increased up to $7 billion. Until January 1, 2016 SOFAZ’s assets would have dropped from the current $37.1 to $30 billion.
* During 2014 Azerbaijan’s incomes only from the Azeri-Chirag-Guneshli (ACG) decreased by $1.1 billion. The National Bank of Azerbaijan spent $1.5-2 billion a year to maintain AZN rate, but in December 2014 and January 2015 it spend $2.3 billion for this purpose. The currency resources of the Central Bank are estimated at only $12 billion. With such costs the bank’s resources would have disappeared until the end of the year.
