Elman Rustamov: No threat to stability of Azerbaijani manat’s exchange rate

By Azernews

By Sara Israfilbayova

Azerbaijan’s national currency, the manat, has strengthened by 4 percent since early 2017, said Elman Rustamov, the Chairman of the Central Bank of Azerbaijan (CBA).

Rustamov made the remarks at a conference titled “Economic reforms: the achieved results and recommendations” in Baku on May 30, further adding that the manat has strengthened by 11 percent since reaching its worst indicator and currently there is no threat to the stability of its exchange rate.

“We don’t see significant risks for the manat’s exchange rate until late 2017. I would even say that now the risks of manat’s strengthening are significantly higher than the decline risks,” said Rustamov.

The CBA completely switched to a floating exchange rate regime on January 12, 2017. Following the decision, the manat rate decreased by 10-15 percent against the world currencies for a short period of time. However, then the rate began to stabilize and since early February (the lowest rate of manat since early 2017) has strengthened by 9-12 percent.

Rustamov further said that since moving to the fully floating exchange rate regime, the Central Bank didn’t resort to serious interventions to maintain the manat’s rate.

“Firstly, there was a period of destabilization, which was related to the expectations of market participants. This led to significant cheapening of the manat. However, later the market itself regulated the manat’s rate, and it stabilized. Today, the foreign exchange market is not a demand market, but a supply market,” added the CBA head. “Taking into account Azerbaijan’s strategic goals, strong strengthening of the manat in the medium term may create problems for the balance of payments, given the current measures to reduce import and support export.”

He went on to say that the CBA is not going to make changes in the procedure for holding the currency auctions. “The auctions will be held as before twice a week. The offer of the currency will also remain stable.”

Under the new mechanism, the official rate of manat is set, based on the weighted average rate in accordance with the transactions concluded with commercial banks in the interbank foreign exchange market and in auctions. The auctions are held in the format of the unilateral sale of currency.

He added that the situation around the International Bank of Azerbaijan (IBA) will not affect the stability of the manat rate.

“The plan of the IBA’s restructuring was agreed with [Azerbaijan’s] Financial Market Stability Body,” he noted.

In July 2015, President Ilham Aliyev signed a decree on the measures for rehabilitation related to the preparations for privatizing the state-owned shares of the IBA.

The drawbacks in the management, investment and loan policy of the IBA, as well as financing of less efficient, risky investment projects worsened the Bank's financial state, caused increase in the share of distressed assets and reduced its liquidity.

The restructuring plan considers a restructuring process to be effected through an exchange of IBA’s senior and junior foreign currency obligations for direct sovereign obligations of the Republic of Azerbaijan. The bank’s total debt to foreign creditors is $3.3 billion.

Inflation rate

The CBA considers it’s realistic to achieve a single digit inflation rate in 2017.

"The forecasts of international organizations, including the International Monetary Fund (IMF) and the World Bank (WB), on the rate of change in consumer prices in the country are positive, and we are also conducting our calculations. Our main goal is to achieve a single digit inflation rate in 2017," Rustamov told reporters on the sidelines of the event.

Rustamov stated that various factors influence the inflation. "Inflation is not only monetary in nature, it is also influenced by world prices and a number of other factors that should be properly managed. In general, we consider the reduction of the inflation rate to a single-digit indicator quite realistic."

Prices for consumer goods and tariffs for services in Azerbaijan in January-April 2017 increased by 13.5 percent.

Food products went up by 17.8 percent, non-food products - 12.5 percent, tariffs for paid services rendered to the population by 8.7 percent, according to the State Statistics Committee.

Current account surplus of Azerbaijan's balance of payments

Current account surplus of Azerbaijan's balance of payments for the first quarter of 2017 amounted to $380 million.

 “After a two-year deficit in the first quarter of this year, we see a surplus of $380 million in the current account of the balance of payments,” Rustamov said.

The CBA expects the continuation of this dynamic during 2017.

According to the balance of payments, the surplus of the current account of the oil and gas sector of Azerbaijan amounted to $4.4 billion. This figure was $6.55 billion, in 2015.

The surplus of the current account for the oil and gas sector by 76.3 percent covers the deficit of the account for the non-oil sector of $5.8 billion, which decreased by 15 percent ($1.01 million) in comparison with the previous year.

The financial account deficit declined by 69.4 percent to $2.8 billion a year (excluding dollarization, the figure was $2.3 billion).

The total volume of foreign trade turnover amounted to $22.2 billion in 2016, and the positive balance of the foreign trade balance was at the level of $4.2 billion.

During the reporting period, Azerbaijan conducted trade operations with 186 countries. At the same time, 14 percent of the trade turnover fell to the CIS countries, and 86 percent to other states.

Azerbaijan's reserve assets in the end of 2016 decreased by $539 million, while in 2015 the decrease was at the level of $ 11.33 billion.