The chairman of the Central Bank of Azerbaijan (CBA) said that they would not allow manat ‘to float’ in any direction and that the CBA would use auction to offer a certain amount of the currency and follow the supply and demand formation process. This shows that the CBA again intends to spend currency reserves in the market, a step that does not solve the problem completely, said Gubad Ibadoglu, the chairperson of the Economic Research Centre, according to Minval.az.
Ibadoglu does not exclude a third, ‘even more severe’ wave of devaluation.
“Despite the much-discussed fall of the Russian rouble and the Ukrainian hryvnia, prominent experts share the opinion that the weakest national currency of 2015 is the Azerbaijani manat,” Ukrainian online magazine Profi-forex.org writes.
Arastun Orujlu, the director of East West Research Centre told Minval.az that the authorities will probably try to supress any form of mass protest against the second devaluation, although it can be quite risky. “Still, the authorities will do that for the simple reason that they have no alternative. They never dealt seriously with economy, never paid attention to the real social and economic development of the country. They were more concerned with creating an illusion of a good life, development, prosperity, and this illusion is now ruined, something that could have been expected,” Orujlu said.
Ekho.az, a local newspaper, writes that labour migrants, whose number may be reduced by 50 percent, have started to flow out from Baku to regions. According to the newspaper, the labour market of Azerbaijan ‘has been in fever’ since the first wave of devaluation in February. “We know, that it is easier to find a job in the capital, while the regions already suffer a real economic stagnation. There is no job, and this forces young citizens, who are capable to work, to look for a ‘labour happiness’ in Baku or in Russia. However, the labour workers outflow from the capital conditioned with the manat devaluation started back in February. The second wave of devaluation will increase the deurbanisation process,” Ekho writes.
“According to non-official data, there are about 1 million internal labour migrants in Baku today, who have arrived from different regions of Azerbaijan. I think if the current difficult economic situation persists, 50 percent of them will have to go back home,” independent economist Seyfal Aliyev told the newspaper.
Turan agency writes that the trading sector remains unstable and the prices of food and other products continue growing. The correspondents of the agency observed from 30 to 40 percent rise of prices of both local and imported products. “Even the factory-made bread costs 10 gapiks more. Meanwhile, the price of a number of dairy products still remains unchanged. The price of cigarettes went up by 50 percent,” the agency writes.
Haqqin.az reports that manat devaluation led to a 20 percent rise of medicine prices on average. Pharmacy owners say the prices will still go up.
The wholesale prices of flour reportedly rose by 20 or 25 percent.
The deputy health minister of Azerbaijan, Elsevar Agayev, said the sales of several types of medicine may be limited in Azerbaijan to avoid a deficit and cease of medicine sales in the market as a result of the devaluation, Trend agency reports.
Local APA news agency reports that the prices and weight of factory-made beard sold in the stores differ. A loaf of bread, supposed to weigh 500 grams according to state standard, weighs 420 grams. A monitoring shows that the entrepreneurs in the market are choosing between reducing the weight of the bread and rising its price.
“The stores have run out of cigarettes. The companies do not supply the product. Today we received only bread and dairy products. We are still not told anything. We are waiting,” a sales assistant told Qazqaz.info, as cited by Oxu.az.
Azerbaijan Railways CJSC has raised the price of rail tickets to international destinations as a result of the manat devaluation, head of the press service of the CJSC Nadir Azmammadov told Trend agency. Ekho.az reports a 30 percent decline of sales of New Year tours abroad and notes that the devaluation has made many Azerbaijani citizens forget about the holiday being just ahead.
“AZAL has rose the prices of air tickets and hotel booking is done in accordance with the dollar rate. As a result, many travel agencies are breathing their last. Today, only the citizens who have purchased their tours well in advance will go on New Year trips, and they are not many,” economist Seyfal Aliyev told Ecko.az.
The manat’s fall will hurt the already fragile banking sector of Azerbaijan, Fitch Ratings Agency said https://www.fitchratings.com/site/fitch-home/pressrelease?id=997144.
According to the agency, the devaluation will have a negative impact on banks’ asset quality, as loan dollarisation is high. The devaluation will also lead to a reduction of the capital adequacy indicator of the banks.
“We expect that some banks will not meet minimum prudential capital adequacy ratios at end-2015. <…> In the medium term, the devaluation will have a negative impact on banks’ asset quality, as loan dollarisation is high. The share of dollar-denominated loans in the sector was around 50% at end-3Q15 and will probably rise above 60% following today’s move. Because most of the country’s borrowers do not have access to foreign currency revenues, their debt service capacity will be impaired. Asset quality in the sector is further undermined by the weak business climate in the broader economy,” the agency said in a statement.
According to the agency, liquidity support to the banking sector should be available from the central bank, in case of need. The central bank already introduced a currency swap arrangement with the banks to bolster local-currency liquidity this year. Azerbaijan’s very strong sovereign balance sheet provides a ‘considerable buffer,’ with the State Oil Fund of Azerbaijan’s assets at USD34.7bn at 1 October, equivalent to 65% of forecast end-2015 GDP. The sharp exchange rate adjustment eases the oil shock’s fiscal impact by boosting the local-currency value of oil revenues and a floating currency should help stabilise reserves.
Fitch also highlights Azerbaijan’s high dependence on oil and gas, with hydrocarbons accounting for 95% of goods exports, 75% of budget revenues and 40% of GDP in 2015.
According to Report.az, a number of commercial banks in Azerbaijan have temporarily stopped giving out credits both in dollars and in manats. Mainly, the consumer credits have been limited. The banks say the sale of credit products was stopped in order to carry out a due analysis of the situation.
Levan Kalandadze, Georgian expert on economics, says the December devaluation of manat may have a negative impact on Georgia, with the rise of prices of Georgian products in Azerbaijan and reduction of currency flows from the neighbouring country. This may also result in a decline of Azerbaijani investments in the Georgian economy in 2016.
The major importers in Azerbaijan have started to reconsider their pricing policy. According to Minval.az, the company Veyseloglu had announced it switched to a floating pricing policy.
APA agency reports that the prices in the consumer market continue going up following the December 21 devaluation.
Nusret Ibrahimov, the CEO of MBA Group consulting agency, told APA that both the imported construction materials and those of local production have become more expensive. “In total, a 15 or 20 percent rise of prices is possible. The COGS of construction materials is between 38 and 40 percent in the construction market. If the price of the construction materials rises by 7 or 8 percent, the share of the construction market in COGS will not exceed 3 percent,” the company said.
Mustafa Abbasbeyli, the CEO of the supplier of Japanese cars into the Azerbaijani market, told APA that the prices of the imported cars would rise in accordance with the devaluation level.
Haqqin.az reports that Music Gallery, one of the best-known electronics stores in Baku, which had closed down immediately after manat’s fall, opened on 23 December and shocked the customers with its prices. The customers told the website that a Business Laptop from Apple is sold for 7720 manats.
The website cites ANS Press as reporting that Baku bus terminal has stopped selling tickets.
Economist Natig Jafarli, the executive secretary of REAL movement, told Turan and Voice of America that there was no need for a new drastic devaluation. “The rates of the CBA currency reserves reduction will also slow down. However, the decrease of economic activity will result in a reduction of tax incomes of the state budget,” the expert said.
He added that the local products, whose share, as claimed by the government, makes up 55 percent in Azerbaijan economy, will also become more expensive. This is explained by the fact that the raw material for many products is imported. According to the economist, administrative methods will not be capable to restrain the prices and a serious inflation is expected with prices rising for 25 or 30 percent.
Another Azerbaijani expert, economist Gubad Ibadoglu, wrote on his Facebook that the Central Bank is operating a ‘prospectless’ practice of spending currency reserves. “If the Central Bank does not rely on a really diversified economy, the country will face a third wave of devaluation,” the expert writes as cited by Turan.
According to Minval.az, the devaluation will also hit the media. “The newspapers could hardly stay afloat before the devaluation. Our incomes will remain the same while our spending will grow twice. It is hard to predict what is in store for us,” said Alesker Suleymanov, the CEO of the newspaper Yeni Musavat, as cited by the website.
Meanwhile, amid the panic among the population and business connected with the almost 50 percent devaluation of manat, the Youth and Sport Minister of Azerbaijan, Azad Rahimov, said the devaluation will not tell on the budgets of Islamiada and Formula1, as their budgets were calculated in dollars. However, he said Azerbaijan will not cover the travel and accommodation costs for the the Islamiada athletes, as they did during the European Games in summer 2015.
As of the daytime of 24 December 2014, manat rate is 1.5528 AZN/USD, 1.6974 AZN/EUR, 0.0223 AZN/RUR, according to the website of the Central Bank of Azerbaijan.
On 21 December 2015, the Central Bank of Azerbaijan made a decision to switch to a floating rate of the national currency manat. As a result, the exchange rate of the US dollar and Euro to manat rose by 47.6 percent and 47.9 percent and stood at 1.55 manats and 1.685 manats, respectively.