BAKU, Azerbaijan, March 26
The coronavirus pandemic and the collapse of world energy prices caused economic problems in many countries. At the same time, oil exporting countries, including Azerbaijan, faced the biggest economic challenge. The country's banks play major role in eliminating the negative impact of the coronavirus pandemic and lowering oil prices.
We spoke with Shakir Rahimov, the Chairman of the Supervisory Board of one of the country's leading banks – “Bank Respublika” about the situation in the economy of Azerbaijan amid falling oil prices and the fight against the spread of the coronavirus.
How has the COVID-19 affected global energy prices, the stock markets and the global economy in whole?
The new type of coronavirus - COVID-19 has already influenced and will continue negatively affect the global economy. Unprecedented self-isolation measures aimed to contain the spread of pandemic in many countries led to significant reduction of demand of most of goods and services and made multiple industries completely unprofitable, which led to significant reduce in oil demand. The situation was also worsened by the panic in the global stock markets, where we saw a record drop of almost all companies’ share values. Consequently, the decline in oil demand and negative expectations amid falling stocks collapsed oil price.
You have mentioned the oil prices. Can you briefly describe what is happening in the oil market?
The declining trend in oil prices began in January 2020, when it became clear that coronavirus would have an extremely negative effect on the Chinese economy (15 percent of world GDP) and, thus, on the world’s economy in whole. In a short time, oil supply significantly exceeded global demand. However, the reduction in oil prices was not significant, as market players expected OPEC+ (the main oil exporting countries, mainly Arab states, plus Russia, Kazakhstan and Azerbaijan) to reduce production and thereby bring oil demand and supply in equilibrium.
But, unfortunately, this did not happen: the main negotiators - Russia and Saudi Arabia did not come to an agreement. This caused the oil price collapse in early March. However, taking into consideration that low oil prices are not profitable for Russia, Saudi Arabia or the United States (these are the three main oil producers), I think they will agree in upcoming months to reduce oil production, which will return oil prices to the range of $45-$50.
What can you say about the impact of low oil prices and the coronavirus pandemic on the country's economy? How prepared are we for what is happening?
As an oil exporting country, we are negatively affected by two external factors: the economic situation in the world and low oil prices. And this is a serious challenge for the country. On the top of already mentioned shocks is also a self-isolation policy within the country: people buy fewer goods and less use services. But I am sure that together we will cope with this challenge. We are now much better prepared for low oil prices than at any other time in the past, for example, in 2015.
I will try to list the main, in my opinion, positive factors:
1) probably, the most important is the reaction and behavior of the country's administration in a crisis situation. It is encouraging that logical decisions are taken quickly and then successfully implemented. I would like to underline the personal initiative of Mr. president in this scope;
2) budgetary rules have been adopted to reduce the negative impact of oil price volatility on the country's budget, which allows to ensure all social obligations of the state;
3) we have increased international reserves since 2015, and if we compare the ratio of reserves to the country's GDP in US dollar terms, this figure is much higher than it was in 2015;
4) low ratio of external debt to GDP;
5) tighter control over speculative currency transactions;
6) reforms in the tax and customs spheres that led to a significant whitening of the economy and an increase in tax and customs duties (it should be mentioned that given the importance of business for the development of the economy this whitening in the tax sphere carried out more through motivation than punitive measures, and I am sure that the merge of the Ministry of Taxes and the Ministry of Economic Development will help to continue this strategy);
7) the implementation of an exceptional model of synthesis of new generation’s managers (knowing many of them, I can say that these are high-class professionals) with experienced older generation’s managers.
You know that in order to reduce the negative impact of the coronavirus pandemic on the economy, macroeconomic stability and the business climate in the country, President Ilham Aliyev signed a decree that set important tasks for many state bodies. Could you please provide more information about this decree and other steps taken by the country's administration during this difficult time?
In my opinion, the state has taken exceptional proactive measures to prevent the spread of coronavirus in the country, several weeks (and in some cases a whole month) ahead of most of other countries. As some examples of timely decrees of Mr. president can be mentioned the creation of an operational headquarters consisting of senior officials under the management of the prime minister; allocating funding to reduce the negative impact of the coronavirus pandemic on the economy and social sphere, establishment of a Fund to Fight the pandemic, closing borders, introduction of a special regime, increase of medical workers’ salaries.
By a decree of March 19 Mr. president demonstrated the most important in the current situation: that the government will provide the necessary support to the population and the private sector. In accordance with the decree, 1 billion manat was allocated to support the economy, social sphere and macroeconomic stability. We were one of the firsts to allocate money from the budget for these purposes.
The Ministry of Economy, the Ministry of Finance, the Ministry of Labor and Social Protection and the Central Bank were given exact tasks: revealing sectors of the economy and segments of the population to suffer most from the COVID-19 pandemic; preparing and providing the Cabinet of Ministers with the information on the levels of potential losses in these areas and suggesting measures to support these groups; assessment of the negative impact of the coronavirus pandemic on the banking sector and macroeconomics; preparation of proposals to support the stability of manat and consumer prices.
By another presidential decree was created a support Fund to Fight coronavirus, to which the state transferred 20 million manat. It is very heartwarming that not only the public but also the private sectors responded promptly to the president’s call to demonstrate its social responsibility. In just a couple of days, more than 40 million manat was transferred to the fund. The banking sector immediately supported the initiative of Mr. president.
Among the measures taken, I highly appreciate the First Vice President Mehriban Aliyeva’s address to the nation aimed to comfort and educate population of applying of principles of precaution, personal responsibility and care about the elder generation. I hope that other famous people will follow her example.
How do banks see their social responsibility? What are banks and, particularly, Bank Repspublika doing in this direction?
It is very important to note that banks, realizing their social and state responsibility could correctly react to emerged needs: to ensure uninterrupted supply of necessary goods to the country banks transferred entrepreneurs’ funds swiftly in the same time continuously serving a large flow of individuals. Banks have been working seven days a week and almost without breaks during the last weeks. I am very proud of all banks’ employees, who, despite the risks, tiredness and many other problems, were working courageously, spoke to a large number of customers fulfilling their civic duty. An important role in the coordinated work of banks played the Central Bank of Azerbaijan and the Association of Banks of Azerbaijan. Meetings were held and crucial decisions were made almost every day.
Bank Respublika, being one of the leading banks in the country, showed once again its social responsibility at these challenging times. Thus, the bank was among top three in terms of the number and amount of transactions with the population, serving customers in all branches without setting any limits. The bank was one of the first to transfer money to the Fund to Fight the pandemic, one of the firsts to respond to the call of Mr. president to join the program of self-employment of the population. Following the recommendations of the operational headquarters, the bank transferred all customer-entrepreneurs using the old version of Internet banking to a more modern and convenient version, enabling customers to remotely conduct all operations.
As you said, external shocks led to problems in many sectors of our economy. What, in your opinion, should the state bodies and banks do to compensate the negative consequences?
In my opinion, the government should take the following measures:
1) to provide temporary tax benefits for entrepreneurs affected by coronavirus;
2) to provide additional tax and customs preferences to companies that did not lay off their employees;
3) to provide temporary compensation to the least protected layers of population who have lost their sources of income due to the coronavirus;
4) to more actively attract small and medium enterprises to participate in tenders announced by the government;
5) to strengthen the lending through state funds (Entrepreneurs Development Fund, Agency for Agricultural Loans and Development, etc.);
6) to support banks in micro lending development, especially in the regions;
7) to subsidize part of the interest of loans to entrepreneurs and consumer loans;
1) improve remote service channels and ensure their safety;
2) develop mechanisms for providing customers with a grace period. Of course, the regulator - the Central Bank - should support banks by prudential regulation relaxation and providing the needed liquidity.