Azerbaijan National Bank Guards Manat – Interview with Director of NBA’s Research & Statistics Department
Azerbaijan, Baku / Trend corr I. Khalilova / Both experts and the public attentively follow the rate of Azerbaijani manat (AZN) to USD dollar. Trend interviewed the head of the Research & Statistics Department of National Bank of Azerbaijan (NBA) Emin Huseynov about dollar's influence upon Azerbaijani economy:
Question: What can you say about the current situation in the rate of USD to AZN?
Answer: High dynamics of macroeconomic background and profound grow of all social and economic indices, which has been underway in Azerbaijan for several recent years, is a direct result of successful implementation of oil strategy. That caused a rapid increase in production and export of Azerbaijani oil, which in its turn resulted in decrease in surplus of the running account of payment balance and dramatic rise in foreign currency revenues of the Government and the companies engaged in that field.
Increasing opportunities of the State give as a good change to solve a range of transitional economy's problems, enables acceleration of modernization and development in the country, because large-scale social and infrastructural projects implemented by the Government are partially financed through oil revenues.
The Government achieves maximum efficient and economical use of the resources for achievement of strategic development goals. Economic policy and the policy of reforms is maintained by the programs on development of well-known international institutions, such as the program of 'Stable economic growth and reduction of poverty', 'Transformation of black gold to intellectual gold', 'Development of regions', and so on.
On average, during the recent 2 years Governmental expenses increased by 51%, over half of the expenses were financed through oil revenues in foreign currency. But as implementation of the aforementioned projects is mostly implemented in Azerbaijani national currency, spending of oil revenues caused more demand in AZN, which can be met through sale of foreign currency in the internal open currency market. However, foreign currency demand is mush lower then the supply and it is mainly formed through oil sectors of the economy. For instance, a part of budget goes for foreign equipments.
This year oil revenues supposed to be spent through consolidated budget will constitute $5bln. And currency demand in non-oil sectors is expected to comprise $3.4bln. Consequently, currency supply will exceed the demand, and the balance can be restored only trough AZN rate rise. That is why these processes attentively followed by the National Bank of Azerbaijan, which if necessary irons out fluctuations of the national currency rate through intervention of currency in the internal market, prevent AZN from dramatic rise. Otherwise, macroeconomic and financial stability in the country can be undermined and the competitiveness of non-oil exporters can dramatically drop in near future.
It is worth mentioning that in case NBA took a passive part that could lead to consolidation of AZN at least by 18-20%, but in fact in increased only by 2.5%.
Question: How does drop in dollar rate affect Azerbaijani exporters? Has that caused transformation of their operations into euro?
Answer: Implementation of our rate policy cannot be considered without its effect on competitiveness of primarily exporters engaged in non-oil sector.
Competitiveness is best to be considered and analyzed in the long term and in the complex with all foreign trade operations. The rate of AZN to USD is not the single factor affecting foreign trade. The best index for that is the Real Efficiency Rate (RER), which is AZN's average weighted rate as compared to the currencies of our trade partners if the difference between inflation rate in Azerbaijan and those countries is taken out. RER increases during a rather long period, for instance from 3 to 5 years. Thus, our exporters lose a relative privilege in prices as compared to their export rivals. And dropping RER will instead improve competitiveness.
As to the RER dynamics of the recent 7 years, in September of 2007 compared to December of 2000 decrease rate of RER in non-oil sector made up 12.4% in total trade turnover, and 22.9% in export. RER also decreased in oil sector by 6.6% and 4.9% respectively. Thus, AZN's RER decreased, which confirms acceptability of conditions for foreign trade with Azerbaijan's main trade partners.
Drop of dollar also affected dollar's decrease as payment currency in Azerbaijan's import and export operations. In 2004, dollar's share in Azerbaijan's import transactions was 85%, but now it is 76%. And euro's share increased from 7% to 20%. Within the recent 3 years euro also increased in non-oil export from 3.7% to 9.1%. Specific weight of operations implemented in euro in the internal currency market increased from 6% (2005) to 13% (2006), and dollar dropped from 89% to 85%. But despite decrease in dollar's share in export and import operations, it still retains its dominant position.