Baku, Azerbaijan, Feb.21
By Azad Hasanli - Trend:
The Central Bank of Azerbaijan made an important decision today that will minimize the negative impact of falling oil prices on the country's economy.
Starting from today, the official exchange rate of the dollar to the manat has been set at 1.05 manat, which is 33.86 percent more than the exchange rate set before the beginning of the weakening process of the rate [February 16].
The matter rests in the fact that the basis of Azerbaijan's export is oil products. On the results of January 2015, the share of oil products in the country's export amounted to 87.69 percent. Given the fact that the sale of oil is carried out in dollars and euros, now Azerbaijan will benefit from conversion of foreign currency earnings from oil revenues into manats.
For example, if in January 2015, oil products worth $1.120, 5 million were exported, incomes in manat equivalent would have amounted to 878.9 million manat at the old exchange rate (0.7844 manat), but now the same amount upon conversion will be equal to 1.176, 5 million manat.
Given the fact that the economy of Azerbaijan still retains dependence on the oil factor, an integral part of budget revenues to the state budget consists of oil revenues. The share of revenues from the oil sector to the state budget for 2015 exceeds 65 percent. Given the fact that the budget for 2015 was set at 19.438 billion manat, the revenues from the oil sector are expected to reach 12.6 billion manat.
At the same time, the price of $90 was taken as the base price for a barrel of oil during the formation of the budget forecasts. This was before the "oil crisis", the price of oil has had time to fall since the adoption of the budget, and as of February 20, 2015, the price of Azeri Light oil was $63.42 per barrel.
That is, taking into account the national currency's rate of 0.7844 manat per dollar, in 2015, the government expected oil revenues of about $24.78 billion [at $90 per barrel of oil].
In practice, due to the fall in oil prices, the incomes would have reduced.
Therefore, the decision to change manat's rate against the US dollar is more than appropriate, because in reverse conversion to manats, it will be possible to compensate for this difference and provide additional revenues to Azerbaijan's state budget and minimize the negative impact of falling oil prices.
Additional revenues to the treasury will allow not to reduce the funding for social and investment projects. On the contrary, it will be possible to direct additional funds for example to increase the salaries of employees of the organizations financed from the state budget, grants, scholarships, healthcare costs, etc.
This will also allow keeping the pace of construction, reconstruction and restoration of schools, orphanages, hospitals and other facilities.
Of course, a certain influence on the rise of prices of imported products isn't ruled out, but the state will not allow artificial increase in prices, and will hold monitoring to prevent such cases.
In addition, with the development of domestic production, Azerbaijan is already self-sufficient in products of basic necessity, particularly in agricultural products.
The country is already fully meeting its needs in some products and exports its products to foreign markets.
Thus, the weakening of manat's rate will further stimulate the development of export-oriented production, the competitiveness of which in foreign markets will increase.
This in turn corresponds to the tasks of the state to diversify the economy.
Azad Hasanli is Trend Agency's staff journalist, follow him on Twitter: @AzadHasanli