High oil prices to improve Azerbaijan’s external balance – BSTDB president (Exclusive)

Oil&Gas Materials 26 October 2021 13:02 (UTC +04:00)
High oil prices to improve Azerbaijan’s external balance – BSTDB president (Exclusive)

BAKU, Azerbaijan, Oct.26

By Leman Zeynalova – Trend:

High oil prices will improve Azerbaijan’s external balance by increase the current account balance surplus, Dmitry Pankin, President of the Black Sea Trade and Development Bank (BSTDB) said in an exclusive interview with Trend.

"This will be translated into higher reserves and will pile up pressure on the real exchange rate, which can negatively impact non-oil exports. It is well known that Azerbaijan’s oil reserves are finite and oil prices are volatile. For that reason, Azerbaijan has been pursuing the policy of increasing the share of the non-oil sectors in the economy. This, in turn, depends on the competitive exchange rate.

We believe that authorities in Azerbaijan are aware of this fact. So, rather than spend all the revenues from the increased oil and gas revenues, Azerbaijan will probably try to save as much as possible in the sovereign wealth fund (SOFAZ) for the later generations and to be used when the country will face shocks. This policy will improve Azerbaijan’s resiliency as higher reserves are generally translated into higher creditworthiness. Higher creditworthiness will be translated into the availability of cheaper financing options. The key element in here would be to streamline additional oil revenues and cheaper funding to investments rather than current spendings either by the public sector or households,” said the BSTDB president.

Pankin pointed out that however, uncontrolled spending of the oil revenues might create a bubble that can explode anytime, increasing contingent liabilities on the public sector and undermining other sectors of the economy.

“Up to now, particularly after 2008/9 global financial crisis, we have seen generally cautious policy in Azerbaijan and our other member countries. Based on this past experience and statements and strategies, there are all the reasons to believe that Azerbaijan will take a cautious line, by saving more of the oil and gas windfall and use it as an important element for better creditworthiness that will be helpful for the non-oil sectors of the economy,” he added.


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