Azerbaijan's CAERC: Stirring investment market - most effective way to combat crisis

Azerbaijan's CAERC: Stirring investment market - most effective way to combat crisis

BAKU, Azerbaijan, Apr. 3

By Fidan Babayeva - Trend:

A balance of current operations in Azerbaijan’s payment balance last year amounted to $4.4 billion and the reserve assets increased by $5.1 billion with an average oil price of $64 per barrel, Vusal Gasimli, Executive Director of Azerbaijan’s Center for Analysis of Economic Reforms and Communication (CAERC) said, Trend reports on April 3.

According to him, this year the price of oil, which dropped by 60 percent, will remain at a low level for a long time.

"The annual cut in oil production in Azerbaijan and the growth in the cost price should be taken into account. In such conditions, the main source of ensuring sustainable development and equitable balance of payments, considered to be mirror of the economy, is an increase in investment. This is one of the main goals of the program and strategy prepared in accordance with by decree of President Ilham Aliyev on March 19, 2020," he said.

According to Gasimli, in accordance with the economic cycle, Azerbaijan experienced a period of recession in 2015–2016 and recovery in 2017–2018, then entering the development phase in March 2019. The pandemic and global upheavals close the economic cycle of 2015-2020 in Azerbaijan, after which a new cycle begins.

“At present, our strategic reserves allow us to support aggregate supply by increasing government expenses, reducing the tax burden and stimulating private investment. But in this case there will be more demand for manat, and if we don’t change the money supply volume, the bank interests may increase. Since the priority at this stage is to increase investment activity, in order to maintain equilibrium in the financial market, the money supply must increase so that the interests don’t increase. At the last deposit auctions, manat had been already raised less than the Central Bank demanded, and the percentage of transactions with manat is growing," he said.

Gasimli noted that in order to increase investments, it is important to lower real interest rates and have easy access to cheap loans.

“According to the Hicks-Hansen model, the investment growth can lead to an increase in GDP and re-accumulation, which will help maintain equilibrium in the market for goods and services,” he added.

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