Weekly actual topics in Azerbaijan (feb.13-18)

Deposits in national currency prevail in Azerbaijani banks

Savings policy of Azerbaijan's population in 2011 significantly changed. These changes were not only quantitative but also qualitative, indicating the positive processes in the socio-economic life of Azerbaijan amid negative processes in the global economy.

According to the Central Bank of Azerbaijan (CBA) the volume of deposits of individuals in banks in Azerbaijan exceeded 4.119 billion manat in 2011, which is 36 percent higher compared to 2010 (over 3.029 billion manat). Of this total volume of deposits, over 2.281 billion manat (55.4 percent) were placed in the national currency - manat and over 1.838 billion manat (44.6 percent) - in foreign currency.

First of all, growth of deposits of the banking sector on deposits of population by almost 40 percent attracts attention in this statistics. Such a high growth speaks about restoration of the lost confidence of consumers in banks in the country. And there are reasons for this.

First of all, the Azerbaijani banks grow and get stronger. Currently, there are active changes in the banking system; there are processes of its improvement, consolidation and restructuring of banks, the optimization of the number of banks in order to create more healthy banks, development of infrastructure of financial markets, and expansion of services. Competition between the banks for investors goes in the sphere of providing customers with the most favorable conditions of service, the parallel provision of other banking products on preferential terms, holding of promotional activities aimed to attract their attention.

Second, the deposit insurance system, operating in Azerbaijan since August 2007, also contributed to the growth of individual deposits in banks in Azerbaijan. Azerbaijan Deposit Insurance Fund is working to protect bank deposits of the population from the threat of bankruptcy and other financial disasters. During the fund's activities the amount of insurance coverage of deposits increased from 4,000 to 30,000 manat.

Third, citizens of Azerbaijan are gradually moving away from the primitive methods of saving money and banking and beginning to see the benefits of investing available assets. For most people, a bank deposit is a conservative tool with a guaranteed income, such as investing in securities Azerbaijani citizens associate with certain risks.

Fourth, rising incomes of the population play an important role in increasing the size of individual deposits in banks of Azerbaijan. According to State Statistics Committee, in 2011 nominal income of the population of Azerbaijan exceeded 30.633 billion manat, which is 19.6 percent more than in 2010. During this same period, nominal income per capita grew by 18.1 percent and exceeded 3,383 manat. Thanks to the socially oriented programs, and the decrees of the Government, the pace of income growth in 2011 exceeded the growth rate for this indicator in 2010. For example, in 2010 nominal income rose by 13.3 percent, while per capita incomes - by 11.9 percent.

The second attractive part of the Central Bank's statistics on the population's deposits is the excess of manat deposits of Azerbaijani citizens over the deposits in foreign currency. This situation was observed three times in 2011: in August, November and December. This gives reason to forecast a new appearing trend in the deposit-base of the banks in the country.

The volume of physical entities' deposits in Azerbaijani banks in August 2011 amounted to 3.660.7 billion manat, of which 1.837.7 billion manat (50.2 percent) were placed by the population in the national currency - manat, 1.823 million manat - in freely convertible currency, in November - 1.970.1 billion manat (51.4 percent) were placed by the population in manat, 1.859.9 billion manat - in freely convertible currency. It was mentioned that the share of manat deposits and foreign currency deposits in total amount of physical entities' deposits amounted to 55.4 percent and 44.6 percent respectively as of December.

A stable exchange rate of the Azerbaijani national currency must be stressed amid the unstable dollar and the euro. This allowed the population to prefer manat compared to all other currencies. It should be noted that there was panic among Azerbaijani investors, when devaluation of national currencies compared to the dollar occurred in many CIS countries in 2009. The expected devaluation in the country forced the citizens to exchange invested manat for dollars, and some even removed the deposits.

According to the forecasts of the Azerbaijani government, the average rate of national currency compared to the U.S. dollar till 2015 will continue unchanged - at 0.79 manat. The gradual strengthening of the manat is forecasted compared to the euro: in 2012 - by 0.26 percent, in 2013 - by 2.77 percent, in 2014 - by 1.68 percent and in 2015 - by 0.41 percent.

The only thing that can prevent further growth of deposits is a rise in inflation and real strengthening of the manat rate, not allowing investors to earn on their investments in bank deposits. But non-admission of strengthening the real national currency rate and inflation growth are the main objective of the Azerbaijani Central Bank.

The higher interest rates will stimulate the growth of deposits. There were no significant changes in nominal interest rates on loans and deposits in 2011, as opposed to the real rate. Thus, the average interest rate on deposits was 11 percent. According to the CBA, the average rate on bank deposits of physical entities in the national currency was 10.76 percent, while real interest rate (excluding annual inflation at 7.9 percent) - 2.86 percent. The interest rate on deposits in freely convertible currency amounted to 11.27 percent, while real interest rate (taking into account the strengthening of the Azerbaijani manat by 1.4 percent) - 9.87 percent.

Today's deposit market rather differs from what it was several years ago. One of its developments is that investor is interested in deposits, giving a maximum income, but also additional service options: Internet, telephone banking, integration with payment Internet systems, etc.

At junction of interests: choice of Southern Corridor route

Many leading politicians and economists from around the world are unanimous that the main problem of the European Union is the poor integration in the management and imbalance in the economies of member countries, which, in particular, prevents the EU from overcoming the economic crisis and debt crisis of the Euro Area. Too slow decision-making related to the overly cumbersome legislative regulation and the presence of a large bureaucracy - these factors make the EU awkward subject of relations compared for example with bilateral partnership. This was clearly demonstrated last fall by Bulgarian President Georgi Parvanov who concluded a deal in Baku to supply 1 billion of gas annually by 2015, and demonstrated, he said, to Europe, how it is possible to deal with Azerbaijan.

The EU for ten years has advertised as it could "Nabucco" - its priority project, but was unable to move from words to deeds. By the way, China for the past three years has extended from the Central Asia two branches of Central Asia-China gas pipeline with the capacity of 30 billion cubic meters, has begun with Uzbekistan construction of the third branch with the design capacity of 25 billion cubic meters, concluded a long-term agreements with Turkmenistan and Uzbekistan for supply and delivery of the natural gas, extended from Kazakhstan oil pipeline with capacity of 12 million tons, invested $4 billion in the second stage of industrial development of the largest Yoloten field, in a word, acted decisively and achieved desired goals.

Very soon a decision on the route of delivery of Caspian gas to Europe within the Southern Gas Corridor will be taken. The EU's inability to act as a united front due to differences in the interests of countries, hidden behind talk of the coming dramatic changes in the European gas market in the near future, where, ostensibly, LNG and shale gas will burst, will move Azerbaijan in the direction of option most reliable and financially independent from the EU. This option is at the junction of the interests of Azerbaijan and BP, the traditional and reliable partner of the country. SEEP project, suggested by BP, in a broader sense can be considered as own project of "Shah Deniz" consortium, which also includes SOCAR, and the project TANAP will be initiated and built by Azerbaijan and Turkey. Reconciling the interests of the parties, it is possible with minimal risk to combine both projects and open the energy corridor to Europe.

By the way Gyulmira Rzayeva from the Center for Strategic Studies under the President of Azerbaijan said directly the same thing at the European Gas Conference in Vienna. "Large, politicized pipelines is a relic of Soviet times. SEEP and TANAP are the real answer to the question: how to deliver 8-10 billion cubic meters of Azeri gas from Shah Deniz-2 to Europe at the most acceptable price".

Should retirement age be reconsidered in Azerbaijan?

It is proposed to increase the retirement age as one of the variants for unloading the pension budget in Azerbaijan.

"If the rates of social contributions and the number of taxpayers per retiree remain unchanged up to 2020, then taking into account the demographic and other issues, the load on the system and consequent, the fund's budget deficit will increase rapidly," the chairman of the Azerbaijani State Social Protection Fund Salim Muslimov said. He said that some elements of the legislation including the changes in the retirement age must be reconsidered for these reasons.

According to the budget of the Azerbaijani State Social Protection Fund, Azerbaijan's expenses for retirement pensions amounted to four per cent of the GDP in 2011, while pension contributions hit 2.45 per cent of the GDP. Therefore, the contributions cover only a small part of the pensions. This indicates the scale of the problem of financial sustainability of the country's pension system. Regarding the retirement age, the right to the labour retirement pension is given to men aged 63 and women aged 58.5 in Azerbaijan from January 1, 2012. An annual increase in retirement age by six months to 60 years old is stipulated for women till January 1, 2016. Previously retirement age in Azerbaijan was 62 years old for men and 57 years old for women.

However, compared to the European Union, one can conclude that Azerbaijan still has one of the lowest retirement ages. The increase in retirement age is required by the law in almost in all EU countries. Thus, this year in Germany it went up to 67 years and Italy to 66.

People retire at the age of 65 in Spain and Poland, whilst in Denmark it is 69.The retirement age in England is to become 68 years old, currently it is 65 for men and 60 for women. The law on pension reform was adopted in Ukraine. The retirement age for women was increase to 60 years old and for men in the public sector up to 62 years old.

Life expectancy in countries thinking about increasing the retirement age is higher than in Azerbaijan. The average life expectancy is 73.6 in Azerbaijan. Proposals have been made to increase the retirement age to 75 in Sweden, where the life expectancy is among the highest in the eurozone. According to Dagens Nyheter, every second child born in Sweden now will live to be 100 years old.

For example, life expectancy in Russia increased by 3.7 years over five years. However, this is still less than in Azerbaijan - nearly 10 years less. Accordingly, the retirement age is lower there and is 55 for women and 60 for men.

There is about one person registered with the State Social Insurance Fund and paying his social pension for every pensioner in Azerbaijan.

Thus, according to statistics, as of Jan. 1, the number of pensioners amounted to 1,278 and 1.966.854 million had individual social insurance accounts.

Today. the number of retirees is expected to increase. This is connected with the fact that people born after World War II will retire.

There will be an imbalance between the number of working-age people and the number of elderly. This will mean a sharp increase in the pension burden on the working population, taking into account the parameters of the pension system and the labor market. This could
negatively affect not only the financial maintenance of the pension system, but also the prospects for economic development overall.

However, increasing the retirement age is only one solution to the problem. It is not a popular move, globally speaking. Therefore, the Azerbaijani government should seek to reform the pension system to guarantee the financial security of retirees by using other measures.

Iran's trade balance to face threat of shortage

Iran's foreign trade turnover, which for years had a positive balance, will undergo significant changes in 2012. Thanks to the oil and gas exports, the country's export indicators have always exceeded the import ones and ensured a stable balance of payments and allowed to accumulate sufficient foreign exchange reserves, of which the payment of import and development of non-oil sector of the state were carried out.

Supporting the growth in economic sectors other than oil, achieving further reduction in inflation and reducing the dependence of the state treasury from oil by developing domestic sources of income have been the main macroeconomic objectives of Iran for decades. And the embargo on oil supplies from Iran to the EU countries in July 2012 will serve as a new round of development of the country's non-oil sector.

According to statistics of the Customs Committee of Iran for 10 months of 2011, the cost of non-oil exports increased by 31.85 percent compared to the same period of 2010. Thus, exports of non-oil sector's goods for 10 months of 2011 amounted to 61,900 tons worth $35.137 billion against 57,852 tons worth $26.649 billion for 10 months of 2010. During this period, technological and engineering services brought $ 3.5 billion to Iran.

These figures are presented by Iran to the world community with pride, in an attempt to prove that the economic blockade of Iranian banks and oil companies will not harm the country. However, nevertheless, one shouldn't forget that oil accounts for 80 percent of the total Iranian exports, therefore, only 20 percent of exports belong to the non-oil sector.

Distribution of the oil designed for Europe among the other trade partners of Iran also remains a formidable task. Because China, increased by 55 per cent trade turnover with Iran as of 2011, in Jan, 2012 reduced the daily crude oil imports from Iran to 285,000 barrels, thus the export of Iranian oil to China fell by almost half now.

India, one of the Iran's main trade partners (10.4 per cent), although it opposed reducing the supply of Iranian oil, but offered to pay for oil in rupees, which would put Iran in a state of dependence on India.

Iran's next export partner and the third major consumer of Iranian oil - Japan, also agreed to reduce supply of Iranian oil from early 2012. During the first 11 months of 2011 312,000 barrels of Iranian oil per day was imported in Japan. In total, Iranian oil accounted for 8.8 per cent of total oil purchases of Japan.

And if the main export partners of Iran, except Turkey, have taken a wait, what to say about the rest. Thus, despite the optimistic statements of the Iranian side, the trade turnover of Iran will be seriously shaken after loss of major markets for their products,.

The main export partners of Iran as of 2010 were the European Union (17.8 percent), China (17.1 percent), Japan (10.4 percent), India (10.4 percent) and Turkey (7.2 percent).

Migrants contribute to growth of money transfers to Azerbaijan

The growth in money transfers is almost always accompanied by their positive influence on the development of the country, both at macro and micro levels. Except for the purely business transfers, transfers sent by migrants to their families, constitute a significant proportion of remittances. A positive fact is that the dominant part of the migrants remits money through official channels, i.e. through banks and specialized organizations dealing with remittances.

Despite the fact that the slowing global economy has negatively affected the employment prospects of migrants in some countries, volume of remittances worldwide, according to the forecast of the World Bank (WB) will continue to grow. Three years later it is expected to reach $515 billion.

According to data released by the World Bank's report "Prospects for the dynamics of remittances, 2011-2013," the amount of funds sent by international migrants worldwide to home, during the economic crisis of 2008-2009 fell sharply. However, they quickly returned to previous level.

Azerbaijan is not exception among the countries of the world. This situation is well traced by the dynamics of officially recorded remittances to Azerbaijan. Thus, according to statistics from the Central Bank of Azerbaijan, in 2011 through systems of money transfers Azerbaijan received over 1.046 billion manat, which is 19.3 percent higher than at the end of 2010 and by 44.9 percent - in 2009.

In 2010 this figure amounted to 876.9 million manat, and in 2009 - 722.2 million manat. During 2011 over 1.834 million transfers was carried out to the country against over 1.627 milion in 2010 and over 1.295 million in 2009. In December, 2011 the average amount of a transfer to the country amounted to 562 manat.

Now Russia, where primarily Azerbaijani migrants go is one of the leaders in terms of the number of arriving migrants, not only in the former Soviet Union. And where there are migrants remittances abroad are also there.

According to Russian official sources, in the first quarter of 2011 Azerbaijan is the absolute leader in terms of the sum of one transfer. Its citizens receive from their relatives working in Russia, on average, $617 for a single transfer. However in terms of the total volume Azerbaijan ranks only sixth among the former Soviet republics. At the top positions are Uzbeks, Tajiks, and Ukrainians, who in the reporting period sent home through the transfer system $562 million, $438 million and $430 million respectively.

In particular, remittances of Tajik migrants in Russia in 2011 amounted to $2.96 billion, 33 percent more. According to the National Bank of Tajikistan, remittances in 2011 amounted to about 45 percent of the country's GDP. Over half of Tajik families depend on remittances from Russia.

Studies of the UN experts say that remittances to developing countries make an important contribution to the fight against poverty and have beneficial effect on economic growth in the long run.

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