CAERC talks current operational balance of Azerbaijan

Commentary Materials 3 July 2020 16:47 (UTC +04:00)
CAERC talks current operational balance of Azerbaijan

BAKU, Azerbaijan, July 3

By Eldar Janashvili - Trend:

Azerbaijan maintained a surplus in its current operating balance in the first quarter of this year despite influence of an external shock caused by the COVID-19 pandemic and its consequences in the global commodity market, Executive Director of the Azerbaijani Center for Analysis of Economic Reforms and Communication (CAERC) Vusal Gasimli said, Trend reports on July 3.

According to him, CAERC, based on the IMF External Balance Assessment Methodology (EBA-lite), analyzed the current account of Azerbaijan’s operations. The fiscal policy impacts the balance of current operations in the medium term, and monetary policy - in the short term.

Gasimli noted that due to current operations, Azerbaijan has two cyclical effects: the impact of the business cycle and the impact of the oil price cycle. Since both cycles are in a downtrend phase, they have a negative effect on the current operations account.

As a result, in the first quarter of this year, the surplus due to current operations decreased by 2.5 times against the same period last year and amounted to $646.3 million? thanks to decrease in the surplus in current operations for the oil and gas sector (by 19.2 percent), and for the non-oil sector - by 28.4 percent.

According to the CAERC director, the cyclical balance adjustments also affect the balance of current operations. This indicator is formed by the differences between the planned and existing policy models in the areas of fiscal balance, health spending, monetary policy, a review of capital flows, etc., as well as differences in the effectiveness of fiscal policy in comparison with other countries.

"According to our calculations, in 2019, the current operations balance in Azerbaijan actually amounted to 9.7 percent of GDP, and the rate of cyclical regulated current operations - 10 percent, and compared to 2018, the balance and rate decreased by 3.2 percent and 2.7 percent respectively. The difference in fiscal balance, spending on healthcare, private lending, control over capital flows, policy on changing reserves affected the current operational balance by only 0.03 percent, which proves the stability and sustainability of this indicator in the country," Gasimli said.

According to him, the share of the non-oil basic consolidated budget deficit in non-oil GDP in 2019 amounted to 26.6 percent compared to 31.1 percent when calculated on the basis of actual performance indicators, and its decrease positively affects the current operations balance.

In 2019, the payment balance impacted positive trends due to favorable oil prices, growth in non-oil exports and the movement of capital and finance.

Gasimli said the cost of the current operations balance in Azerbaijan for 2019, calculated through the EBA-lite methodology, is 1.6 percent more than its actual value, testifying to a high level of the national currency’s real effective exchange rate in Azerbaijan.

“The real effective manat rate (REER Gap) last year amounted to 13.3 percent. The probability of a deficit in the current operations balance in the first six months of this year and an increase in the nominal manat rate in comparison with the trading partner countries provide the basis for further increase in real effective exchange rate of the national currency," the expert concluded.


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