(MENAFN- AzerNews)
Ulviyya Shahin Read more
Recent updates suggest that if current trends persist,Azerbaijan is on track to achieve a surplus in its current accountby the end of 2024.
The Central Bank (CBA) reports that the trade balance, asignificant component of the balance of payments, showed a surplusof $2.3 billion in the first quarter of the year.
The International Monetary Fund (IMF) anticipates thatAzerbaijan's current account surplus will reach 8.5% of GDP in2024. Meanwhile, the World Bank predicts a medium-term surplus of7.5% of GDP.
In 2023, Azerbaijan's current account surplus was $8,329.4million, equivalent to 11.5% of GDP. This marked a decrease of64.5% compared to 2022, mainly due to the depreciation of oil andgas.
The average price of oil per barrel was $85.9 in 2023, down from$103.7 in 2022, as per the balance of payments.
In the oil and gas sector, the surplus amounted to $17,091.5million, indicating a 40.4% decrease, while in the non-oil and gassector, it reached $8,762.1 million, reflecting a 68.9%increase.
Besides, the presented report and indicators raise certainquestions about how the surplus in the trade balance affects theCentral Bank's decision-making process, particularly concerninginterest rate policies as outlined in the press release arethe key trends and economic indicators that have led to theforecast of a surplus in the current account balance for theentirety of 2024? and so on.
Speaking to Azernews, economist Natig Jafarly also proved theanswer to the question, saying that despite certain decreases inrecent years, both the overall balance of payments and the tradebalance remain at sufficiently high levels.
"Primarily, a positive surplus persists in the trade balance simply, we are selling more than we are buying. Therefore, thiscreates conditions, opportunities, and incentives for the CentralBank to act more comfortably, aiming to stimulate economic activityby lowering interest rates. As the Central Bank has two mainfunctions, the exchange rate must also serve them. One function isto regulate financial stability and inflation, meaning creatingmechanisms to influence inflation, while the other is to implementmonetary policies that can affect economic activity. The morepositive the trade balance is, meaning the more we sell compared towhat we buy, the more opportunities the Central Bank has to actcomfortably and lower interest rates more easily. One might wonderif this directly affects inflation. I don't think so, because thereare other factors affecting inflation in our case. However, it canhave a positive impact on loan interest rates after a while. Wehave seen examples of this."
According to the economist, the forecasts of the CBA sometimesdiffer from those of the government, and this is actually how itshould be.
"Because the CB is a separate entity from the government and, asa government institution, it also has its own forecasting models government also establishes forecasting models, which is good wasn't like this before; the new leadership of the Central Bankhas adopted this methodology, and it's correct. Because at leastnow, there are opportunities to compare various forecasts andexpenditures by the public and experts. Previously, the CentralBank and government forecasts would align perfectly, without anyopportunities for comparison. Now, however, the new leadership ofthe Central Bank looks at issues in the right direction, providesits own forecasts based on its methodology regarding macroeconomicindicators, and conducts its own calculations. This is positivebecause we can at least see the differences between the governmentand the Central Bank. The forecasts of the Central Bank are evenmore positive than those of the government. Even regarding theincrease in economic activity and inflation indicators, the CentralBank is more optimistic. Because unlike the government, it doesn'tbear any responsibility for economic conditions as a regulator responsibility lies with the government. The Central Banktries to take a more positive approach as a regulator. Thegovernment, however, takes a more pessimistic view of thesematters. Put simply, the government announces lower results inadvance so that if there are better results, it's considered agreater success for them. This figure indicates that they areconsidered more successful, and from the perspective ofmacroeconomic indicators, we see the Central Bank taking a moreoptimistic approach while the government takes a somewhatpessimistic approach."
N. Jafarly thinks that the higher the profit, the greater thepositive impact.
"However, our currency market has specific regulations. Currencyis regulated according to our monetary regulations, and theexchange rate is determined through regulatory decisions jointlymade by the Central Bank and the government, based on a modelindexed to the dollar. Just as the dollar changes against othercurrencies, the manat also changes against other currencies in thesame way. We primarily consider the dollar index. In other words,the manat is indexed to the dollar. Because it's regulated byregulation, even if there is no profit or a deficit, the exchangerate will not change without regulatory decisions, and at least forthis year, it's difficult to forecast changes in the exchange rate.I don't think the exchange rate will change. But that doesn't meanit will never change. We witnessed a 10-year fixed exchange rateregime from 2005 to 2015. The country then experienced athree-tiered devaluation. Now, we have been in a fixed exchangerate regime for almost nine years. But that is not to say that itwill always be like this. So, even if it doesn't happen this year,it could be expected to change in the coming years. Therefore, it'simportant to make decisions regarding the exchange rate."
Jafarly noted that the sole factor that could have an impact isoil and gas prices: "In our case, the price of oil is still at ahigh level-around $90, and its annual average has fluctuatedbetween $85 and $90 since the beginning of the year. This is a goodindicator. If, due to certain geopolitical tensions or economicreasons, the price of oil decreases, it will naturally have asignificant negative impact on Azerbaijan's indicators, includingthe trade balance, current account balance, and commodity balance, our economy is heavily dependent on oil," NatigJafarly concluded.
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