Azerbaijan's Manat Under Scrutiny Amid Record-High SOFAZ Currency Sales
Date
12/16/2024 3:11:48 PM
(MENAFN- AzerNews)
Akbar Novruz
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The surge in dollar sales by the State Oil Fund of Azerbaijan
(SOFAZ) has raised questions about the stability of the manat and
the potential implications for Azerbaijan's economy. With a
dramatic increase in November's currency sales compared to October
and a more than two-fold rise in sales for the first 11 months of
2024 compared to the previous year, concerns about the manat's
future are surfacing.
This situation invites comparisons to 2015 when currency sales
by the Central bank led to devaluation.
However, according to Azerbaijani economist Dr. Elshan
Bagirzadeh , the current context is different. In his
insight to Azernews , he explained, "The sales of
the oil fund are mainly related to transfers from this fund to the
budget".
"Nevertheless, a certain decrease was also observed in the
Central Bank's foreign exchange reserves during the year. If the
manat had been freely traded against the dollar, we would
undoubtedly have seen some increases in the dollar exchange rate.
However, as you know, this is not the case, and Azerbaijan has tied
its manat to the dollar at a fixed exchange rate, which we call
'pegging' in English. Therefore, the appreciation of the dollar in
Azerbaijan depends more on the government's decision than on
economic processes."
He continued, "It may be asked whether the government currently
has sufficient reserves and capabilities to maintain this exchange
rate? I can say that it does. At the same time, the government can
refuse to maintain this exchange rate if it wants. Because there
are certain economic grounds for this."
Dr. Bagirzadeh also pointed out the crucial role that global oil
prices play in this equation: "I believe that everything will
depend on world oil prices for the next year. Frankly, I do not
predict that world oil prices will continue at high levels during
the Trump era, other things being equal. It is also important to
know that if there are serious price drops in the oil market, it
will be difficult for the Azerbaijani government to maintain the
current dollar exchange rate."
This raises a critical question: could SOFAZ's record-high
currency sales signal a potential shift in Azerbaijan's monetary
policy? For now, the manat's fate remains inextricably linked to
oil market trends and government decisions.
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