“We have very difficult years ahead of us, maybe decades"

In recent days, news has been spreading in the media that another devaluation will take place in Azerbaijan in the near future. A decrease in the trade and payment surplus may soon lead to a depreciation or devaluation of the manat: “In recent months, we have seen a decrease in the country's balance of payments. There is a significant difference between the goods a country sells and the goods it buys. We usually ended the year with a positive balance of 7-8 billion dollars.  It even happened that the surplus was 10-12 billion dollars. The inflow of foreign currency into the country decreased due to a reduction in oil production and lower-than-expected gas prices.  Therefore, there is no positive balance in both the trade and the balance of payments,” economist Natik Jafarli told local media.

Natik Jafarli believes that if all this is taken into account, a decision may be made to devalue the manat: “There is no serious increase in oil production in Azerbaijan. International organizations also predict a decrease in production in Azerbaijan. In such circumstances, a decision can be made regarding the manat. We have an administrative exchange rate regime, that is, the process is not regulated by the market. Therefore, the probability of devaluation is quite high.”

Another economist, Gubad Ibadoglu, believes that the growth of both regulated and market prices against the background of declining oil revenues in Azerbaijan multiplies expectations related to the devaluation of the manat.

"The decrease in foreign exchange earnings caused by a drop in oil production and lower gas prices further increases the expectations of consumers and businesses that the exchange rate, which is closely related to it, will change. The transformation of the current exchange rate policy into one of the factors constraining the growth of non-oil exports, the high import component in the formation of consumer prices, a decrease in the purchasing power of the national currency with high inflation, a sharp decrease in the positive balance of the foreign trade balance, the current account compared with last year, the growth of nominal and real effective exchange rates led to the fact that in supporters of devaluation have appeared in the government.”

Gubad Ibadoglu believes that banks are now more prepared for this process than in 2015, when devaluations occurred one after another. This also strengthens the position of supporters of devaluation.

"They see devaluation as a necessary step to turn the manat, which has remained unchanged as the oil manat for many years, into a real currency and see no other alternative to risk management in the future. Thus, despite the psychological impact of the wave of devaluation in the main trading partners of Azerbaijan, despite the stability of the manat exchange rate, the fear of repeated devaluation increases demand for the currency, accelerates the outflow of investments abroad and leads to capital outflow from the country. “

In an article published in ASTNA, Gubad Ibadoglu writes that there are many factors that shape expectations of devaluation.

Natik Jafarli says that if the dollar exchange rate in Azerbaijan changes, it will be accompanied by an increase in prices for products and services:

"We are an import-dependent country. We buy a lot of products abroad. If the dollar exchange rate changes, we will witness the next wave of price growth in Azerbaijan. We buy about 74% of food products abroad. Naturally, in this case, price increases will be inevitable. But there are products that we are almost 100% dependent on importing. For example, there is 96 percent dependence on pharmaceuticals, of which only 4 percent is locally produced. This means that there may be a sharp increase in prices for imported drugs. Our dependence on imports of televisions, washing machines, refrigerators and other household appliances is 100 percent. There will also be a significant price increase for these products. In addition, the increase in prices for cars and their spare parts can be sharp.”

Is another devaluation really expected in Azerbaijan?

An expert on banking and financial issues, lawyer Akram Hasanov shared his thoughts on this issue with ASTNA.

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Question: Is  devaluation  really expected in Azerbaijan in the near future?

Answer: The probability that this will happen in the near future, that is, within the next year, is very low. But in the next 3 years, devaluation is likely to occur.

Question: What is the reason?

Answer: The reason is that the country's economy still depends on oil and gas revenues. That is, it is an inefficient monopolized economy. And our oil production is declining. Consequently, our foreign exchange earnings will decrease. Our expenses are going up. At some point, the Central Bank will not be able to maintain a stable exchange rate of the national currency, and the foreign exchange reserve that could be spent on this will not be enough.

Question: Experts say that foreign exchange earnings in the country have decreased due to a reduction in oil production, as well as due to the fact that gas prices turned out to be lower than expected. Therefore, there is no positive balance in both the trade and payment balances. In the current case, is it impossible to take any steps to avoid devaluation in order to create a positive balance?

Answer: For this to happen, there must be a normal competitive economy, so that our country supplies some goods and services to foreign markets in serious volumes, except for oil and gas. And to create such an economy, first of all, it is necessary to create a legal state with the rule of law. This is also not a matter of one or two years. It will take at least ten years for investors and entrepreneurs to be confident in carrying out real legal reforms and ending the monopoly. But so far, no serious reforms are being felt. On the contrary, the economy is becoming even more monopolized. 

Question: In Azerbaijan in 2005-2015, we witnessed a fixed exchange rate regime, 1 dollar was equal to 78-79 gapik.  It lasted 10 years. 10 years later, a 3-step devaluation occurred. Now, in 2025, that 10-year period is ending again. There is a possibility that the government is trying to maintain its dollar reserves by making certain changes to the exchange rate every 10 years. How logical is this?

Answer: The question of the exchange rate follows from the essence of the economic system. In a primitive economic system where there is no competition, of course, the course should also be determined administratively. It is in vain to expect anything unusual from the Central Bank. As soon as there is a threat to foreign exchange reserves, devaluation is inevitable.

Question: Could it be that there will be no devaluation, and the Central Bank will switch to a floating exchange rate mode, releasing the manat? In this case, what can the manat and the population expect?

Answer: No, it can't. Because, as I said, in the absence of competition, when nothing serious is sold to foreign markets except oil and gas, it is impossible to release the manat.  Because there is basically one reliable dollar dealer in the country – the Oil Fund.

Question: What are your suggestions? What steps should be taken to prevent devaluation?

Answer: This is no longer possible at the moment. If real legal reforms are carried out, the investment and business climate improves, at least in 10-15 years we will not experience such shocks. But in general, the exchange rate of the manat is not the main problem. Especially when you consider that, unlike in 2015, the volume of loans to the population and entrepreneurs in foreign currency is not high. It's just that devaluation will lead to another price increase, especially for goods bought abroad. Most of the goods that are already sold in the country are also of foreign origin. We have very difficult years ahead, maybe decades.