Collage. Turan News Agency
- I. 26.02.20: The INSTEX (Instrument in Support of Trade Exchanges) mechanism of the European Union, created to provide banking operations with Iran under US sanctions, was launched.
- II. 19.03.20: The President of Azerbaijan signed a decree on the adoption of a number of measures aimed at reducing the negative impact of the coronavirus pandemic and unrest in the energy market on the Azerbaijani economy and its macroeconomic stability.
- III. 27.04.20: By the decision of the Board of the Central Bank of Azerbaijan, temporary administrators were appointed in Atabank, AGBank, NBC Bank and AmrahBank OJSC.
- IV. 21.05.20: The operation of the Alat free economic zone started.
- V. 10.06.20: Construction of the 105-km section of the Trans-Adriatic Pipeline (TAP) across the Adriatic Sea was successfully completed.
- VI. 14.07.20: President Ilham Aliyev signed a decree on the implementation of the law "On the execution of the state budget for 2019".
- VII. 07.08.20: By the decree of President Ilham Aliyev, the Azerbaijan Investment Holding (AIH) was established.
- VIII. 06.11.20: By order of the President of Azerbaijan dated 6 November 2020 "On measures to assess and repair damage to the civilian population, public property, including infrastructure, as well as to business entities as a result of aggression of armed forces of the Republic of Armenia, from 27 September 2020 on the territory of the Azerbaijan Republic" established the State Commission.
- IX. 11.09.20: On September 9, President Ilham Aliyev issued a decree on the establishment of the Economic Council of the Republic of Azerbaijan and its composition, headed by the Prime Minister.
- X. 29.12.20: The draft state budget for 2021 was adopted in the third reading.
2020 economy under pandemic pressure
The year 2020 is different from the previous ones in many respects, with factors that have a significant impact on the economy, such as the unforeseen pandemic and the Patriotic War. This is reflected in a number of established trends and tendencies that emerge when evaluating the results at the end of the year. Therefore, we present estimates from different perspectives (macroeconomic, fiscal, investment, foreign trade, money and credit, income and expenditure of the population) in order to show the real economic picture of the year 2020.
First of all, in the macroeconomic sphere, we are looking at a 4.3% decline in the gross domestic product (GDP) and a 5.0% decline in GDP per capita in the first 11 months of 2020[1]. Although the COVID-19 pandemic and the 44-day Patriotic War in Karabakh are the main factors behind the economic downturn in the last three quarters of the year, poor governance, corruption, monopolies, and high levels of the shadow economy still play an important role in deepening it.
The fact that the recession began in the non-oil sector in April and in the economy as a whole in May and continued throughout the year shows the significant role of the pandemic, and the fact that the recession has deepened[2] since the fourth quarter of the year shows the significant role of the Patriotic War.
The growth rate of the population this year was lower than in previous years, and as of November 1, 2020, the growth was 100.7% compared to the previous year. The slowdown in the growth rate of the population is undoubtedly due to the fact that the death toll[3] from the COVID-19 pandemic has risen to 2,454 as of December 26 and that the number of people martyred[4] in the war exceeded 2,800.
An assessment of the components of GDP (consumer spending, investments, government expenditures, and net exports) shows that, among them, except for government expenditures, others have contributed to the emergence and deepening of the economic downturn. Among these components, net exports were the most distinguished by their negative impact. Such that as of November 1, 2020, the foreign trade balance surplus amounted[5] to $ 3.466 billion, which is 34.5% or $ 1.9 billion less copmared[6] to the same period last year.
As for the component of consumer spendings, according to the latest data of the State Statistical Committee (SSC), in January-October 2020, compared to the same period last year, the population's spending on goods and services at current prices decreased by 5%. This shows the negative role of the component of consumer spendings in GDP. As for fixed capital investments, this figure, which has been declining every year since 2014, fell sharply in 2020 after 2015 and 2016. Such that compared to the same period last year, during 11 months of this year, fixed capital investment fell by a total of 4.0%, including the non-oil and gas sector by 11.0%[7]. This, of course, can be considered one of the factors that play an important role in reducing GDP. Finally, as for government expenditures, according to the operative data provided by the Ministry of Finance, the state budget expenditures in January-November 2020 increased by 9.9% compared to January-November 2019[8]. The main reason for the increase in expenditures was pandemic and war. Such that the budget expenditures on investments (construction of modular hospitals) health, social protection, and social security have increased sharply compared to previous years due to the pandemic, as well as defense expenditures due to the war. Thus, the only component that had a positive role among the components of GDP was government expenditures and it prevented the acceleration of the economic downturn.
Sectoral assessments show that in January-November 2020, compared to January-November 2019, the greatest decline was in tourist accommodation and catering (-56.9%), transport (freight) (-19.6%), passenger transportation (-40.5%), paid services to the population (-25.8%), construction (-11.3%), industry (-4.7%), and trade (-1.4%). Apparently, the COVID-19 pandemic, which has accompanied us to the end of the year 2020, hit the tourist accommodation, catering, transport, service, and construction sectors the most. The pandemic also played an important role in the industrial downturn. Such that the 7% decrease in production in the mining industry caused a decline in this sector[9].
Although the Ministry of Economy does not include agriculture, information and communication services in the classification[10] of economic activities by areas affected by the pandemic, production and services in these sectors have seen the lowest growth in recent years. Such that in January-November 2020, compared to January-November 2019, agricultural production increased by 2.0%, and information and communication services by 1.6%. In fact, in the practice of many countries during the pandemic, information and communication services have grown more compared to previous years.
According to the State Customs Committee, for 10 months of 2020[11], the share of goods in the oil and gas sector in total exports was 88.19%, and the share of goods not in the oil and gas sector was 11.81%. Exports of goods in both groups decreased in terms of volume and value compared to the same period last year. Such that non-oil exports decreased by 8.2% in actual prices and 17.7% in comparable prices. As for imports, a number of changes have been observed in its structure. Such that in the reporting period, food products accounted for 15.2% of total imports, machinery, electrical appliances, equipment and their parts - 23.58%, vehicles and their parts - 13.65%, ferrous metals and their products - 9.29%. This shows that the level of modernization of the economy this year has increased compared to the same period last year. Such that in January-October last year[12], the share of machinery, electrical appliances, equipment and their parts in total imports was 18.61%, and the share of vehicles and their parts was 8.63%[13]. In addition, compared to last year, imports of pharmaceuticals increased from $235.697 million to $304.631 million. This is due to the growing demand for medicines and medical supplies in connection with the pandemic.
The list of positive indicators for the current year includes the regulation of state budget revenues and expenditures. Although the war caused a sharp increase in defense expenditures, as well as the pandemic in health care expenditures, the state budget had a surplus of 78.4 million AZN in the first 11 months of this year[14].
In the list of negative indicators of the current year, the decrease in nominal per capita income by 2.0% in January-November 2020 compared to January-November 2019 and the inflation rate of 2.8% in this period led to a decrease in real incomes up to 5%. At the same time, as of November 1, 2020, the population's deposits in banks decreased by 10.7 percent compared to the same period last year[15]. During this period, the average monthly nominal wage was 704.5 AZN, which is 7 manats 60 gapiks less than in January 2020[16]. As for unemployment, it is clear from the data released by the SSC that compared to the beginning of 2020, the number of unemployed increased by 114,000 people or 45.2% from 252,000 to 366,000. As can be seen, 2020 was characterized by declining incomes and wages and rising unemployment, which, of course, led to a further deepening of poverty.
In conclusion, I would like to note that in 2020, foreign exchange reserves, one of the main indicators of the financial sector, did not decrease in the first three quarters of the year. According to the State Oil Fund of Azerbaijan (SOFAZ)[17], as of October 1, SOFAZ`s budget spending exceeded its revenues to support fiscal balance of the country, leading to a decrease in its investment assets. As a result, the Fund's assets decreased by 0.08% ($ 86.6 million) compared to the beginning of the year. As of December 1, the Central Bank[18] increased its strategic foreign exchange reserves to $ 153,5 million compared to beginning of year, and as a result, the devaluation of the national currency in the first 11 months of the year did not materialize. Although the situation worsened in the last month of the year, the war and other factors (increase in debt obligations on foreign loans by the end of the year) discouraged the Azerbaijani government from devaluation. Therefore, the expected devaluation of the manat did not occur in 2020, and the government was able to maintain the exchange rate of the manat against the dollar throughout the year. However, after the devaluations of 2015, the highest rate of appreciation in the real exchange rate of the manat was recorded in the first 10 months of this year. Such that in 2020, the real exchange rate of the manat in the non-oil sector rose by 6.6%, 31.5% against the Turkish lira, 22.2% against the Belarusian ruble, 19.5% against the Russian ruble, 18.9% against the Ukrainian hryvnia, and 15.1% against the Georgian lari. The appreciation of the real exchange rate of the manat has reduced the competitiveness of the national economy in the year 2020.
Gubad Ibadoglu
[1] https://www.stat.gov.az/news/macroeconomy.php?page=1
[2] https://www.cbar.az/page-41/macroeconomic-indicators
[3] https://turan.az/ext/news/2020/12/free/Social/az/131313.htm
[4] https://mod.gov.az/az/news/veten-muharibesinde-sehid-olmus-herbi-qulluqcularin-siyahisi-34025.html
[5] https://customs.gov.az/modules/pdf/pdffolder/93/FILE_07B4BC-01CDBB-A5980D-AF45F4-04C07C-9CF06C.pdf
[6] https://customs.gov.az/modules/pdf/pdffolder/84/FILE_70C357-62F508-DB5913-C0F491-5C0C7A-9476B4.pdf
[7] https://www.stat.gov.az/news/macroeconomy.php?page=1
[8] http://maliyye.gov.az/news/5491/2020-ci-ilin-doqquz-ayinda-dovlet-budcesinin-icrasina-operativ-dair-melumat
[9] https://www.stat.gov.az/news/macroeconomy.php?page=1
[10] http://mks.az/news/other/item/10901-diqq%C9%99t-iqtisadiyyat-nazirliyi-pandemiyadan-z%C9%99r%C9%99r-%C3%A7%C9%99kmi%C5%9F-f%C9%99aliyy%C9%99t-sah%C9%99l%C9%99ri-a%C3%A7%C4%B1qlad%C4%B1-385-sayda-siyahi.html
[11] https://customs.gov.az/modules/pdf/pdffolder/93/FILE_07B4BC-01CDBB-A5980D-AF45F4-04C07C-9CF06C.pdf
[12] https://customs.gov.az/modules/pdf/pdffolder/93/FILE_07B4BC-01CDBB-A5980D-AF45F4-04C07C-9CF06C.pdf
[13] https://customs.gov.az/modules/pdf/pdffolder/84/FILE_70C357-62F508-DB5913-C0F491-5C0C7A-9476B4.pdf
[14] http://maliyye.gov.az/news/5491/2020-ci-ilin-doqquz-ayinda-dovlet-budcesinin-icrasina-operativ-dair-melumat
[15] https://www.stat.gov.az/news/macroeconomy.php?page=1
[16] https://www.cbar.az/page-41/macroeconomic-indicators
[17] https://oilfund.az/en/fund/press-room/news-archive/1466
[18] https://www.cbar.az/infoblocks/money_reserve_usd?year=2020
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