Economists Weigh In on the Consequences of Dollar Abundance in Azerbaijan's Market

In November 2024, the State Oil Fund of Azerbaijan (SOFAZ) sold $574.6 million, pushing the total dollar sales for the first 11 months of the year to $6.5 billion. According to SOFAZ, this represents a 40.8% increase compared to November 2023, when sales reached $339.9 million.

Under its obligations to the state budget, SOFAZ is required to transfer 12.8 billion Azerbaijani manats to the budget in 2024, equivalent to approximately $7.5 billion. With $6.5 billion already sold, the fund has just $1 billion remaining to fulfill its commitment.

Samir Aliyev, head of the department at the NGO "Support for Economic Initiatives," has raised concerns about a potential oversupply of dollars in Azerbaijan’s financial market. Writing on Facebook, he noted that if SOFAZ fully meets its budgetary obligations, the influx of dollars could disrupt macroeconomic stability.

Aliyev predicts that in such a scenario, the Central Bank of Azerbaijan (CBA) may step in to stabilize the market. This could involve purchasing excess dollars to bolster its foreign currency reserves, which have been depleted over the past two months. Alternatively, the government might reduce SOFAZ’s transfer obligations to the budget, easing the pressure on the currency market.

Dunya Sakit, an economist from the same NGO, offers a different perspective. She suggests that commercial banks could absorb the remaining $1 billion of SOFAZ dollar sales. December traditionally brings heightened budgetary expenditures and peak demand for foreign currency, making it likely that local banks would step in to purchase the available dollars.

If Sakit’s scenario unfolds, the need for CBA intervention in the currency market could be avoided, preserving its monetary reserves and allowing market dynamics to balance supply and demand organically.

Economists are closely watching how this influx of dollars will impact Azerbaijan's financial markets. On one hand, excess liquidity in foreign currency could strengthen the manat, stabilizing inflation and boosting consumer purchasing power. On the other hand, unchecked dollar inflows may create challenges for exporters and complicate macroeconomic management.

With only weeks left in the year, the decisions by SOFAZ, the Central Bank, and commercial banks will likely have a lasting impact on Azerbaijan’s financial ecosystem as it heads into 2025.