Expert Reveals What Lies on Horizon

As long as the government says nothing about the 21 February devaluation of the national currency, experts discuss this subject, which does not inspire much optimism for the business environment, as well as for ordinary citizens.

According to Doctor of Philosophy in Economics (Deakin University, Australia), Rashad Hasanov, the depreciation of the manat portends inflation, as more than half of the food and so on products are purchased abroad. Due to the expensive dollar importers will pay more for goods supplied to Azerbaijan, and it will be at the expense of consumers who for the same product will pay the equivalent amount of devaluated manat.

In addition to direct devaluation, indirect effects of the devaluation on the consumer market will be observed. "We should not be surprised that local potatoes have gone more expensive, since the farmers use imported fertilizers and machinery, which is also added to the price," says the economist.

Therefore, taking into account the 35% devaluation in the nearest days we can expect higher prices for goods at an average of 20-25%, according to Rashad Hasanov.

Referring to the world practice, experts suggest that the central bank to reduce the money supply can use its tool to increase interest rates to refinance in hopes to curb inflation. And this in turn can lead to a reduction in loans to banks and the decline in economic activity and result in serious lowering of GDP.

Another danger for the banking sector is to increase the risk of bad loans in foreign currency. The payment will rise from 20% to 27%, which many people will not afford. Default for one reason or another is inevitable. Therefore, financial companies will need the support of the state, emphasizes the economist.

And how will consumers react to what is happening? At first, many people will be confused and have to wait. Decrease in consumer activity will first hit small businesses and some may even go bankrupt.

Difficulties in adapting to new conditions will face businessmen and small and medium-sized businesses and their production. Affected will be tourism companies: airfares have already increased and tourists have lost 33% of their currency. Many travelers cancel their trips until "better times".

The expert believes that at first the investment activity will be felt by the real estate segment, particularly apartments. However, after the first wave of inflation “cools down”, property prices will again reduce. "The growth of the financial sector and the nominal income of the population and so forth factors have led to a construction boom in Azerbaijan, which was followed by an increase in supply and "property price bubble». After the economic shock that the society will outlast asset prices will drop to a reasonable limit, Rashad Hasanov said. -----08B