Proposals by Experts on Anti-crisis Actions of Government of Azerbaijan

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What awaits the Azerbaijanis in the light of the crushing fall in the price of our main commodity, oil? We addressed our questions to the Candidate of Economic Sciences Shahmar Agabalayev.

- In a short period, we have twice witnessed a 50 percent drop in oil prices. For the first time, the price fell from the highest point in the history of the oil industry to an average level and stopped at about $ 60 per barrel. This price suited both consumers and manufacturers, as there was enough money to replenish the budget. But with a drop from the average level to $ 30, a completely different picture is created. At such a price, it will be impossible for many companies, including Azerbaijani (besides Arab), to save money for the development of new deposits. The difference between price and cost will prevent this.

The situation is catalyzed by the development of the pandemic around the world. The decline in production and the closure of transport arteries reduce demand for black gold to a critical level. We will not be able to stabilize foreign exchange earnings by increasing sales, as the Gulf countries are going to use dumping prices (minus $ 6-8 from the exchange). We are at the stage of falling production. With an excess of raw materials and dumping, sale problems can appear, therefore the situation is doubly critical for us.

The negative sides of this situation are well known to society from past crises: decrease in foreign exchange earnings, depreciation of the manat, increase in prices, decrease in capital turnover, and reduction in tax collection. Citizens' incomes will depreciate in dollar terms, and again we will slide down this indicator. The efforts of the government, which has increased wages over the past year, are losing momentum.

- In other countries, governments are taking urgent measures to protect the interests of producers and buyers in order to mitigate the economic and social impact of the pandemic. How do you rate social protection in Azerbaijan?

- Last time, all sectors of society were dissatisfied with the actions of the government during the crisis. And now the government of Azerbaijan does not act adequately to the situation.

Following the government meeting, the following measures were taken:

1. The operating hours of currency exchange offices have been extended. The very fact of the mass exchange of the national currency is an indicator of the level of citizens' confidence in the Central Bank's financial policy.

2. On the recommendation of the government, parliament passed a law extending deposit insurance until the end of 2020. What will happen next is unclear.

It was not stated what currency losses await us, and from what sources they will be covered.

The mention of the level of foreign exchange reserves does not inspire confidence, since the last time they were higher and did not save the situation.

It is not known what budget expenditures can be sequestered to save.

- How did other governments act in the same situation?

- If we compare the actions of our government with the decisions of their colleagues in other countries, we will see how slow our government is, not creative and not effective.

First, we consider the actions of advanced countries in crisis situations. The United States is one of the first places in oil production. Right after the crisis began, the Fed (an analogue of our Central Bank) took the following measures: reduced the discount rate to 0-0.25%, increased its portfolio of government and mortgage bonds, changed the terms of loans that it gives to banks, and reduced the share of funds that banks are required to keep in reserve to zero from the current 10%.

The actions of our Central Bank with the extension of the regime simply fade before the measures taken by the US Federal Reserve.

The US government has allocated 500 billion to mitigate the effects of the crisis. Each adult citizen will receive $ 1,000, and a minor - $ 500 of assistance.

In neighboring Georgia, three-month vacations were announced for the repayment of loans, and tax and other fees were reduced for businesses affected by the crisis. In France, individuals and legal entities may not pay debts. Compared to ours, these measures are more essential to mitigate the situation.

If the government fails to find a way out of the crisis, it could use the proposals of local economists. I want to quote the proposals of Doctor of Economics S. Mammadov, one of the best financiers of the country, taken from his FB page. It will be appropriate to recall that he was the author of the idea of ​​using popular loans as banknotes during the lack of banknotes in the early 90's. It is a very creative solution to the issue.

1. Zero the discount rate;

2. Urgently repay state debt to business;

3. With a decrease in interest rates, increase the loan offer;

4. Reserve standards of the Central Bank should be reduced at least three times;

5. The business support program should be increased 2-3 times;

6. To prohibit the Central Bank withdrawal of cash manats from the turnover;

7. Strengthen the intervention of the Central Bank in the financial market by mass purchase of valuable papers;

8. Together with a reduction in tax rates, expand tax incentives;

9. Government regulated tariffs and energy prices should be reduced;

10. Increase subsidies and grants.

We can add the following to these points:

- Reduction of customs duties;

- Adoption of a number of urgent measures to exit the economy from the shadows. According to international institutions, the “shadow” in our country is 67% of GDP. This will balance budget losses.

A positive development in Azerbaijan is the allocation of 1 billion manats by the country's President to finance measures to overcome the crisis. Let's see how the government uses these funds. “It is encouraging in this situation that it will become clear to the government that oil is not only a marketable commodity, but also a political product,” the economist Shahmar Agabalayev concluded the interview.