Rate of Depreciation of Manat Will Grow, but Sharp Devaluation Will Not Happen - Experts

As predicted by experts, with the approach of the end of 2016 AZN pressure intensified and the national currency started to depreciate.

The process of growth of the US currency in the Azerbaijani market began on October 19 with 1USD / 1.5969AZN. On 8 November the dollar was 1.6686 AZN.

By the end of the year approaching completion is also the obligation on the State Oil Fund transfers to the state budget, which provides USD to the foreign exchange market.

Note that according to expert estimates monthly demand for the currency is 1-1.5 billion dollars. For example, in September the demand for dollar was up to $ 1 billion 321 million 57 thousand. With this calculation until the end of the year to meet the demand there should be about 2-2.5 billion dollars more.

The foreign exchange reserves of the Central Bank in October decreased by 127 million dollars, reaching the critical $ 4 billion 5 million 500 thousand.

State Oil Fund, in turn, sold at auction in October only $ 371 million.

Thus, the government is two-way - to go to the sharp devaluation in December, or to seek additional sources of currency for the auction.

Experts hold the second option, and believe that if there is no force majeure, the government will not arrange sharp devaluation.

So, Natig Jafarli believes that the sharp devaluation may finally bring down the banking sector.

"The Central Bank can only accelerate the process of devaluation of the manat. Much will depend on the decision of the US Federal Reserve and the US dollar in the countries that are trade partners of Azerbaijan," he said.

Jafarli believes that until the end of the year the dollar exchange rate will be established at the level of 1.80-1.85 manat.

Samir Aliyev, in turn, stressed that in addition to the SOFAZ transfers to the state budget, it funds some projects, for which there is still reserve currency, which can be offered at auction.

"Much will depend on world oil prices. However, the government has taken some measures to reduce the demand for currency. Those include the restrictions imposed on the imports to January 2018," he said.

At the same time S. Aliyev also believes that although a sharp devaluation is not real, the rate of depreciation of the manat can be high. He noted that one of the reasons for such a negative rate is a desire to preserve as much currency as possible in the State Oil Fund.

The expert believes that in a crisis the central bank can use its reserve.

The economist Gubad Ibadoglu also believes that the government will sooner reduce reserves in the Central Bank and the State Oil Fund than undertake a sharp devaluation.

"I do not exclude that in December there will be the peak demand for the dollar and the US currency will require twice as much as in November," he said.

The head of the Center of Oil Researches Ilham Shaban believes that neither the depreciation of the manat nor the pressure on the national currency would have happened if the State Oil Fund fully implemented the 2016 forecast.

He noted that in the first nine months of 2016 SOFAZ carried out only 35.1% of the forecast. In 2016 the State Oil Fund expenditures forecast was 10 billion 668,934,000 manats. Direct transfers to the state budget for 2016 are projected at 7 billion 615 million manat, of which only 3 billion 260 million manat was transferred in the end of Q3.

“In terms of the American currency, SOFAZ should transfer about another 2 billion dollars. However, the pace of implementation of the commitments of the Fund for the current period of 2016 shows that by the end of the year SOFAZ does not fulfill completely the forecast. If SOFAZ transfers this USD 2 billion, no US currency shortage on our market will happen," he said.

He stressed that the economy due to lack of oil revenues falls and the government by such actions further narrows the room for maneuver in the economic area.

"If the forecast indicators, both in the state budget, and in the SOFAZ transfers would be made at 100% and all these costs used rationally, then this could lead to economic growth. And the growth of the economy, in turn, could support the manat in its "floating" even in a stormy sea," concluded I. Shaban.  -----71B