Reasons for increased demand for dollars…

The demand for US dollars in Azerbaijan has surged in recent months, prompting speculation about the underlying factors driving this trend and its potential implications for the country's economy.

Figures released by the State Oil Fund (ASOIU) reveal a stark increase in dollar sales, with January 2024 witnessing a sale of US $417 million, compared to just US $188.5 million during the same period last year. This uptick continued into February, with the Central Bank (CBA) reporting a record-breaking demand for dollars at a currency auction on February 13. Orders from banks reached an unprecedented $151.1 million, marking an eight-fold increase compared to the previous auction.

While demand has seen a slight decline on February 15, transactions in the first half of the month alone totaled $474.8 million, indicating sustained pressure on dollar reserves. The CBA attributes this surge in demand to seasonal factors, including state projects and increased imports by the private sector.

However, experts suggest that the reasons behind the increased demand are multifaceted. Vugar Bayramov, a member of the Milli Majlis Committee on Economic Policy, highlights concerns over heightened volatility in the foreign exchange market despite buoyant oil prices. Economist Natig Jafarli, in an interview with Radio Azadlig, points to factors such as budget expenditures being transferred abroad for the purchase of technical equipment and increased imports ahead of the Novruz holiday.

Moreover, rumors of devaluation have contributed to the growing demand for dollars, according to Jafarli. Despite assurances from economist that devaluation in the short term is unlikely given the country's budget parameters and balance of payments, concerns persist about the government's lack of action in response to currency fluctuations.

With no concrete measures taken to address the mounting pressure on the manat, uncertainties loom over the future trajectory of Azerbaijan's exchange rate. While devaluation may not be imminent, experts warn that decisive steps will be necessary to stabilize the currency and mitigate economic risks in the long term.