Scenarios Awaiting the Azerbaijani Manat in the Coming Years

On November 18, during discussions in the Milli Majlis about the budget package for the upcoming year, the Central Bank of Azerbaijan (CBA) Governor Taleh Kazimov stated that the manat's exchange rate would remain stable in the coming years.

“We do not intend to transition to a floating (free) exchange rate next year or the year after. As you can see in this year’s budget and medium-term expenditures, the exchange rate of 1.7 manat per dollar has been forecasted. We also consider the fixed exchange rate regime favorable for ensuring macroeconomic stability in the medium term,” Kazimov said.

Since March 2017, the exchange rate of the manat has remained unchanged, with 1 US dollar equal to 1.70 manat.

Can the government adhere to its projections?

Economist Rashad Hasanov told Azadliq Radio that a fixed exchange rate policy does not necessarily mean the rate will remain exactly at 1.70: “A decision could be made tomorrow, and the rate may change but still remain fixed. A fixed rate refers to the type of exchange rate policy, not the level of the rate.”

In 2015, Azerbaijan experienced consecutive devaluations that halved the value of the manat. While further depreciation occurred in the years that followed, the exchange rate has remained unchanged for over seven years.

Hasanov emphasized that transitioning to a floating exchange rate requires a competitive economic environment and reduced reliance on resources: “Currently, 85-90% of exports are derived from oil and gas revenues. Structurally, resource and energy revenues also dominate non-oil and gas exports. Under such conditions, a floating exchange rate could lead to significant market volatility in Azerbaijan. If oil prices drop, people might panic and rush to buy dollars; if oil prices rise, they might sell en masse.”

The economist also pointed out that neither citizens, the government, nor businesses have acquired the skills to operate in a free exchange rate regime over the past 30 years.

“A floating exchange rate has the potential benefits of increasing economic competitiveness and providing opportunities for local goods to be sold in foreign markets under favorable conditions. However, on the other hand, it can impact inflation dynamics. Today, the fixed exchange rate is the only significant tool the government has to control inflation,” Hasanov concluded.