Conversion of Oil Fund Assets to Manats May Be Insufficient - Economist

The Central Bank of Azerbaijan (CBA) does not rule out conducting interventions in the currency market through sales in the coming months. "Over the past eight months, the CBA has fully satisfied the increased demand for foreign currency at currency auctions due to rising direct foreign currency expenditures (including servicing external state debt) and a reduction in obligations of local enterprises related to trade credits," the CBA stated. Throughout the rest of the year, interventions via currency sales are possible to support increased state expenditures directly in foreign currency (such as COP29 and other government expenses), the CBA added.

Economist Natig Jafarli told Turan that there is "nothing new" in the CBA's statement. He noted that the CBA has previously indicated it may conduct such currency interventions if necessary. "This actually indicates that the Central Bank has not spent significant amounts to maintain a stable manat exchange rate. Stability has been achieved through funds allocated from the Oil Fund, which are converted into manats and transferred to the state budget.

The CBA's new statement suggests that the conversion of funds from the Oil Fund into manats may not be sufficient to maintain exchange rate stability. It is possible that the Central Bank will also need to sell some of its foreign currency reserves to banks to meet demand. This is essentially the explanation," he said.

Regarding the exchange rate, Jafarli mentioned that this issue in Azerbaijan is not "economic," but rather an "administrative decision."

"The fixed exchange rate has been in place for nearly 8-9 years. Any change will be an administrative decision. It is difficult for economists to predict when this might occur, as economic factors do not influence the currency rate in our case," the expert concluded.