SENSIBLE APPROACH

Despite the efforts of the Azerbaijani government to contain the artificial price hike amid the devaluation of the manat that happened one and a half months ago, objective inflation in the next few months is inevitable. As the reserves of imported goods become depleted at warehouses, there will be a need to import them into the country at the new exchange rate, which will affect their prices too. However, experts believe that with an objective approach to this process, extreme inflation can be avoided.

Anti-crisis measures

Since the shock devaluation of the manat, relative stability has been established on the currency market of Azerbaijan. Despite the expectations, there has been no upsurge in the rate of the dollar against the manat over the past one and a half months. In any case, according to the chairman of the Central Bank of Azerbaijan, Elman Rustamov, no serious changes should be expected in the exchange policy of Azerbaijan until the end of 2015. In his recent address to a session of parliament on the report of the country's government on its activities in 2014, the country's chief banker said that such a prediction is based on anticipated oil prices and developments taking place in the world.

Justifying the February decision of the CBA by the fall in oil prices, Rustamov said that when oil priced dropped on the world market in 2008, the Central Bank spent more than one billion on the preservation of the rate of the manat, but it was possible to get them back because oil prices stabilized in a short time. In his opinion, the oil market is now experiencing a new phenomenal fall in prices, and it seems that it will last very long.

Thus, the decision to correct the rate of the national currency made it possible to avoid the dollarization of 70 per cent of the manat money supply. "If the CBA had not changed the rate of the manat, given the devaluation of national currencies in neighbouring countries, the competitiveness of Azerbaijani products on foreign markets would have fallen on the one hand and on the other, the situation at local enterprises that supply their products to the domestic market would have worsened," Rustamov pointed out.

According to Azerbaijani Deputy Minister of Economy and Industry Sevinc Hasanova, the increasing frequency of crises, the expansion of their zone, the increase in geopolitical risks and economic pressures are a challenge to the whole world, including Azerbaijan. Speaking at the Azerbaijan investment summit recently, the deputy minister said that over the past 10 years, the country's economy has trebled, budget revenues have increased by 13 times and the population's incomes by six times. "Currently, the strategic currency reserves exceed 50bn dollars, while the total amount of investment made in the country's economy totals 177bn dollars, of which 123bn dollars were funnelled into the non-oil sector. It was these achievements that made it possible to avoid a critical situation in the economy at a time of extremely low oil prices, collapsing currencies of neighbouring states and political crises that exerted pressure on the manat. These factors, along with the stimulation of imports, increased the prices of exported goods, which necessitated preventive measures with the aim of maintaining the sustainability of the country's economy," she said.

Meanwhile, the international rating agency Fitch Ratings says in a report on its website that in order to regulate the economy at a time of low oil prices, the government is also reviewing the state budget outlook for 2015. "The state budget for this year approved by the country's parliament in November 2014 had a targeted deficit of 2.8 per cent of GDP with an oil price of 90 dollars per barrel. The weak exchange rate will soften the impact on oil revenues in the manat equivalent, while the government will reduce infrastructure expenses from the very high level, postponing the implementation of future projects. This combination should prevent a significant deficit in the state budget," the report says.

According to Fitch analysts, this will allow the government to avoid a significant net decline in the assets of the State Oil Fund of Azerbaijan (SOFAR).

Levers of influence

Of course, all this will not go unnoticed for the country's population. Certain notes of the impact are quite tangible now, but in the near future, as the reserves at the warehouses of wholesale suppliers become depleted, a hike in the price of staple goods will become inevitable. According to some local experts, inflation may reach a double-digit level this year, although, according to some international financial institutions, the index of consumer prices will not cross the mark of 10 per cent any time soon.

It must be remembered that attempts to increase prices followed almost immediately after the fall in the rate of the manat on 16 February, but the Ministry of Industry and Economic Development, the State Customs Committee, the State Grain Find of the Ministry of Emergencies and other entities intervened immediately. The head of the Grain Fund, Zulfuqar Mammadov, said that by the 30 December decision of the Cabinet of Ministers, the amount of grain supplied to the fund was increased from 500,000 to 750,000 tonnes, which makes it possible to carry out intervention on the domestic grain market, prevent a change in prices and foil cases of abuse in this sphere. Today the reserves of high-quality grain total about 500,000 tonnes, and apart from that, negotiations are under way with Russian and Kazakh manufacturers on the supplies of high-quality wheat. "Currently, the State Grain Fund sells one tonne of wheat to manufacturers for 185.6 manats. The wholesale price of a 50-kg sack of high-quality flour is set at 16 manats. In turn, this serves as a basis for keeping the price of bread in the country stable, so we can safely say that there are no grounds for increasing the price of bread in Azerbaijan," Mammadov said.

However, if the state helps to maintain the price of the strategic product - bread, local manufacturers have no intention of giving promises about other food products. For example, the chairman of the observation council of Azersun Holding, Abdolbari Goozal, said in his recent speech that the price of goods made in Azerbaijan will increase by 15-17 per cent. "Some of our foreign friends call and ask if we can keep the prices stable. There is no doubt that the fall in the rate of the manat will affect the price of our products. However the growth in prices will be not 34 per cent, but 15-17 per cent, i.e. half of the indicator by which the manat was devalued. At the same time, a 34-per-cent hike in the price of imported goods is inevitable," Goozal says. "The production of food products by Azersun Holding is 50 per cent dependant on imports. In some products, this indicator is 10 per cent and in others - 60 per cent. Both we and importers carry this burden," Goozal said.

An almost similar statement was made to the local media by the head of a major dairy company Atropatena, which is also a distributor for more than 10 foreign companies in Azerbaijan. The chairman of the company board, Elsad Rasulov, said that prices can be kept at the current level for three months maximum, and then reserves will run out, and if you do not increase the prices, business will stop. "We bring some of the elements used in the production of milk and dairy products from abroad. According to our calculations, the cost of production has increased by 12-13 per cent, and on the whole, the price of finished products should rise by 18 per cent in order for production to remain profitable," the businessman noted.

In other words, a hike in consumer prices in Azerbaijan is inevitable. However, although this process is natural, the likelihood of additional "artificial" markups by wheeler-dealers is especially high and expected. For this reason, experts are sure that government agencies that regulate and monitor the consumer market need to be more careful now and develop a more effective mechanism of preventing negative phenomena in the trade sector.

According to the deputy and member of the parliamentary committee for economic policy, Ali Masimli, a 10-per-cent increase in the level of production will have an artificial nature. "Every percentage of an artificial increase in prices causes damage worth 170m manats to the family budget of the country's population. In order to prevent this, it is necessary to carry out careful monitoring of the entire process of importation - from the moment goods come into the country and are registered by the customs authorities to the moment they get on the counters in the shops. Only in this way, can we curb inflation," the MP believes.

On the other hand, experts believe, businessmen importing products into Azerbaijan ought to reconsider and reduce the rate of their profit in the current situation.

It is necessary to understand that the devaluation of the manat affected the income of all citizens of the country. In this situation, businessmen should also reduce their incomes. Otherwise, they will be forced to significantly increase prices, which will ultimately affect the demand for their products - people will start to refuse expensive offers in favour of cheaper alternatives. So business will be affected in any conditions, but by reducing their share of profit, businessmen will be able to retain their positions on the market. After all, difficult times are not forever, and it is better to have little now than to have nothing when the situation on the consumer market stabilizes again…