THE RESERVES RENEW GROWTH

Some experts perceived the devaluation of the Azerbaijani manat exchange rate by one third (the exchange rate fell from 0.78 manats to the dollar to 1.05 manats) in February this year as almost the collapse of the national currency. It was predicted that hyperinflation would return to the country, that a second wave of devaluation was inevitable as a result of which the standard of living of the population would drastically decline.

But the steps taken by Azerbaijan's government are making it possible even now, four months after the devaluation, to talk about the unjustified forecasts of those experts who were predicting doom and gloom.

On the whole, the Azerbaijani government extricated itself from a difficult situation with honour in the light of the double dip in oil prices on the world markets. Naturally, the country's gold and currency reserves, in particular the reserves of the Central Bank, which have steadily declined from their maximum figure of 15bn 193m dollars in July 2014 to 8bn 387m dollars in April 2015, have also been of great importance.

A marked improvement in the figures for Azerbaijan's foreign economic activity as seen from the results from May and June ultimately took the threat of a second wave of manat devaluation off the agenda.

 Data from the State Customs Committee (SCC) of Azerbaijan indicates that, according to the results for May 2015, the volume of exports rose by 14 per cent compared with April, reaching 1,011bn dollars. The volume of imports in May 2015 dropped by 46 per cent, amounting to 665m dollars. Thus, the positive balance in foreign trade in May 2015 reached 346m dollars.

The drastic drop in imports in May is the result of completing the preparations for holding the First European Games in Azerbaijan, pointing to a cardinal reduction in state spending. This, in its turn, is leading to an increase in the positive balance in the economy's foreign trade turnover, which will allow the Central Bank to boost the country's foreign currency reserves. It is not surprising that the Central Bank of Azerbaijan [CBA] has managed to increase the foreign currency reserves for the first time by 43m dollars owing to the results for May. This process has continued following the results for June, the growth in foreign currency reserves being boosted by a further 89m dollars. Thus, by 1 August the CBA's foreign currency reserves will have reached 8,520bn dollars.

The 132.3m-dollar growth in the CBA's currency reserves over the two months is a negligible figure. But this has an extremely important psychological significance, pointing to the fact that the devaluation of the national currency carried out in February was optimal and that financial stabilisation began between the incomes from marketing Azerbaijani oil on the world markets and the state budget expenditure. It is noteworthy that in June the growth in the CBA's foreign currency reserves occurred against a backdrop of a decline in the average price of the Azerbaijani BTC FOB Ceyhan oil sort exported from the Turkish port of Ceyhan, from 65.16 dollars per barrel in May to 62.73 dollars per barrel in June..

Correspondingly, with the improved oil-price situation on world markets, the CBA will be able to acquire dollars on the foreign currency market in order to prevent excessive strengthening of the exchange rate of the national currency, the manat, in relation to the dollar and the euro. Thus, the Central Bank will very soon be able to recoup the financial losses in its foreign currency reserves which have been channelled into propping up the manat. 

A pessimistic variant of the development situation is quite possible whereby the CBA's management will most likely have to put off rebuilding the foreign currency reserves until next year when the country's budget will be based on a lower oil price than the current 90 dollars per barrel this year. At the present time, the prices of oil on the world markets have become "like a weather vane" rapidly changing according to the direction of the wind or the political events in the Middle East region. 

The threat to the manat's stability may cause a sharp drop in the prices of the BTC FOB Ceyhan oil sort to below 40 dollars per barrel. But even if there are additional oil supplies from Iran after talks on Iran's nuclear programme have ended, it will cause a maximum drop in the price of this sort of oil to a level of 50-55 dollars per barrel. As the oil-price situation in January this year showed, individual producers cannot endure low oil prices, which leads to a sharp drop in the number of oil wells operating and a reduction in the output of "black gold".

In the view of some experts, the devaluation of the manat should have caused double-digit inflation in the country. But here the low oil prices had a positive impact owing to the drop in the prices of goods and services in the non-oil sector.

Naturally, there has been a rise in the prices of a number of foodstuffs and non-food commodities on the consumer market. But the Azerbaijani government's decision not to raise the charges for communal services has been the main factor in stabilising prices in Azerbaijan.

Local entrepreneurs have not been left with hardly any serious reasons for markedly raising the prices of the goods produced by them, taking into account the fact that the prices of electricity, natural gas and petrol have remained the same as they were before. The extremely low food prices in the world over the last five years have been quite an important factor in curbing inflation in the country. For example, the low prices of wheat on the world markets have made it possible for the Azerbaijani government to retain the prices on bread and flour-based foods with hardly any effort at all. 

The prices of wheat on world markets from February through April 2015 wavered from 470 to 530 dollars per 100 bushels, while in February-April 2014 wheat was being traded at 600-700 dollars. Therefore the drop in the prices of wheat on the world markets evened out the impact of the manat devaluation on importers of this extremely important foodstuff.

So, as a result of all these measures, inflation in Azerbaijan has been kept on an acceptable level over the past period.

According to data from the Interstate Statistical Committee of the CIS [Commonwealth of Independent States], the average index for consumer goods throughout the Commonwealth's countries in January-May 2015 was 112.7 per cent compared with the similar period in 2014, while in Azerbaijan this figure was only 104.3 per cent. By way of example, in the period under review the consumer price index in Ukraine was 140.1 per cent, in Russia - 108.3 per cent, in Belarus - 106.5 per cent and in Moldova - 105.6 per cent and so forth.

Summing up all the factors in the country's economic development, and also the medium-term trend in the world economy, it can confidently be said that there are no objective preconditions for the Central Bank of Azerbaijan to devalue the national currency for a second time.