The flow of cold air from the north is bringing economic worries to Azerbaijan along with early winter. The economic crisis caused by Russia, one of Azerbaijan’s main trade partners, due to sanctions creates risks for us as well. As the crisis deepens, we will begin to feel its negative impact more prominently. In addition, negative signals are coming from the West. The decrease in the price of oil, which is the main donor of the state budget, on the world market, and the forecasts that this decrease will continue in the near future, promise the beginning of a difficult period for the country’s economy.
No matter how much the Russian authorities try to hide it, it is obvious that the country’s economy is in decline due to the sanctions. In short, we should note that capital in the amount of billions of dollars is taken out of the country. Loans become more expensive, tax rates are increased and even new ones are introduced, and stocks fall. Foreign capital fell to the lowest level in the last 10 years.
Russia’s international reserves decreased by $3.6 billion in the last 2 weeks from $458.3 billion to $454.7 billion. According to forecasts of Fitch experts, if the sanction continues, the reserves may fall to $450 billion by the end of the year, and to $400 billion by the end of 2015.
The problems don’t end there. According to the calculations of the Ministry of Finance, as a result of the drop in the price of oil from $110 to $93, exports will decrease by $55 billion per year. Inflationary pressure is increasing in the country. Inflation exceeded the 7.4% level predicted by the Ministry of Economic Development and reached 8%.
It was revealed that the value of the “South Stream” gas pipeline, one of Russia’s levers of influence on Europe, which allows the export of 63 billion cubic meters of gas per year, has increased by approximately 45% from 28 billion euros to 40 billion euros.
The negative trends observed in the economy are reflected in the value of the national currency. The exchange rate of the ruble against the US dollar fell by more than 20% to 40 rubles in 2014 alone. Depreciation was 7.5% in September alone. Although the Central Bank preferred not to intervene in the market after June, it was forced to intervene in early October. The Central Bank was again forced to exceed the borders of the currency corridor. Currently, these limits are 35.85-44.85 rubles. According to Bloomberg’s calculations, the Bank of Russia had to sell $2 billion in the market to support the ruble after October 2. This is the largest indicator since March.
Today, the periodical press is mainly thinking about one issue in relation to Russia: does the depreciation of the ruble have a negative effect on Azerbaijan? Opinions vary. Along with those who say that it has a negative effect, there are also those who claim that it does not.
Let me note that the change in the exchange rate of the national currency of the trading partner country definitely has its effect. In particular, the depreciation of the national currency in Russia, one of the main trade partners of Azerbaijan, has a noticeable effect on our country. Considering that Russia is a “place of work” for our compatriots, one can see how wide the scope of influence is. However, despite being a neighbor, we can say that the change of the national currency of Armenia, which does not have trade relations, has no effect on Azerbaijan. The rest of the countries are affected in one way or another. That is why the economic events happening in this country must have an impact on us. So, what is this damage?
First of all, the devaluation of the Russian ruble shows a decrease in the income of up to 2 million compatriots who went to work in Russia. Depreciation of the ruble by more than 20% during the year caused a decrease in their profits. Every year, our compatriots send a large amount of money to the country officially and unofficially. In 2013 alone, $1.2 billion was sent through banks. If we also consider non-bank remittances, we can see that this figure has increased. Of course, this money is earned in rubles, and when transferred to Azerbaijan, it is either converted into foreign currency (dollars or euros) or into manats. At this time, the exchange rate difference reveals the losses. If in January 23 manats were given for every 1000 rubles, now this figure has dropped to 19 manats. So, compared to the beginning of the year, our migrants lose 4 manats per 1000 rubles. Deterioration of business as a result of sanctions is also a risk for the earnings of our migrants.
The second loss occurs in the assets of the Oil Fund in Russia. In accordance with the change made to the investment policy in 2011, the Fund bought the Russian ruble and included it in the currency reserve starting from 2012. Currently, the share of the ruble in the Fund’s reserves is 1.3%. At the same time, the Fund bought $500 million worth of shares in VTB Bank, Russia’s second largest bank. As a result of the sanction imposed on the bank, its shares, each of which had a nominal value of 0.041 rubles, fell to 0.038 rubles. Both the depreciation of the shares of VTB Bank and the devaluation of assets denominated in rubles led to the “melting” of the assets of the Oil Fund in Russia.
Thirdly, the devaluation of the ruble weakened Azerbaijan’s export potential