BAKU, Azerbaijan, June 23
By Eldar Janashvili - Trend:
Export prices in Azerbaijan this year are much lower than import ones, however, the national currency (manat) rate plays the role of external shocks absorber, Executive Director of the Azerbaijani Center for Analysis of Economic Reforms and Communication (CAERC) Vusal Gasimli said, Trend reports on June 23.
According to him, the Government and the Central Bank of Azerbaijan are currently softening the impact of the global shock on local consumers through exchange rate policy.
"In countries applying a fully floating exchange rate policy, along with deterioration of foreign trade conditions, domestic demand and, consequently, imports decrease immediately. However, in countries such as Azerbaijan with regulated currency exchange regime, a decrease in domestic demand and imports, although not so considerably, also happens in accordance with the degree of deterioration of foreign trade conditions, which is called the cost effect," Gasimli said.
He stressed that in the first four months of this year, due to the deterioration of foreign trade conditions, imports to Azerbaijan fell by 40.5 percent compared to the same period last year. Deteriorating foreign trade conditions can also cause “cost-shifting."
As the executive director noted, if the foreign trade conditions worsen, investments can be directed to manufacturing of domestic products, shifting consumer demand for local products, and thus direct resources to the local commercial sector.
"For example, during the COVID-19 pandemic, steps are being taken to develop the medical industry in Azerbaijan. It seems that real effective easing of the currency rate is also suitable for this," he said.
Gasimli continued that the increase in the share of loans for the private sector in GDP also increases the real effective rate of the national currency, and the implementation of applications for restructuring loans amid the pandemic in Azerbaijan, subsidizing interest and expanding guarantee support contribute to the growth of the loan portfolio.
"Lending in Azerbaijan makes up only 20 percent of GDP. Calculations around the world show that an increase in the share of private loan portfolio in GDP by 10 percent heightens the real effective rate of the national currency by 1.3 percent," the expert said.
“Nevertheless, the real effective manat rate growth, along with its negative affecting to the competitiveness of the economy, at the same time positively impacts on the population’s purchasing power, and in this case, the choice is made in the interests of the citizen of Azerbaijan,” he concluded.
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