Political tensions in Turkey and sanctions against the Russian Federation resulted in sharp depreciation of Turkish Lira (TRY) and modest loss of value by Russian Ruble (RUB), creating an overall expectation of devaluation in Azerbaijan. With this post, I would like to briefly look at different factors and argue why and why not a devaluation can be expected. At the end, I will give my overall conclusion on whether we should worry about Manat.
It is an inevitable fact that State-Owned Enterprises (SOEs) are in every aspect of our daily lives in Azerbaijan. From basic utilities, such as electricity, gas, water, to transportation and banking, we are surrounded by large SOEs. Some of these enterprises, such as “Azerishiq”, “Azerqaz”, “Azersu”, “Baku Metro”, “Azerbaijan Railways” operate in an absolute monopolistic environment where there is no other provider in the industry. Some others, including “International Bank of Azerbaijan”, “Azer-Turk Bank”, “State Insurance Commerce Company of the Azerbaijan Republic” and “Azerbaijani Airlines (AZAL)” operate in a slightly more competitive setting. However, just like everything that has got something to do with government in our economy, these SOEs also take their fair share of problems.
For a couple of years now the Azerbaijani state budget has developed the habit of being subject to amendments, especially when considerable variations in price of oil is at hand. Amending the state budget itself is a natural process, allowing the government to match (!) revenues and expenditures. However, as we will soon see, the nature of budget revisions in Azerbaijan is fundamentally different.