Just five weeks after Azerbaijan's President Ilham Aliyev established a Financial Stability Council, the country's banks are experiencing an unprecedented demand for foreign currency. Yet even though Azerbaijan's currency, the manat, has lost 9 percent in value since late May, the Central Bank insisted on August 22 that a further devaluation -- which would be the third since February 2015 -- is not in the cards.
The news portal Caucasus Knot quoted the Central Bank as saying the State Oil Fund (SOCAR) is currently selling $50 million per day to local banks, while demand is 12 times as high at $600 million. Consequently, some banks have suspended sales of foreign currency, while others have imposed limits ranging from $100 to $500 per customer.
The Central Bank devalued the manat in mid-February 2015 by 33.5 percent vis-a-vis the U.S. dollar. The manat lost a further 47 percent in value in December 2015. As of that month, the exchange rate was 1.56 manats to the dollar, compared to 0.78 manats to the dollar 10 months earlier.
Bloomberg reported in mid-March, quoting RFE/RL's Azerbaijani Service, that the manat could lose a further 10 percent in value. A new slide in value got under way in June, and the exchange rate had reached nearly 1.64 manats to the dollar by closing on August 24, from 1.48 in late May.
The pressure on Azerbaijan's economy comes largely from the steep fall in oil prices over the past two years, given that oil sales account for the lion's share of the country's revenues. In February, the Azerbaijani parliament was constrained to revise the planned budget for 2016, which was originally predicated on oil prices of $50 per barrel of Azeri Light, because the oil price had plummeted to $25 per barrel.
In a bid to minimize the impact on the economy of the decline in oil revenues, Aliyev set up the Financial Stability Council, which is chaired by longtime Prime Minister Artur Rasizade, and tasked it with drafting within one month proposals to underpin macroeconomic stability and "avert any further negative developments in the financial sphere." But analysts questioned whether and how a body that essentially duplicates the cabinet will be able to provide a plan that will balance the diverging priorities of the Finance Ministry, the Economy Ministry, and the Central Bank.
Last year's double devaluation has already taken its toll on the country's banks. The government was constrained to bail out the International Bank of Azerbaijan, the country's largest, while six smaller banks were forced to close, according to Intellinews.com.
