BY ELNUR MAMMADOV
The other day after the parliamentary debate around the national budget for 2019, the reasoning of the Minister of Finance, Samir Sharifov about the fate of the Azerbaijani manat during a telecast on the state television channel caused mixed reactions and speculative excitement in expert circles, and in the public opinion of the country.
After all, the words of the minister, to a certain extent, shed light on the future financial and monetary policy of the government, as well as the state of the Azerbaijani national currency. And the finance minister voiced the axiom of the economy: excessive strengthening of its own currency is unprofitable for Azerbaijan.
Recall, the experts of our site devoted dozens of analytical publications to this problem, in which an attempt was made to clearly and objectively indicate the motives of this conceptual approach. Indeed, a strong currency in combination with a number of other factors, according to the basic truths of economics, leads to an increase in prices for locally produced goods, which causes an increase in imports and a decrease in exports of goods. And in such a situation, all measures and government actions aimed at increasing foreign exchange reserves remain unsuccessful, and local producers are forced to reduce production capacity.
This was meant by the minister, who stressed: 'A very strong manat negatively affects the export potential of Azerbaijani producers. Their products become less competitive for export. On the other hand, local manufacturers are beginning to lose competition in the domestic market, as imported goods become cheaper.' Further, the minister added that the policy pursued in recent years in the country is aimed at maintaining a 'macroeconomic balance and sustainable economic growth,' which does not give rise to different interpretations.
It would seem that everything is stated very clearly. But opposition experts and some unfortunate economists rushed to sound the alarm, threatening society with the danger of a new devaluation. Ill-wishers, through social networks and little-known sites, replicated on the same network, began to inflate the discussion around the statement by the finance minister about the negative impact of excessive strengthening of the national currency on Azerbaijani exporters. Further more. Along with the amateurs, the heavyweights also entered the game, whose comments were already frankly alarming.
On one of the little-known sites there appeared an expert assessment of the former vice-premier in the government of Mutalibov and the Popular Front, the current deputy of the Milli Majlis, Vahid Ahmadov. And the militant ignorance, invested in the mouth of the expert deputy, who chose the strange niche of the forerunner of national disaster, left no doubt - it's time for Azeri Daily to intervene in the discussion.
In Azerbaijan, we have already witnessed how the Central Bank changed its exchange rate policy depending on whether the manat is getting cheaper or getting stronger. If in the middle of 2000s a huge influx of petrodollars forced the Central Bank to conduct massive manat interventions and spend billions of manats to buy dollars to prevent the manat from strengthening, then after the 2014 oil crisis, the picture changed drastically. Billions of dollars from foreign exchange reserves were lent to the foreign exchange market in a short period, in order to prevent the weakening manat from dying in the tight grip of the impending severe crisis.
It is necessary to repeat again that all this is known both to the reader, and to the experts, and even more so to the well-known economist deputy. So why make so much noise and raise the alarm when it comes to a beaten truth? And here it should immediately be noted that all these comments are not built on the words of the minister, but on speculations of sceptics, who were outraged that Sharifov began, as they say, to get into their domain. The exchange rate policy, they say, is the exclusive prerogative of the Central Bank, the issues of export and import are the imperative right of the Ministry of Economy. The Ministry of Finance, they say, is limited to control over budget revenues and expenditures. And since the minister of finance spoke about the manat rate, it means that the trouble cannot be avoided.
But the fact of the matter is that Samir Sharifov in his speech on AzTV on the budget 2019, did not stop at all on the exchange rate policy! And who, if not the most cautious minister of the Azerbaijani government himself, adheres to the limits of official competence. On the contrary, the essence of the minister’s speech was to reassure the public that, despite a certain volatility prevailing on the world oil market in recent weeks, the state budget for the next year was formed taking into account maximum protection from various negative scenarios. Here experts should have noted such an important achievement: for the first time, the state budget was prepared on the basis of the new Budget Rule for the long-term management of public finances.
And this Rule, unfortunately, was practically never discussed by our experts, who conjectured from another’s suggestion, although it is far more important for the country, including in social terms, than this whole unfounded discussion. After all, the new Rule does not give the government the right to cut the expenditure side of the state budget even in the most difficult periods for the country. This is the result of the tragic experience of 2016, when the deepening economic crisis forced to cut spending, then turned into a recession of the economy as a whole - GDP dropped as much as 3%. And everyone felt that life had become more difficult. In the future, we are guaranteed from such drops that might lead to social upheavals. But this, apparently, is of little interest to economics amateurs, who managed to lure to their side experts inexperienced in such games and MP Ahmadov, who is well-known for his populist statements.
One of the main features of this fiscal rule is the establishment of medium- and long-term limits on the use in the state budget of revenues from the oil sector, accumulated in the State Oil Fund in foreign currency. And again, referring to this issue, the finance minister noted that these limits provide for curbing the excessive supply of so-called 'petrodollars' by the state to the domestic foreign exchange market to finance budget expenditures.
Samir Sharifov is not the first time talking about the need to reduce transfers from the Oil Fund, and this appeal should deserve only universal approval. And the implementation of the new rule in periods of significant growth in revenues from the oil sector will allow to avoid negative scenarios. Thus, excessive supply of currency may, on the one hand, overly strengthen the manat, which will hit primarily local production and national exporters. And, on the other hand, a forced purchase by the Central Bank of surplus foreign currency supply could lead to an excessive expansion of the monetary base, which, in turn, can create significant inflationary pressure on the economy as a whole.
And in general, the attentive TV viewer probably remembers that only in the context of the Budget Rule, Samir Sharifov voiced his thought that 'excessive strengthening of the manat can negatively affect local producers.' You do not need to be an 'economist' to realise that the 'non-oil' sector of the national economy, which has been dynamically developing in recent years, becomes less competitive with excessive strengthening of the manat, and the domestic market may again undergo expansion of imported goods. The idea of negativeness for local production of excessive strengthening of the manat (revaluation) can be interpreted as the announcement of a possible devaluation only for those who are not satisfied with the sustainability of the Azerbaijani economy.
We just have to rejoice that, in contrast to such 'well-wishers,' Minister Sharifov in his speech stressed only the need to comply with the Budget Rule. Its application allows, in the first place, to determine the top bar of public spending in the medium and long term. And at the same time to establish the maximum amount of oil revenues that can be used to finance public spending in the framework of the budget year. This fiscal policy supports the main objectives of the monetary policy implemented by the Central Bank - a stable exchange rate of the national currency and low inflation.
So, the budget of 2019 is prepared on the basis of the Budget Rule. On the one hand, this provides the necessary level of financing public expenditures, on the other hand, it maintains the optimal exchange rate of the national currency established in 2017. In addition, the new rule provides a sufficient (but not excessive) amount of foreign currency for sale in the domestic foreign exchange market in order to meet the country's import needs and service foreign debt to public and private organisations. And this strategy is being successfully implemented by the government together with the Central Bank under the leadership of Azerbaijani President Ilham Aliyev.
And how after this, cannot we regard the blitz-interview by MP Vahid Ahmadov, allegedly positioning himself as a supporter of the policy of the head of state, as a vicious insinuation? True, at the beginning of his interview, the deputy claims that the minister’s words were taken out of context, but for some reason further violates his own logical sequence, striking the contradictory absurd 'inference,' making absolutely discourteous attacks on Sharifov, one of the most experienced members of Ilham Aliyev’s team.
Although, Ahmadov’s permanent opportunistic passion to sit on two chairs is perhaps an open secret. In recent years, one of the representatives of the Soviet pleiad of the 'red directorate' has literally focused on the problem of the exchange rate. Vahid Ahmadov’s terrible predictions about the inevitable depreciation of the national currency are still fresh in our memory. Despite the optimistic assurances of the Central Bank and other financial institutions, as well as representatives of the government about monetary and money-and-credit policy.