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Azerbaijan Oil Price Decline Could Affect Standard of Living
By Aydin Mammadov
Feb. 9, 2015
Serious decline of world oil prices forces Azerbaijan to reconsider
some of the costs as it is about to face and unemployment in 2015.
`International agencies predict the price of oil from USD $55 to 60
per barrel, even in this the maximal price drop, our country will face
serious challenges,' says economist and board member of the public
movement REAL Natig Jafarli.
`Our country was making USD $500 millions per month only from taxes
from oil companies, but when the oil price dropped, this amount
decreased as well,' he adds.
At the same time the Budget for the year 2015 was based on oil prices
of USD $90 per barrel and to fill the budget expenditures the
authorities allocated USD $10 billion from the national reserve, the
Oil Fund.
`It is not possible to support the budget this way, and there are
other means to use right now,' Jafarli says adding that at the end of
2014 Azerbaijan's Central Bank spent USD $1 billion to support the
exchange rate of the local currency manat last year.
But Jafarli says the country can't keep spending money on supporting
manat, because it's not clear how much more money will be needed for
this process on one hand, and, on the other hand, locals, worried
about depreciation of the currency, keep buying dollars.
Jafarli says the government's goal is to support the economy until
November parliamentary elections. But then, by the end of this year,
the economy will undergo serious problems.
`If there will be manat devaluation, it will cause severe inflation,
as we are by 60% we are dependent on imported goods, and non-oil
production in Azerbaijan is minimal,' Jafarli says.
Aside from these problems, Jafarli says, Azerbaijan has committed to
spending on the construction of Baku-Akhalkalaki-Kars, TANAP and other
projects, which means that USD $7 billion out of Oil Fund's USD $32
billion will be spent on various ambitious projects.
`And if oil prices will remain low in 2016, then all the Oil Fund
money will be spent for the budget,' Jafarli says.
Former president of State Oil Company of Azerbaijan Republic (SOCAR)
Sabit Bagirov, however, isn't that pessimistic.
`I do not expect a serious impact on citizens' well-being because the
state has foreign exchange reserves (about USD $50 million). In
addition, we have still income for the Oil Fund from oil and gas, even
if it is less,' ` says Bagirov, adding that if in the near future the
oil prices will remain low, `the state is likely to develop more
cost-effective policies and aims at diversifying economic
development.'
Another problem ahead of Azerbaijani economy in 2015 is unemployment,
says Jafarli, adding that spheres that will suffer the most are
construction and transportation.
According to another economist, Gubad Ibadoglu, Head of Center for
Public Initiatives, there could be layoffs also in the oil sector.
`If prices remain the same until summer, there could be layoffs at
SOCAR and foreign oil companies. Other sectors related to oil industry
will suffer as well, such companies as Azeriqaz and Azerenerji.'
Bagirov, however, doesn't see any changes that should lead to unemployment.
According to Sabit Bagirov, changes in government funding are not as
significant that it could lead to unemployment.
`I do not think investment in construction will be seriously reduced,
because important events of political significance are coming up `
European Olympic Games and parliamentary elections,' he says.
Jafarli says one more important factor is the reduction of labor
migrant remittances from Russia to Azerbaijan.
But Ibadoglu says that Russian crisis will affect Azerbaijan not as
much as other countries in the region.
`As the percentage of revenues imported into the country from Russia
make less than 5% of total GDP, while in Armenia and Tajikistan income
from Russia is about 20% total profits, we shouldn't be affected as
much,' he adds.
On the other hand, Jafarli notes that while even in Russia the crisis
and its consequences are being discussed openly, while in Azerbaijan
the crisis is being denied overall.
http://www.silkroadreporters.com/2015/02/09/azerbaijan-oil-price-decline-affect-standard-living/
By Aydin Mammadov
Feb. 9, 2015
Serious decline of world oil prices forces Azerbaijan to reconsider
some of the costs as it is about to face and unemployment in 2015.
`International agencies predict the price of oil from USD $55 to 60
per barrel, even in this the maximal price drop, our country will face
serious challenges,' says economist and board member of the public
movement REAL Natig Jafarli.
`Our country was making USD $500 millions per month only from taxes
from oil companies, but when the oil price dropped, this amount
decreased as well,' he adds.
At the same time the Budget for the year 2015 was based on oil prices
of USD $90 per barrel and to fill the budget expenditures the
authorities allocated USD $10 billion from the national reserve, the
Oil Fund.
`It is not possible to support the budget this way, and there are
other means to use right now,' Jafarli says adding that at the end of
2014 Azerbaijan's Central Bank spent USD $1 billion to support the
exchange rate of the local currency manat last year.
But Jafarli says the country can't keep spending money on supporting
manat, because it's not clear how much more money will be needed for
this process on one hand, and, on the other hand, locals, worried
about depreciation of the currency, keep buying dollars.
Jafarli says the government's goal is to support the economy until
November parliamentary elections. But then, by the end of this year,
the economy will undergo serious problems.
`If there will be manat devaluation, it will cause severe inflation,
as we are by 60% we are dependent on imported goods, and non-oil
production in Azerbaijan is minimal,' Jafarli says.
Aside from these problems, Jafarli says, Azerbaijan has committed to
spending on the construction of Baku-Akhalkalaki-Kars, TANAP and other
projects, which means that USD $7 billion out of Oil Fund's USD $32
billion will be spent on various ambitious projects.
`And if oil prices will remain low in 2016, then all the Oil Fund
money will be spent for the budget,' Jafarli says.
Former president of State Oil Company of Azerbaijan Republic (SOCAR)
Sabit Bagirov, however, isn't that pessimistic.
`I do not expect a serious impact on citizens' well-being because the
state has foreign exchange reserves (about USD $50 million). In
addition, we have still income for the Oil Fund from oil and gas, even
if it is less,' ` says Bagirov, adding that if in the near future the
oil prices will remain low, `the state is likely to develop more
cost-effective policies and aims at diversifying economic
development.'
Another problem ahead of Azerbaijani economy in 2015 is unemployment,
says Jafarli, adding that spheres that will suffer the most are
construction and transportation.
According to another economist, Gubad Ibadoglu, Head of Center for
Public Initiatives, there could be layoffs also in the oil sector.
`If prices remain the same until summer, there could be layoffs at
SOCAR and foreign oil companies. Other sectors related to oil industry
will suffer as well, such companies as Azeriqaz and Azerenerji.'
Bagirov, however, doesn't see any changes that should lead to unemployment.
According to Sabit Bagirov, changes in government funding are not as
significant that it could lead to unemployment.
`I do not think investment in construction will be seriously reduced,
because important events of political significance are coming up `
European Olympic Games and parliamentary elections,' he says.
Jafarli says one more important factor is the reduction of labor
migrant remittances from Russia to Azerbaijan.
But Ibadoglu says that Russian crisis will affect Azerbaijan not as
much as other countries in the region.
`As the percentage of revenues imported into the country from Russia
make less than 5% of total GDP, while in Armenia and Tajikistan income
from Russia is about 20% total profits, we shouldn't be affected as
much,' he adds.
On the other hand, Jafarli notes that while even in Russia the crisis
and its consequences are being discussed openly, while in Azerbaijan
the crisis is being denied overall.
http://www.silkroadreporters.com/2015/02/09/azerbaijan-oil-price-decline-affect-standard-living/