Presidential aide announces about changes in economic policy

/By Azernews/

By Gulgiz Dadashova

The government of Azerbaijan has begun to draft a strategic ‘road map’ of the national economy and reveal the priority sectors in accordance with the objectives set by the president.

Natig Amirov, Azerbaijani presidential aide on economic reforms, announced about this in the roundtable on AmCham Support to Economic Reforms on March 11.

The main aim of the drafted road map is to ensure sustainable economic growth, correctly define the development strategies for auxiliary sectors that contribute to creating the economy’s leading sectors and the necessary economic infrastructure.

With a population of over 9 million, Azerbaijan has relied on hydrocarbons for ensuring the economic growth and has turned from a low-income country to a middle-income country in a short period of time.

Following the economic crisis by force of low oil prices the energy rich South Caucasus nation announced its intention to develop potential mechanisms and economic growth models with a view of adapting its own model to those most advanced.

Amirov said the strategic ‘road map’ will help to develop a new economic model, adding "We want to turn Azerbaijan into one of the most attractive countries for investors.”

Over $130 billion was invested in Azerbaijan’s economy over the past ten years. The foreign trade turnover and the non-oil export have grown by 6.4 times and 4.5 times, respectively.

During this period, 19,400 business entities have received preferential loans worth of over 1.2 billion manats, Amirov said.

Azerbaijan’s GDP has grown by 3.2 times over the past ten years. The non-oil sector has grown by 2.6 times, industrial production by 2.7 times, agriculture by 1.5 times, investments by 6.5 times and the average monthly salary by 5.5 percent.

Aiding growth of banking sector

Speaking about problems that the domestic banking sector faced, particularly after depreciation of Azerbaijan’s manat, Amirov said banks must correctly determine their own credit policies. In this point, he mentioned serious problems in corporate governance as well.

"Some bank owners view them [banks] as stores and define to whom they can lend money. So, we must protect banks, primarily from their owners,” he said.

The presidential adviser further noted that there was proposed to increase the upper ceiling on insured deposits to 18 percent, from the current 12 percent on the manat deposits, and 3 percent on deposits in foreign currency.

Commenting on the proposal, Amirov said the question is how the banks will use the attracted funds.

“Can we develop business through loans issued with an interest rate of 30 percent? The funds raised by banks should be directed to the development of the real sector. It depends upon the effectiveness of such credit. Today, there are serious problems with repayment of loans, which is largely due to the incorrect credit policy of banks," Amirov claimed.

Amirov believes that the interest rates on loans and deposits should be optimized.

A relatively high interest rate and the short period of repayment of loans issued by local banks are not very useful for the development of the country’s non-oil sector. Local banks have been repeatedly urged to invest in the country’s economy, giving preference to the real sector rather than consumer lending.

Some 43 banks operated in Azerbaijan as of late 2015 and 157 non-bank commercial organizations, including 109 credit unions. The licenses of six banks were revoked in January. The license of one of them - NBC Bank was restored February 2.

As of February 1, 2016, the total volume of loans granted by banks hit 21.19 billion manats, including 10.21 billion manats (48.18 percent) issued in national currency and 10.98 billion manats (50.7 percent) in freely convertible currency.

As of February 1, 2016, the total volume of loans granted by banks totaled 21.19 billion manats ($12.73 billion), including 10.21 billion manats ($6.13 billion) (48.18 percent) in national currency and 10.98 billion manats ($6.6 billion) (50.7 percent) in hard currency.

The largest part of the total loan portfolio of banks in the amount of 38.1 percent still accounts for the consumer loans.

The construction and real estate sector (14.5 percent or 3.07 billion manats or $1.84 billion) ranked second on the share in the total loan portfolio of banks as of January 2016. The trade and services (13.7 percent or 2.9 billion manats or $1.74 billion) ranked third. Around 8.9 percent was directed to the industry and production. In nominal terms it amounts to 1.88 billion manats or $1.12 billion.

The share of transport and communication hit 7.1 percent (1.5 billion manats or $901 million), agriculture and processing reached 2.1 percent (441.1 million manats or $265 million ), energy, chemistry, and natural resources 1.5 percent (310.3 million manats or $181 million).

The presidential aide stressed that the House of Supervision over Financial Markets has already launched its activity and cooperates with the Central Bank of Azerbaijan in addressing problems of the financial and banking sector.

Currently, they consider problems that arose from lack of manat liquidity of local banks.

"Bulk of proposals include increasing liquidity of banks through the emission of money, while these proposals seriously discussed by experts and representatives of the banking sector, because it can lead to increased pressure on the manat,” he said.

Amirov believes this method can only give a short-term effect, namely one or two days.

Earlier, the CBA tried to revive the sector through the emission of money. However, after a few days these funds were dollarized and again returned to the Central Bank in the form of the manats.

"Banks and population have enough money, but they are in foreign currencies. Now, we are working to find a right way to convert them in manats and direct to lending to the real sector,” he stressed.

However, Amirov noted that no sharp fluctuations are being observed in the exchange rate of the manat, which would require urgent intrusion of the CBA.

Amirov said that the needs of the market will allow determining the objective rate of manat.

“In particular months, the import volume increases, for instance on the eve of holidays. With the growth of imports the manat, of course, weakens, because the demand for USD and euros increases. The floating exchange rate policy serves to help the manat find its place [rate],” he explained.

Earlier, the CBA denied the information about plans to abandon the floating exchange rate from March 18.

“The exchange rate of manat is set based on the demand and supply on the currency market in accordance with the floating exchange rate,” the bank said stressing that it doesn’t plan to abandon the floating exchange rate.

The CBA switched to the floating rate of manat on December 21, 2015 as a result of which the exchange rate of dollar and euro increased by 47.6 percent and 47.9 percent and stood at 1.55 and 1.685 manats, respectively.