Elshad Mammadov: "Azerbaijan needs stability in the currency market"

Elshad Mammadov: "Azerbaijan needs stability in the currency market"

The Ministry of Economy of Azerbaijan has submitted a basic document containing the main directions of programs prepared in connection with state support of various sectors of the economy, including entrepreneurship, their scope, basic tools to support economic growth and entrepreneurship. In an interview with Vestnik Kavkaza, the government’s comments are commented by Elshad Mammadov, economist and professor at Azerbaijan State Economic University UNEC.

- In Azerbaijan, it is planned to implement nine programs to support business and the public to minimize the impact of the coronavirus. How would you comment on these mitigation measures?

- So far, the final document adopted at the level of the head of state has not been published, but judging by the information that comes to the press, we can say that there are four blocks by which working groups were formed and nine areas were identified for which support will be provided both the public and business. These are measures that must be taken in the “manual mode” to reduce possible social tensions. They should contribute to a certain revival of economic activity in the short term. In recent weeks, economic activity has really plummeted in the country. In addition, the proposed measures should reassure people, because the majority of the population works in the private sector, and earlier the state actually had no direct leverage to support these people in connection with the closure of a large number of private sector enterprises. In addition, the planned activities relate to easing in terms of credit burden. The state will apparently subsidize the business for approximately half of its credit load. This is an adequate approach. I believe that interest rates in Azerbaijan were extremely high, even before the crisis they strangled the real sector. Therefore, measures in terms of subsidizing loans to the real sector are justified.

- What measures are planned to be taken in the tax segment?

- It provides for exemption from land tax, property tax for certain business categories, from a certain part of income tax. At the same time, all strategic products are exempted from VAT and imported goods. This is also a necessary solution. In addition, it provides for the introduction of tax holidays for certain categories of business. The government has identified the main areas of the economy that have suffered the most from the crisis, and intends to provide support, primarily in those areas.

- What measures do you find relevant in terms of public support?

- The expected increase in preferential limits for the use of electricity, that is, a preferential tariff of 100 kW / h. This can also relieve stress to a certain extent, because in recent weeks a significant part of the population is at home, and the use of electricity in residential buildings is undoubtedly increasing ...

I would advise to immediately put things in order in the banking sector, in the foreign exchange market. These measures should lead to an increase in the money supply. However, the money supply must be adequately managed so that it does not flow to the foreign exchange market, and thus an undesirable situation in the foreign exchange market would not be created when the rush demand for dollars begins. This would negatively affect economic stability, including stability in the foreign exchange market and the growth of investments, which are extremely necessary in today's conditions.

- These activities are aimed at the short term. And what about the long-term plans?

- Strategic decisions should ensure the stability and competitiveness of the economy. Coronavirus, the global economic crisis, a sharp drop in oil prices are very serious challenges for our national economy. I think we should become witnesses of strategic decisions in terms of a sharp increase in the role of the state in the economy, transition to a qualitatively different model of economic management. Because now with the previous model it will be extremely difficult to rationally, optimally and clearly manage economic development. The realities are such that relying on full market self-realization in such conditions would be wrong.

- How can a decrease in oil prices in the near future affect the Azerbaijani economy?

- This question is extremely relevant. No matter how much we talk about diversifying our economy, about trying to reduce dependence on the oil factor, Azerbaijan is positioned as an oil country. Now talk about getting rid of oil dependence is not necessary. Oil prices fell catastrophically, and, of course, this will affect the economy. But there is hope that key oil producers will be able to work out some common solutions and come to a common denominator. As a result, the trend for a sharp decline in oil prices will be softened, adjusted. If the pandemic subsides over the next two months, it will also help to some extent stabilize the situation. I think in a favorable scenario, we can expect prices at around $ 35. This will give a respite. After all, we have gold-currency reserves, and large for the volumes of our economy. Therefore, we can count on some stabilization. But all this, of course, should be accompanied by the most active invested in the real sector of the economy. If there is no increase in investment flows, it will be impossible to achieve sustainable results.

- Is it possible to increase investment?

- First of all, due to the institution of internal credit. In today's conditions, no country can count on an increase in foreign investment. It is necessary to implement projects related to the implementation of innovations in those areas of our national economy that can ensure import substitution. This is a very important point in terms of stabilization in the foreign exchange market. With the help of increased investment, we can reach the indicators of growth of the national economy by the end of the year. This will provide an opportunity to implement the tasks of the budget process and stabilize the situation in the foreign exchange market. While the Central Bank holds the situation, but with the current trend, it is simply impossible to do this for a long time. I think that today decisions in the sphere of monetary policy are extremely necessary. The central bank should consider introducing currency restrictions and curbing negative processes, such as possible capital outflows from the country.