CESD: Low oil price negatively affects on the currency market in Azerbaijan

CESD: Low oil price negatively affects on the currency market in Azerbaijan

The significant decline in oil prices on world markets is due to a multitude of international factors in the social, political and economic spheres. In particular, the decline caused an increase in US oil production. The remarks came from economic expert Vugar Bayramov, Chairman of Center for Economic and Social Development (CESD), Azerbaijan in an interview with CBC. In his opinion, the forecasts of the leading financial institutions about the global economic downturn in 2019 also affected the weakening of the oil market. According to the expert, the threat of low oil prices should be the reason for an additional reduction in production volume within OPEC +. This will compensate for the negative impact of external factors and keep the price of black gold in the range of $ 55-65 per barrel.

“In some cases, the price of oil can fall to $ 50 per barrel. If OPEC does not make a decision to further reduce production, then it is quite possible that the downward trend in oil prices will continue and even fall to $ 45. At the same time, analysts believe that over the next year, the average price will remain at $ 55- 60 per barrel. This is due to the expected increase in demand for black gold, which will affect its value. Considering all these factors, in 2019, a sharp increase in oil prices is not predicted,” expert said.

Vugar Bayramov added that low oil price increases pressure on Azerbaijani currency market and negatively impact on the economy: “Psychological effects are associated with the world oil market, decline of oil price has been putting pressure on manat, national currency of Azerbaijan, said the expert. Side effects are also related to the oil price. Due to the decline of oil price, income from the country’s export has been declined and huge savings of both the government and households negative impacts on services, banking and other sectors.”

Despite hovering well-over its predicted value for most of the year, the recent decline in the price of oil once again puts question marks for the future of the commodity. Considering all of the above mentioned facts in mind, dependence of 2019 state budget of Azerbaijan on oil, where 60.0% of revenues directly come from the oil sector further makes the country more vulnerable to oil price fluctuations. The largest hike is observed in the amount of revenues collected through the excise taxes while the biggest decline is in income taxes, reflecting the new amendments to the tax code. Expenditures of the state budget are going to be 7.3% higher in 2019, with the most significant boost observed in construction sector. When looking at the SOFAZ’s budget, a clear trend of increasingly allocating more and more funds to the state budget can be seen. As expected, new amendments were made to the fiscal rule in order to make it more flexible, however, the effectiveness of these changes are still unclear in light of oil price.

The highest price for Brent crude since November 2014 was $ 86.7 per barrel. In the last auction, the price of Brent crude rose by more than 2 percent to $ 54 a barrel. The price of AZERI Light oil was $ 55.04 per barrel.

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