Assessment of Effect of Declining Oil Prices on Azerbaijan Economy

Assessment of Effect of Declining Oil Prices on Azerbaijan Economy

The main goal of the study is to assess how oil price decline in the world market will potentially impact Azerbaijani Economy. The paper specifically looks how last changes in the world market will effect on both revenue and expenditure sides of the state budget. The study also examines “side impact” and “domino effects” of low oil prices.

As an oil exporter country Azerbaijan might face the effects of a sharp fall in oil revenue after oil price decline in the world market. Azerbaijan is heavily dependent on oil and natural gas export revenues. In 2013, Azerbaijan hydrocarbon exports revenues accounted for 95% of the country’s total export revenues, and 64 % of total fiscal revenues.

In public finance part, the paper particularly deals oil price decline’s impacts on the 2105 State Budget of Azerbaijan Republic. The study calculates how every $1 per barrel drop in the price of “Azerlight” results annual revenue loss, including losses of GDP, normal export levels and country’ budget.

The study also assesses potential intervention cost of Central Bank of Azerbaijan Republic with the aim of preventing local currency’s depreciation. Side effect of the oil price decline predominantly effects government and households’ savings which in turn have impact on services including banking sector. Demand for bank loans and other service are expected gradually declined.

Obviously, the prices of energy-intensive goods and services are linked to energy price, the price of oil is linked to some extent to the price of other fuels. The assessment concludes if low oil prices continue for a prolonged period of time, this could result in long-term reductions in the oil export revenue, and would force Azerbaijan to make difficult economic tradeoff since short-term impacts are marginal.

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