Policy Documentation Center

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Policy 
Documentation 
Center Feature Article
Devaluation of Azerbaijani National Currency: 
Causes and Consequences
Center for Economic and Social Development (CESD)
Starting on February 21st, 2015 the official exchange rate of the dollar to the manat, the Azerbaijani national 
currency, has been set at 1.05 manat, which is 33.86 percent higher than the exchange rate set prior to the 
beginning of the exchange rate weakening process. The Azerbaijani national currency has been depreciated 
against US dollar for the first time since 2006. 
Since the sharp drop of crude oil prices in the world market in the fall of 2014,the Central Bank of Azerbaijan 
has faced the dilemma ofeither a sharp depreciation or a gradual devaluation of the manat. In fact, the Central 
Bank has announced that a sharp depreciation would not be in the government’s agenda in the near future. 
But, just two days after the Central Bank’s governor’s official declaration on not havinga sharp depreciation, 
the national currency of Azerbaijan has lost its value against major foreign currencies by 33.86 %. The Manat’s 
rate dropped to 1.05 from 0.78 against to US dollar. 
Indeed, the sharp devaluation of the manat on February 21st, 2015 was broadly in line with movements 
in other emerging economies. As it is, the sudden fall in the currency has undermined the credibility of the 
Central Bank and the banking system —counteracting the government’s avowed aim of boosting growth by 
improving external competitiveness. 
The question here is why sharp depreciation rather than gradual depreciation, as the Central Bank has prom-
ised before, has happened. And again, why a 34 % devaluation and not the 12-15 % depreciation, which had 
been promised by the Central Bank? 
The Government of Azerbaijan promised gradual devaluation; in effect slow depreciation would be a sup-
portive tool to reach goals the government has laid out. Gradual depreciation would increase Central Bank’s 
intervention cost; in addition it would increase budget revenues in manat terms. A devaluation of less than 
30.0 % would not be enough to cover the state budget’s current and potential deficits as long as the price of 
crude oil in the world market is low. Therefore, the Central Bank has taken the drastic step to have a sharp 
and deep devaluation of the national currency. 
According to the CESD assessment, the main reason for the sharp and deep depreciation of the manat are as 
follows: 
1.  Fiscal reason. Due to the sharp decline of oil prices, the current revenue flow to the state 
budget has started declining. The State Oil Fund of Azerbaijan Republic (SOFAZ) will generate 
53.4%, or 10.3 billion manat, of the state budget. According to the 2015 state budget law, non-
oil sector’s contribution to the state budget will be 35.0 % of total revenues. The remaining 11.6 
% of the budget’s revenue will be directly generate through oil and oil product exports. This 
means that 65.0% of the state budget’s revenues in 2015 will be generated through oil money. 
Although Azeri monthly oil exports have not exaggeratedly declined, income from exporting crude 
oil has dramatically decreased due to dropping oil prices. Azerbaijan exported 2,122 million tones 
of oil in total in January 2015. Average price for Azerlight, Azerbaijani oil, was $ 49.53 US per barrel 
last month. After the sudden decline in oil prices in the world market in 2014, Azerbaijan oil exports 
declined by 326 thousand tones or 13.4 % in January 2015 compared to the previous month. 
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As an oil exporting country, Azerbaijan started feeling the effects of a sharp fall in oil revenues after oil 
prices declined in the world market, owing to a decline of the country’s oil income. In spite of the fact that 
Azerbaijan was able to reduce the share of the oil industry both in public revenues and in the country’s 
Gross Domestic Product (GDP), Azerbaijan is still heavily dependent on oil and natural gas export revenues.
Oil income in January 2015 declined by 35.0 % compared to the previous month, although the export volume 
dropped by only 13.4 % in the indicated period. In January 2015 Azerbaijan exported almost the same volume 
of oil as in June 2014, but the country received only $760 million US in January 2015, compared to $1.76 bil-
lion US in June 2015. It confirms that the drop in oil prices in the world market has dramatically decreased 
Azerbaijan’s revenues,in spite of the fact that the same amount of oil was exported in January 2015 as in June 
2014.  This amounts to 2.31 times less income in January 2015 than in June 2014 (Note that gross income 
implies the currency entering the country from the sale of oil is included with AIOC oil revenues. Profit after 
deducting costs from revenues defines the value of oil. This is in accordance with the sharing of production 
funds between the Government of Azerbaijan and AIOC). 
The oil price in the 2015 state budget is $90 US per barrel, but the average price for January was less than 
$50 US per barrel and the average price for the first 2 months is expected to be around $56 US per barrel. 
Meanwhile, direct oil contribution to the state budget is 2.27 billion manat. With the previous exchange rate, 
the government of Azerbaijan had to transfer $2.91 billion US in oil money to the state budget, but after the 
devaluation only $2.15 billion US in oil money is needed. This means that the depreciation of the national cur-
rency will help to save $760 million US in oil money, just from direct oil income contributions. 
The above-mentioned facts show that there is a deficit in monthly state budget lines. Forecasts of both oil 
prices and oil revenues are not optimistic.  Devaluation is a tool for the government to cover the manat deficit 
in the state budget. 
2.  Saving SOFAZ’s money.The manat’s depreciation against the dollar will aid SOFAZ, to some extent, to 
save its reserves.  SOFAZ’s 2015 income will be $13,136 billion US if the average crude oil price in the world 
market is $90 US per barrel during year. Meanwhile, expenditures will be 11, 814 billion manat($15,146 
billion US at the previous exchange rate of the manat and $11.251 billion US at new exchange rate) in 
2015 according to the official law on the State Oil Fund.  The very important fact is that SOFAZ’s revenue 
is in US dollars but its expenditure is in Azerbaijani manat.  This means themanat’s devaluation will help 
the Oil Fund save $3,895 billion US in oil money ($15,146 billion US-$ 11,251 billion US) in 2015 alone. 
On the other hand CESD’s latest assessment shows that SOFAZ will earn $4.5 billion US less if crude oil’s aver-
age price is $60 US per barrel in 2015. Then, the oil fund’s total income will be $8.636 billion US instead of 
$13,136 billion US in 2015. In this case, SOFAZ’s income in local currency will be $9,067 billion manat. It means 
that SOFAZ will be able to reach its 2015 fiscal targets through the devaluation. The Government of Azerbaijan 
will also manage to slightly reduce the declining ratio of its currency and state reserves. 
3.  Decreasing the decline of the Central Bank’s reserves.The fall of the world prices for oil, 
the main export product and main source of income for Azerbaijan, has cost the CBAR, which was 
forced to sell currency to maintain the exchange rate of the manta.  This has been quite expensive. 
From August to December 2014 alone, the gold and foreign currency reserves of the Central Bank 
decreased by $1,435 billion US – $15,193 billion US to $13,758 billion US. In January 2015, the 
CBA spent another $1,077 billion US on maintaining the exchange rate of the manat, bringing its 
reserves to their lowest levels since the spring of 2013. The Central Bank’s currency reserves have 
declined to $12.681 billion US in early February 2015 since the drop in the world oil price. Due tothe 
intervention costs, CBAR lost 8.0 % of its currency reserves in January, the first month of 2015. 
Indeed, the demand for US dollars in the country has dramatically increased after the Central Bank’s an-
nouncement in the middle of February 2015 about the manat’s future devaluation. The resulting panic among 
lenders led to a large withdrawal of deposits from banks, causing a credit crunch. $3 billion US has been 
purchased during the last week due to the depreciation.  Daily dollar demand has reached $500 million US 
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in certain days during the second week of February 2015.  Share of manat deposits in the total deposits has 
decreased to 45.0 % from 63.0 % during this period. The result of postponing the devaluation decision could 
have meant losing all of the Central Bank’s reserves within a few months. 
4.  Promoting non-oil export capacity. Indeed, from 2006 up to the Central Bank’s February devaluation, 
the Azerbaijani national currency had appreciated against the dollar. However, Azerbaijan’s main trade 
partners’ national currencies have depreciated against to dollar. Turkey’s national currency depreciated 
30.0 %, increasing to 2.50 per dollar from 1.75 in the last 2 years. Russia’s rubble depreciated against 
dollar more than 2 times in this period increasing to 63 per dollar from 30, Georgia’s national currency lost 
its value by 41.0 % and it increased to 2.3 per dollar from 1.6 in the same period. Ukraine faced a very 
dramatic currency tragedy in last 2 years; national currency depreciated against to the dollar almost 6 times. 
Devaluation in national currencies of Azerbaijan’s major trade partners makes local exporting products much 
more expensive in dollar terms. More challenges have been observed, particularly after ruble’s depreciation 
against dollar since the northern neighbor is the main market for Azeri’s non-oil products. By depreciating the 
manat against dollar the Government of Azerbaijan targets the promotion of non-oil sector export capacity. In 
fact, 95.3 % of total Azerbaijani exports are oil and oil products. 
The share of non-oil products in total exports is less than 5.0 %. Therefore, economic diversification should be 
the main priority of the Government of Azerbaijan. Nevertheless, promoting non-oil export capacity in Azerbai-
jan is not a short-term target; it is more of a long-term goal. Consequently, we do not expect sharp increases 
in non-oil exports in the short-term period even though the manat’s rate has been sharply depreciated. 
5.  Increasing of Azerbaijani GDP in manat terms. Azerbaijan’s nominal GDP in the first month of 
2015 fell by 30.6% against December 2014 and by 17.9% against January 2014. The State Statistics 
Committee reports that in January 2015 Azerbaijan’s GDP totaled AZN 3.631 billion ($ 4.629 billion), 
which in comparable prices is 4.4% more than the GDP for January 2014 (AZN 4.423 billion); that is, 
nominal GDP fell by 17.9%.  In fact, the State Committee has reported real GDP growth in the first month 
of 2015, but according to the State Statistics Committee, GDP was 4.4 billion manat in January 2014. The 
Committee also reported that GDP was 3.631 billion manat in the first months of 2015. The official figures 
confirm that there was an 18.0 % decline (3.631/4.4) last month compared to the same month in 2014. 
The manat’s depreciation will increase GDP in manat terms but GDP in dollar terms will decline in upcoming 
months. ―Azerbaijan will suffer from a sharp fall in oil prices, because of its high dependence on exports of 
hydrocarbons. Currency reserves accumulated by the Central Bank and the Oil Fund of the country (the State 
oil Fund of the Republic of Azerbaijan, SOFAZ. – RBC), will cushion the impact of external threats, however, 
growth in only one of the non-oil sectors of the economy is unlikely to achieve a sustained increase in General‖, 
– stated in the report of the EBRD. The level of GDP growth in Azerbaijan in 2015 in the updated forecast by 
the EBRD was reduced compared with September’s report, by 1.5 percentage points (PP) from 3% to 1.5%. 
CESD, temporarily, does not forecast real economic growth for 2015 in the case of oil prices not increasing. 
6.  Boosting of the inflation rate. The correction in the value of the manat will cause import 
prices to rise, leading to a sharp increase in inflation. Given the high base year for household 
consumption—it is officially estimated to have risen by 8.0 % year on year in 2015—there is likely 
to be a sharp retrenchment in private consumption expenditure in 2015. The Central Bank has 
been pushing the inflation rate to promote local and foreign investments to the country’s economy. 
Taking into consideration the level of devaluation, CESD forecasts a 14.0% inflation rate for 2015. 
There are other reasons, such as the increasing of cost of imported goods and targeting of further liberalization 
of the domestic market, why sharp and deep devaluation has taken place in Azerbaijan. Nonetheless, there is 
one major question; will Azerbaijan further devalue the national currency in 2015? 
© CESD, 2015 


Devaluation of Azerbaijani National Currency; Causes and Consequences

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Policy 
Documentation 
Center Feature Article
EU Autumn of Discontent: What awaits the V4?1
Frank Markovic
As summer slowly winds down, European leaders – both in Brussels and national capitals – are going to be 
exposed to challenges which they had temporarily shelved aside to be solved at a later date.
Some of these issues, notably the refugee crisis and the upcoming EU referendum in the UK, are of a particular 
relevance to the region of Central Europe, and more specifically to the so called Visegrad Group (V4) countries 
– Poland, Slovakia, Hungary, and the Czech Republic.
This article analyses how (if at all) the V4 can better coordinate their positions as a region at the EU level on 
the aforementioned issues.
Refugee crisis: fear of the unknown
Italy and Greece have been struggling with the consequences of the massive inflow of refugees for months. 
Increasingly, the problem is spilling over to other parts of Europe as refugees migrate from the European 
southern shores to regions further north and west.
The country that has been hit the most by the refugee crisis in the region is Hungary. The first half of 2015 
alone has seen as many as 120,000 asylum seekers cross the country’s border with Serbia (a figure that is 
expected to rise to 300,000 by December). The substantial number of border crossings has prompted the 
government to construct a barbed-wire fence to prevent more people from coming through and to close down 
one of the country’s busiest train stations to refugees who might otherwise board the international trains en 
route to Vienna and beyond.
In light of the difficult situation, the European Commission is in the process of fast-tracking an emergency 
aid package for Hungary and the issue is also on the agenda of Prime Minister Orban’s visit to Brussels today 
where he is meeting with President Juncker of the European Commission.
The situation in neighbouring Slovakia as well as in the Czech Republic is much less dramatic in terms of the 
sheer number of refugees. However, what these countries lack in real problems is made up by their hysteric 
reaction to the situation. This response is to a large extent driven by fear of the unknown as well as concerns 
for the integration of refugees into societies that are highly unfamiliar with Western-style multiculturalism.
Slovakia, itself being a strongly Catholic country, remains the last of the EU member states without a single 
mosque. Furthermore, Islam is not officially recognised and the Muslim population comprises only around 5000 
people. It is therefore of no surprise that the government has not only rejected the European Commission’s 
mandatory refugee quotas but that it has also resisted voluntarily offering any significant help beyond that 
provided to refugees of the Christian denomination – a notable exception being the temporary housing of some 
500 asylum seekers currently located in Austria (although that too was not without some domestic opposition).
As far as the Czech Republic is concerned, the country has seen numerous public protests and marches 
against refugees and Islam – these two issues are often interchangeably confused in the public discourse. 
While the majority of the population is suspicious of refugees from Syria and North Africa, the government 
has in the meantime given the green light to accepting a further 1,500 refugees. The unease of the general 
1 Source: Central European Policy Institute (CEPI), http://www.cepolicy.org
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public that has mostly no real-life experience with people fleeing war conflicts can be gauged also by an online 
petition that was originally aimed at rejecting the (now dead in the water) proposal by the EU Commission for 
mandatory refugee quotas. Some 180,000 Czechs signed the petition – a similar number of supporters have 
liked the initiative’s Facebook page.  
Poland, being for now neither a transit nor a destination country, has remained somewhat isolated from the 
mainstream debates. The main group of refugees coming to its territory consists of Ukrainians fleeing their war-
troubled country. However, Prime Minister Kopacz has accepted that Poland might have to budge and accept 
more refugees currently landing on the southern shores of Europe. Moreover, the authorities are concerned 
that - following the completion of the border fence in Hungary - refugees may be tempted to explore other 
routes into the Schengen area, perhaps using Poland as one of their gateways.   
Moving beyond non-solutions
The current refugee crisis is a global issue that will require a European solution. The V4 countries therefore 
cannot pretend they are or will not be implicated. 
Moving away from a reactive and passive approach – best demonstrated by their rejection of the EU’s 
mandatory quotas – the four countries in question will have to quickly adapt to the evolving situation and 
enhance regional cooperation both inwards and outwards.
National governments will have to better coordinate their measures so that, for example, the construction of 
the fence on the Hungary’s border with Serbia does not just simply shift the problem onto the Polish border. 
Instead, the V4 capitals should strengthen their exchange of information and intelligence in order to combat 
organised crime that profits from human trafficking. The problem is not distant anymore, as demonstrated 
by the recent tragic incident on the Austrian motorway near the Hungarian and Slovak borders where 71 
refugees, among them four children, were discovered dead in a Hungarian refrigerator truck.
UK Referendum on EU Membership
Another issue that will undoubtedly make it on the radar of the V4 leaders is the UK’s referendum on its EU 
membership. Following the parliamentary elections in the UK and the victory of the Conservative party, Prime 
Minister David Cameron has announced that his country will hold a referendum on its EU membership by the 
end of 2017 but most likely next year.
While the polls have recently swung more in favour of the UK remaining part of the EU, a lot will depend on 
the renegotiation of the terms under which the referendum will take place.
And it is precisely this point – the potential to change the functioning of the whole EU – that the Visegrad 
countries will have to heed.
Not being burdened by negative historical sentiments towards the UK – unlike some of the EU’s older members 
– the V4 countries can pragmatically approach London’s demands on a case-by-case basis. While they might 
show support for some measures (notably those concerning cutting red tape and enforcing the role of national 
parliaments in the EU decision-making process), there will be other measures where David Cameron will find 
no allies in Central Europe.
This is for two reasons: First, the V4 countries will fight any effort to weaken one of the EU’s fundamental 
principles from which the region has benefited significantly – the freedom of movement of labour. With some 
800,000 Poles and tens of thousands of Slovaks, Czechs and Hungarians currently living and working in the 
UK, the region is very unlikely to agree to undermine the rights of its own citizens.
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Second, Cameron’s struggle to persuade the V4 leaders may lie with his own lack of interest in coalition 
building - apparent long before his current ‘charm offensive’ tour of Europe aimed solely at winning support 
for his proposals. While prepared to negotiate on issues of relevance, the V4 countries may show little appetite 
for helping Cameron, for example, to protect London’s financial sector.
Will Poland lead the way?
Ten years after their accession, the V4 countries are now firmly integrated into EU structures and potent 
enough to shape its policies.
However, their success lies within the group’s unity. When it comes to the UK’s EU referendum and the 
negotiations associated with it, the four Central European countries have more in common than not. But 
agreeing in principle and agreeing on a single position are two very different things.
Given Poland’s stakes in the negotiations it is perhaps not too bold of a prediction to foresee that if any 
cooperation between the V4 countries is to come to fruition, it will most likely be under Warsaw’s leadership. 
With Slovakia and the Czech Republic opting for a less confrontational approach and with Hungary’s high level 
of unpredictability, Poland will have to step up its game to not only iron out the V4’s common position in detail 
but also to effectively communicate the message to the rest of the EU.
As to what extent Poland’s leadership will succeed greatly depends on the election’s outcome on 25 October 
and whether a national united front can be established before any attempts of unity are tried at the V4 level.
V4 positions in need of (better) public diplomacy
On both issues – be it the refugee crisis or the upcoming UK referendum – the Visegrad Group can achieve its 
goals only if more extensive cooperation between the four countries is fostered.
As regards the refugee crisis, the V4 countries will either stick to their current brief of limited help to refugees 
– something that will spur increasing pressure from other EU members – or they will be forced into changing 
their position. In such a case, the V4 countries would be better off focusing their efforts on developing a set 
of proactive solutions including combating human traffickers and drafting a blueprint for a comprehensive and 
long-term refugee integration strategy.
While it is yet unclear what precisely the V4 countries stand for on the issue of refugees (beyond the obvious 
obstruction of mandatory quotas), the challenge posed by the UK’s renegotiation efforts is politically more 
comprehensible. However, for the Visegrad Four to be able to capitalise on the issue, the region will not only 
have to align and iron out their similar but certainly not identical positions, but also better sell the common 
position to its EU partners and the UK in particular.
This text was co-published with EuropeanPublicAffairs.eu and Visegrad Insight 


EU Autumn of Discontent: What Awaits the V4?

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