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THE QLOBAL CRISIS AND ITS IMPACT
ON AZERBAIJAN
by Khagani Abdullayev
Central Bank of the Republic of Azerbaijan
Acting General Director
1
Economic growth and price dynamics
Prices, monthly indicators, %
Economic growth, %
10.0
16
14.6
8.0
14
12
6.0
11.9
4.0
10
2.0
8
2008
may
aprel
march
fevrual
januar
december
november
october
july
june
may
aprel
4
september
-2.0
august
4.4
march
6
fevrual
0.0
januar
6.6
2009
-4.0
2
-6.0
0
2008 (5 month)
GDP growth
2009 (5 month)
Non-oil GDP growth
-8.0
real estate price
inflation
 Oil GDP growth moderated due the decline in the oil exploration caused by technical problems;
 Moderation of growth in the oil-related non-tradable activities is the main reason of the decline in the
non-oil GDP growth rates;
 Under these circumstances and given the Nominal Exchange Rate appreciation, domestic economy is
faced with deflation.
2
External sector
 Double decline in the oil exports is
the driving force behind current
account surplus reduction;
Balance of payments
8000
6978
6000
4000
2000
3683.3
3417
1795
 Growth in the capital account deficit
is driven mainly by the oil sector
capital repatriation and foreign debt
service of banks.
0
Current account
balance
-2000
Capital account
balance
-1895.6
-2980
Oil exports
 Cash dollarization (1 bln.USD)
spiked during the first quarter 2009
-4000
2008 (I quar)
2009 (I quar)
3
Strategic foreign exchange reserves
Strategic reserves and its ratio to gross foreign
debt
20000
Exchange rate of AzN/USD (29.12.2008=100),
%
2.5
100.0
100
18168
18000
16530
16000
2
2
99.8
1.5
99.6
-0.2
1.8
14000
12000
-0.35
-0.47
10000
1
8000
0.7
6000
1
99.4
0.5
99.2
7116
0.5
3912
4000
2356
2000
-0.87
0
2005
2006
2007
2008
01,06,2009
strategic foreign reserves (mln.$)
percent of total foreign debt (right sc), %
99.0
30/12/2008
04/01/2009
09/01/2009
14/01/2009
19/01/2009
24/01/2009
29/01/2009
03/02/2009
08/02/2009
13/02/2009
18/02/2009
23/02/2009
28/02/2009
05/03/2009
10/03/2009
15/03/2009
20/03/2009
25/03/2009
30/03/2009
04/04/2009
09/04/2009
14/04/2009
19/04/2009
24/04/2009
29/04/2009
04/05/2009
09/05/2009
14/05/2009
19/05/2009
24/05/2009
29/05/2009
03/06/2009
0
 But, external position is still favorable;
This prevented manat/USD exchange rate from sharp depreciation.
Central bank was confident to keep exchange rate stable because of financial stability concerns (high
4
dollarization)
Money supply, credits and deposits
Growth rate of credits and savings, %
Money supply (M2), growth rate, %
(monthly)
50
15.0
40.3
40
10.3
10.0
29.9
7.3
30
5.6
20.2
3.0
2.9 2.8
20
1.7
1.3
-5.9
-0.2
may
januar
december
november
september
august
july
june
may
aprel
march
fevrual
januar
-5.0
october
-1.3
0.0
aprel
0.8
march
3.7
fevrual
5.0
4.3
17.6
12.7
10
9.2
8.0
5.4
0.5
0
2008
2005 (5
month)
2009
-6.9
2006 (5
month)
2007 (5
month)
2008 (5
month)
2009 (5
month)
-10
-8.0
-11.6
-10.0
-10.0
-20
-15.0
credits to economy
savings
 High liquidity in the treasury account plus cash dollarization led to significant liquidity
squeeze in the economy;
 Large foreign debt payments tightened credit activities of banks.
5
Liquidity of banks
Foreign debt service by banks in 2009,
mln. manat
900
mln. manat
350
mln. manat
180
Liquid assets and the liquidity composition,
mln. AZN
10.0
161.3
168.4
146.5 142.8
150 143.5
9.0
8.0
20
7.0
124.9
120
25
109.8
6.0
15
5.0
90
75.9
57.3
60
4.0
10
3.0
51
45.2
2.0
5
23.6
30
1.0
forecast
01,06,09
01,05,09
01,04,09
01,03,09
01,02,09
01,01,09
01,12,08
01,11,08
01,10,08
01,09,08
01,08,08
01,07,08
01,06,08
01,05,08
01,04,08
01,03,08
01,02,08
december
november
october
september
august
july
june
may
aprel
march
fevrual
januar
actual
0
01,01,08
0.0
0
credit portfolio quality (NPL share)
liquid assets/assets (right sc)
 Banks accumulated huge liquidity to be well prepared for foreign debt service;
 Worsening demand conditions in the economy affects the quality of the credit
portfolio.
6
Prudential Regulation and the Monetary Policy: Main Steps in 2008/2009
PRUDENTIAL REGULATION:
1. Strict Provisioning Policy and Tight Lending
Standards:
o increased risk classification of assets
o increased LTV ratio
Provisions
500
8
7
6
5
4
3
2
1
0
400
300
200
100
2008
may
aprel
march
fevrual
januar
december
november
october
september
august
july
june
may
aprel
march
2. Risk Management requirements - private action
plans on individual banks to enhance risk
management standards
fevrual
januar
0
2009
MONETARY POLICY:
1. Reduction of the main refinancing rate from
15% to 2%;
2. Reduced required reserves from 12% to 0.5%;
3. Abolition of a 5% reserve requirement on
external borrowing;
4. Central bank bond portfolio reduced and
discount-window widened since October
2008;
Provisions, mln. manat
Provisions/credit (right sc)
Difference between liquidity injection and absorption by
the Central Bank, mln. manat
352.1
400
300
209.4
200
100
0
-100
5. The resulting impact: liquidity injection
equivalent to 10% of the monetary base (1 bln.
USD injection).
-200
-300
-230.0
7
Economic Policy Priorities for the post-crisis perid
Enhancing fiscal sutainability:
Central Bank Policies:
 İntroduction of the Medium-Term
Expenditure Framework (performancebased budgeting + Permanent Income
Approach in utilization of oil revenues)
 Active implementation of the basket –
pegged Exchange rate Policy – transitory
regime towards flexible inflation targeting
framework
 2010 -2012 budget consistent with the
inflation and output gap targets (removal
of fiscal dominance over monetary policy)
 Development of interbank money market
– precondition for the functioning of
interest rate transmission mechanism
Diversification of economy:
 Lowering tax burden for the non-oil sector
 Further removal of administrative barriers
on growth – attempts to stay among top
reformer countries in Doing Business
Report as was accomplished in 2008
 Creating incentives for lowering
dollarization (including through reserve
requirements, etc.)
 Introduction of countercyclical macroprudential framework
8
THANK YOU
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