On August 20-21, 2024, rumors spread that some Azerbaijani banks either stopped selling dollars to the public or limited the amounts offered, often to no more than $100 per person. Despite official statements from the Central Bank of Azerbaijan (CBA) denying these restrictions, this situation heightened speculation and public concern.
Moreover, data from the State Oil Fund of Azerbaijan (SOFAZ) indicates that in August 2024, the fund sold $763 million—seven times more than in the same period last year. The increase in dollar sales amid growing demand for currency further fueled suspicions of a potential devaluation of the manat.
In September, the escalation of dollar auctions highlighted continued high demand for foreign currency. This raised concerns among the public, considering past experiences when such surges in demand often preceded devaluation.
The 2015 Devaluation
Concerns about the devaluation of the manat bring back memories of the events of 2015, when the national currency experienced two sharp depreciations. In February of that year, the exchange rate of the manat against the dollar abruptly increased from 0.78 to 1.05 manat per dollar. The main driver was a steep decline in oil prices, which reduced the inflow of foreign currency into the country. By December 2015, a second devaluation occurred, after which the CBA transitioned to a floating exchange rate. As a result, the prices of essential goods and services, including food and medicine, rose sharply, putting considerable strain on citizens and businesses.
A significant factor behind the 2015 devaluation was the rapid depletion of the CBA’s foreign currency reserves, which fell from $15 billion in November 2014 to $5 billion by the end of 2015. Additionally, Azerbaijan’s strategic reserves dropped from $50.9 billion at the end of 2014 to $38.6 billion by the end of 2015. This experience remains fresh in the public’s mind, and any signs of instability raise fears of a repeat scenario.
Current Economic Indicators: The Present Situation
Despite parallels with 2015, today’s situation is fundamentally different. First, Azerbaijan’s strategic currency reserves have increased significantly. In 2024, total reserves reached $70 billion, providing a strong buffer against external shocks. Of these, CBA reserves stand at $11.8 billion, which is higher than the 2016 levels when reserves fell to $4 billion. This reflects significant improvements in the country’s management of its reserves.
Azerbaijan’s balance of payments also supports the national currency. In the first half of 2024, the balance of payments recorded a surplus of $648.1 million. Although this figure is eight times lower than in the same period last year, it still indicates a positive international balance.
Expert assessments suggest that despite a decline in key indicators, with oil prices hovering between $40 and $45 per barrel, Azerbaijan can maintain its balance and avoid devaluation.
Another crucial indicator is the reduction of the country’s external debt. As of mid-2024, Azerbaijan’s external debt stood at $5.36 billion, equivalent to 7.5% of GDP. This low level of debt reduces the pressure on foreign currency demand needed to service these obligations.
Speculations and Potential Risks
Some experts, such as Natig Jafarli, express concern that the current economic situation could lead to devaluation in the long term. He points to declining oil production (down to 472,000 barrels per day) and rising government expenditures amid falling revenues. In addition, restrictions on currency transactions and possible changes in the global economy increase the likelihood of devaluation in 2025.
Oil revenues remain the primary source of foreign currency for the country. If oil prices continue to fall, it could lead to a reduction in currency inflows, further pressuring the manat. For instance, in 2015, oil played a key role in the devaluation, when a sharp decline in its price caused a significant reduction in the inflow of dollars into the economy.
At the same time, economist Eldeniz Amirov notes that the current behavior of citizens and banks is partly driven by speculative sentiments, which could amplify real demand for dollars. He emphasizes the importance of meeting the currency demand to avoid further speculation and panic. Despite this, Amirov believes there are no real prerequisites for devaluation in 2024: the manat’s exchange rate remains stable due to currency reserves and monetary policy control.
International Ratings Agency Forecasts
International rating agencies also provide their forecasts regarding the future of Azerbaijan’s economy and the manat. According to Fitch Solutions, Azerbaijan’s current account balance will remain in surplus for the next ten years. The agency expects the current account surplus to reach 23.7% of GDP in 2024, 21% in 2025, and 17.7% in 2026. The surplus is expected to remain above 10% until 2030, with a gradual decline: 7.3% in 2031, 4.9% in 2032, and 2.7% in 2033.
As for the exchange rate of the manat, Fitch forecasts that it will remain stable until 2027, after which the manat may weaken to 1.75 per dollar, and to 1.80 by 2028. This exchange rate is expected to persist until 2033.
Long-Term Stability or Potential Changes?
Beyond current speculation and short-term concerns, the key question remains about the long-term stability of the manat. Experts suggest that with the current level of oil prices, currency reserves, and decreased dollarization (which dropped from 81.9% in 2015 to 39.8% in 2023), the likelihood of a sharp devaluation in the coming years is minimal. International forecasts are also positive: according to ING Bank, no significant changes in the manat’s exchange rate are expected before 2026.
However, from 2027 onward, experts anticipate that the manat’s exchange rate may gradually weaken to 1.75-1.80 per dollar. This is linked to a potential reduction in the current account surplus and the need for more active management of external economic shocks.
Conclusion
With increased demand for the dollar and fluctuations in oil prices, discussions of a possible devaluation of the manat have intensified. However, current economic indicators point to relative stability for Azerbaijan’s currency in the short term. The support of substantial currency reserves, a reduction in dollarization, and strict control over currency operations have created a strong buffer that protects the economy from sharp exchange rate fluctuations.
Moreover, on September 27, 2024, Azerbaijan’s Finance Minister Samir Sharifov dispelled rumors of a possible devaluation, emphasizing that the country’s budget calculations for the next year are based on the current exchange rate, and the devaluation rumors are unfounded. Macroeconomic forecasts for 2025-2028 also confirm that the manat will remain stable and the country’s economy will continue to grow. According to projections, by 2028, household incomes will rise to 112.5 billion manats, while expenses will reach 107.9 billion manats, confirming positive medium-term prospects.
Nonetheless, long-term challenges remain. Declining oil production, a reduction in the current account surplus, and rising government expenditures may create conditions for adjustments to currency policy in the future. International forecasts indicate a potential weakening of the manat after 2027, necessitating ongoing monitoring of both external and internal economic factors.
