Nation That Capped Last Year of Devaluations Is at It Again

Ex-finance Minister Shares Forecast On Possible Tenge Devaluation

Azerbaijan can’t seem to turn the page on what’s been a year of currency jitters following its 50 percent devaluation in 2015, Bloomberg reported.

Dollars are again in short supply in Azerbaijan’s capital, raising the specter of another crisis three months after previous bouts of currency shortage undermined banks and fanned consumer prices. Only one of the nine banks visited in central Baku on Monday sold dollars.

The manat, which suffered the world’s biggest drop in 2015, has depreciated against the dollar for seven straight weeks, extending its decline to almost 12 percent since the central bank loosened its control over the exchange rate a year ago. It traded 0.6 percent weaker at 1.7638 against the dollar as of 12:40 p.m. in Baku, the worst performer on Tuesday among ex-Soviet currencies tracked by Bloomberg.

The third-biggest crude producer in the former Soviet Union caved to the crash in oil by following countries including Kazakhstan and Argentina and abandoning its peg to the dollar last December. While currencies in commodity-producing nations from Russia to South Africa have benefited from stabilizing prices for raw materials, pressure is building on the manat as authorities come up short in meeting the demand of Azeri lenders at foreign-exchange auctions organized by the central bank.

Devaluations have roiled markets again this year as Nigeria and Egypt shifted to a free float. A contradictory policy mix and the failure to make the Azeri currency more flexible have added to strain, according to Sberbank CIB, the investment arm of Russia’s largest bank.

“The regulator is essentially pursuing targets that, in the current environment, are mutually exclusive — trying to stabilize the financial system by providing additional liquidity on one hand, while trying to stabilize the exchange rate through foreign-currency auctions on the other,” Sberbank CIB analysts including Anton Stroutchenevski in Moscow said in a report. “Such duality of purpose has kept devaluation expectations high among the population.”

Not Enough

With confidence in the manat flagging, lenders have struggled to raise enough dollars. The central bank, which burned through more than two-thirds of its reserves to support the currency last year, didn’t respond to e-mails or phone calls seeking comment.

The nation’s sovereign wealth fund, known as Sofaz, has offered $33 million to $35 million at auctions in the last few weeks, meeting only 8 percent of demand by banks. Sofaz, which buys manat to finance the state budget, extended at least $50 million earlier this year.

“The state oil fund is about to complete its transfers to the national budget,” Samir Aliyev, an analyst at the Center for Support to Economic Initiatives group in Baku, said by e-mail. The central bank isn’t selling any dollars because its reserves are down to the “psychological barrier” of $4 billion, he said.

The $35.8 billion oil fund, which sold $631 million at auctions in September to ease pressure on the manat, only parted with $371 million last month.

Black Market

That’s giving an opening to the black market. Illegal money traders near Narimanov and Ganclik metro stations in central Baku offered $1 for 1.82 manat, more than 5 percent higher than the exchange rate set by the central bank. The Financial Markets Supervisory Authority warned banks this month against selling currencies 4 percent above the official level.

Azerbaijan, which relies on crude and natural gas for an estimated 40 percent of gross domestic product, is under pressure as the Organization of Petroleum Exporting Countries tries to salvage an agreement on production cuts. GDP shrank an annual 3.7 percent in the first 10 months of the year, on track for its first contraction in more than two decades. The Azeri government expects the economy to decline 2.8 percent this year.

The manat’s prospects are dim as Sofaz looks to cut transfers to the state budget by 1.5 billion manat ($855 million) next year, according to Aliyev.

“The government will allow the manat to weaken further,” he said.