Azerbaijan may devalue manat again by 25% in early 2016: EIU
28.10.2015 12:00
The government's spending plans for next year appear to have been drawn up on the assumption that the manat will remain pegged at its current rate to the dollar. However, given the uncertainty over oil prices, it is more likely that the authorities will devalue the manat by around 25% against the dollar in early 2016, the Economist Intelligence Unit said.
Although this will increase import costs and inflation, it will boost the manat value of oil revenue, helping to relieve financing pressures. This would allow the authorities to maintain the SOFAZ transfer at around the current nominal manat level in 2016, while continuing to increase the size of the fund in dollar terms.
Under such a scenario, EIU projects total revenue at Manat17.9bn, giving the government room to increase expenditure by 5% year on year, to Manat18.9bn. It also expects inflation to increase significantly, to just under 7%. Government spending would still contract in real terms, therefore, but less substantially than under the official plans.
Under this scenario, EIU forecasts a deficit of Manat1bn, equivalent to 1.7% of GDP, significantly narrower than the government's baseline projection.
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