Page 85 - Azerbaijan State University of Economics

46. Fakhri Mammadov: Exchange Rate Stabılıty and the Development of Fınancıal System
47. in Azerbaıjan
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OPEC and non-OPEC countries’ decision to regulate the production and therefore made
an agreement over it and the second one global oil reserves have decreased and at the
same time there’s an increasing demand because of large economic activities. All of
these factors will decrease the demand and supply difference. Lots of global financial
institutions projected these improvements in their financial reports. OPEC shows that by
2021, average oil prices will rise by $5/bbl per year.(OPEC, World Oil Outlook 2016,
accessed: 26.12.2017, p.60). The World Bank predicts $60/bbl (World Bank, “World
Bank Commodities Price Forecast”,2017) whereas the IMF is $50.2/bbl. (IMF, “World
Economic Outlook, October 2017”). So, we can realize from these assumptions of
financial institutions that the oil price will increase and thus this insures financial
stability of the Republic Azerbaijan economy from any possible, sudden fluctuation.

2. Balance of Payment-This is not a surprising fact that the export of oil and oil
products take a huge place in Azerbaijan exports. The rise of oil prices in the next year
will lead to oil revenues, which will offset 8% reduction in foreign trade exports.
Because of the decrease in production of oil, a decline in exports is assumed. At the
same time, the level of inflation in Azerbaijan is predicted to be high. Due to weakening
purchasing power of the population, there is a high possibility that the current import
decline will go on. We believe that Azerbaijan government will regulate financial flows
and thus leading to reduction on the national currency fluctuations.

3. Strategic currency reserves-The Azerbaijan Republic’s strategic currency
reserves are based on two sources:
1.Reserves of the Central Bank of the Republic of Azerbaijan and
2. Assets of the State Oil Fund of the Republic of Azerbaijan.

In 2017 growth in both sources has occurred. Reserves of the Central Bank went up
by 32.3% (CBAR, Official available currency, 2017) by the beginning of December
in contrast to the beginning of the year and reserves of the State Oil Fund increased
by 8.7% in the beginning of October.

TEMPORARY FACTORS
I. Fiscal policy – If expenditures of the state budget for the any year have been
expanded, it will lead to increase the demand for currency to some degree. In parallel,
if the volume of exchanges from the State Oil Fund to the state budget increased –
accomplished through the conversion of assets to manat in order to meet budget
commitments – proposing that the Oil Fund will offer around $1.8 billion USD in
extra funds to foreign exchange markets in 2018, contrasted with the current year.
The restructuring of the foreign debts of the International Bank of Azerbaijan (IBA)
can increase the government’s foreign debt commitments. The increased foreign debt

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