Azerbaijan’s economy before and after the pandemic – what to expect and what to be afraid of? Interview with economist

Azerbaijan has instituted strict quarantine measures until at least July 5 in several large cities. 

The government explains this with an increase in the number of infected and dead from the coronavirus COVID-19. Every day about 500 new cases of infection are detected in the country and 6-7 people die.

One of the issues that most concern Azerbaijanis is the impact of the pandemic on the economic and social spheres. JAMnews spoke with the executive secretary of the opposition Republican Alternative Party, economist Natiq Jafarli, about this issue.

Two types of economic impact of the pandemic

Jafarli says the pandemic can be detrimental to the economy on two “fronts”.

The first is the fall in oil prices. At the end of May, the average price of Azerbaijani oil was about $40 per barrel, while the budget had been put together using an average price of $55.

This negatively affects the flow of currency into the country and the indicators of microeconomics.

“Official data show a contraction in the economy of 1.8%. But it seems to me that, in fact, this percentage is higher. “

Secondly, the economy has been completely suspended.

“70% of the country’s population lives in cities where quarantine has been imposed. And the main economic activity also takes place in these regions. Baku and Absheron region are the locomotives of the Azerbaijani economy.”

When the strict quarantine regulations were first announced, the Minister of Economy said the country was losing 150 million manat daily.

“When quarantine was first announced in big cities, assistance packages for both the public and business were also announced. These packages were provided until June 1. During this period, the salaries of 308,000 people were paid through various channels and certain tax concessions were made. And 600,000 people received 190 manat in social assistance. But although strict quarantine measures were announced twice for two days in the first two weeks of June, no assistance was offered to citizens or business.”

In cities where quarantine was introduced until July 5, 190 manat will be paid to citizens in need.

Although quarantine has been announced in only a few cities, the activities of some areas are limited and suspended throughout the country. In addition, if a person is poor and legally entitled to social assistance, but he is registered in a region where there is no quarantine, then he will not be able to receive these 190 manat.

Jafarli believes that the basis should not be taken as legal registration, but the actual place of residence of citizens. For example, if a person is registered somewhere in the province, but currently lives in Baku, he must receive social assistance.

“According to my calculations, this time 350,000 people will get help”

Jafarli adds that no business support has yet been announced.

“The damage done to the economy and business has not yet been calculated. Two parallel packages were adopted in Georgia, and even in Russia: one to eliminate the consequences of quarantine itself, and the second to develop business in the post-quarantine period.”

Tax breaks for a company with zero profit?

“The tourism sector, declared a priority by the government, is completely paused. Accordingly, the profits of workers in this area are also at zero. And the state is making tax concessions to zero-income companies. But this is illogical, given that tax is formed from profits.”

Jafarli says that the Azerbaijani economy is not ready for the post-pandemic period. Because programs related to this have not been adopted, discussions have not been held. In world practice, in order to re-launch the wheels of the economy, they increase demand and issue long-term loans to businesses at a very low credit rate.

Jafarli says that over the past four months, people who do not have a stable income and have spent all their savings go to the bank. As a result, deposits of Azerbaijani banks decreased.  And this is also a serious problem of the post-pandemic period, because if people do not have money, there will be no consumption. And this will negatively affect the turnover of goods, and the volume of goods brought into the country will decrease.

The economist adds that no steps have been taken in connection with loans.

“Both citizens and businesses continue to accrue interest on loans. Soon we will witness a serious increase in the number of problem loans, and in September-October the banking sector will be covered by another wave of crisis. The only hope of the government is that the price of oil can rise again.”

But Jafarli argues that relying on the price of oil is a good strategy, because in the event of a “second wave” of the pandemic, the demand for oil can drop and world oil prices can drop to $20-30.