At a time when the foreign exchange reserves of the Central Bank of Azerbaijan (CBA) have reached a historic high, the supply exceeding demand in the foreign exchange market, pressures toward the appreciation of the manat, and the Central Bank's foreign currency purchase operations are in focus.
APA-Economics presents an exclusive interview with Elrad Seydiyev, Director General of the Central Bank of Azerbaijan, on these and other issues.
– Mr. Seydiyev, the Central Bank's foreign exchange reserves have reached USD 15.3 billion, setting a new historic high. What are the main factors behind the increase in reserves?
– Since the beginning of this year, the Central Bank's foreign exchange reserves have increased by USD 3.8 billion, or 33%, reaching a historic high of USD 15.3 billion. Taking into account the foreign currency assets of the State Oil Fund of the Republic of Azerbaijan, the country's strategic foreign exchange reserves stand at USD 90.8 billion, which is sufficient to finance approximately 41 months of the country's imports of goods and services.
Speaking about the factors behind this increase, I would first like to note the country's favorable external position, including the current account surplus and the dynamics of foreign currency revenues. Due to favorable price dynamics in the global energy market, as well as the continuation of positive trends in exports of non-oil and gas goods and services, a surplus of nearly USD 9.5 billion was recorded in the trade balance, according to the State Customs Committee's data for the first seven months of this year. During the same period, the balance of money transfers amounted to USD 0.68 billion.
It should be noted that the dedollarization process observed in the financial sector is also continuing. In July of this year, the dollarization level of deposits of resident individuals stood at 25.8%, compared with 40.6% at the end of 2021. Overall, these trends indicate strengthening confidence of economic entities in the national currency and the country's financial resilience to external shocks.
Under such conditions, since the end of 2021, the country's strategic foreign exchange reserves have increased by 70%, while the Central Bank's foreign exchange reserves have increased 2.2 times. Income generated from reserve management has also contributed to the growth of strategic foreign exchange reserves.
– What does the high level of foreign exchange reserves mean for the country's economy and society?
– Foreign exchange reserves are an important strategic buffer that ensures the country's financial resilience against shocks such as economic crises, volatility in global financial markets and a sharp increase in demand for foreign currency. A high level of reserves strengthens the country's external resilience and financial flexibility and increases its ability to meet external obligations and finance imports when necessary. International rating agencies also cite Azerbaijan's strong external balance and high volume of external assets as important supporting factors when assessing the country's sovereign credit rating. For citizens and businesses, high foreign exchange reserves primarily mean exchange rate and financial stability. This stability allows citizens and businesses to make future plans and long-term decisions with greater confidence.
– The Central Bank has carried out foreign currency purchase operations several times during the current year. What are these operations related to?
– In recent years, exchange rate stability has played an important role in maintaining macroeconomic stability. Exchange rate stability and the sustained nature of dedollarization trends have created conditions for a decline in demand for foreign currency. In recent months, supply in the foreign exchange market has consistently exceeded demand, meaning that pressures toward the appreciation of the manat have prevailed. Under such conditions, the Central Bank's foreign currency purchase operations make it possible to purchase part of the excess foreign currency supply formed in the market. Along with serving to maintain the balance between supply and demand in the foreign exchange market, these purchases also contribute to the growth of foreign exchange reserves. The foreign currency purchased from the foreign exchange market in August was not the first such case this year. The Central Bank also carried out foreign currency purchase operations in previous months, and relevant press releases were issued in this regard.
– What are the expectations regarding how the Central Bank's foreign exchange reserves will change going forward?
– In order to ensure balance in the foreign exchange market, it is not ruled out that part of the foreign currency acquired by the Central Bank through purchase operations may be redirected to the market in the future, taking into account demand that may emerge in the market. As before, if the Central Bank carries out foreign currency purchase or sale operations in the future, it will disclose information about this through its information channels.
The current account of the balance of payments is forecast to remain in surplus during the remainder of this year and next year. This creates favorable conditions for the growth of the country's foreign currency revenues and foreign exchange reserves over the medium term. At the same time, the actual dynamics of foreign exchange reserves will depend on external economic conditions and the balance of supply and demand in the foreign exchange market.
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