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Thursday, 18 May 2017 18:48

Country’s financial system gets big damage from International Bank of Azerbaijan Featured

Macroeconomic economic growth indicators of oil-gas producing countries are improving as positive news concerning the price stabilization in the certain corridor of the oil market, new consensuses reached by OPEC (13 states) and non-OPEC states (11 countries) about extension of the production limit till the end of the first quarter of 2018 appear.

Thus, in June 2016 the World Bank saw Azerbaijan’s GDP growth for 2017 at 0.7% while early this year the Bank revised this indicator which now totals 1.2%. According to estimates of the bank, economic growth of Azerbaijan will reach up to 2.3% in 2018 (June forecast totaled 1.3%). The World Bank sees Azerbaijan’s GDP growth for 2019 at 2.3%. In general, the World Bank predicts a 2.7% growth of the world economy in 2017.

As is known, almost a three-fold decline of world oil prices which started in the second half of 2014 became a new challenge both for Azerbaijan and other oil exporting countries. The first devaluation which happened on February 21 2015 has lowered manat’s rate by 35%. On December 21 of the same year, almost a year later, manat’s rate fell by 55%. The following negative processes shattered, and in certain cases destroyed the balance of the credit-financial system of the country. Licenses of a number of local banks and insurance companies were withdrawn. The population lost its trust in the private banking sector. In spite of all this, CBA managed to stabilize a situation at the market, namely saved strategic exchange reserves at a rate more than $20bln. In general, exchange reserves totaled about $38bln. They are created from reserves of the Central Bank, assets of the State Oil Fund (SOFAZ) and treasury funds of the Ministry of Finance. In the meantime, they exceed an external debt of the country by 4 times, which makes about $9bln.

In general, depositors of 10 closed banks have already been paid compensations over 629.193mln manats. Although, according to President of Azerbaijan Ilham Aliyev, the economy of the country got the main strike from the banking sector during the crisis and the figures suggest that the banking sector will get the main strike from the bankruptcy of the International Bank of Azerbaijan.

On May 10 IBA missed a $100mln payment on its main debt and interests of the credit, says the information of the state bank. International Bank of Azerbaijan (IBA), is the largest bank of the country, filed a bankruptcy petition to the New York court, The Wall Street Journal informs.

“Within the framework of the voluntary restructuring it is planned to pass the foreign currency liabilities to the Government of Azerbaijan, attracted from the international financial institutes. Due to this, the process of payment of foreign currency liabilities to foreign investors (except for the payment of interest on trade financing deals) will be stopped until the completion of the passage of these debts of the bank to the government”, the Bank said. In general, IBA intends to restructure external liabilities to the sum of 3 bln 337mln 105.084 thou dollars (about 5.6 bln manats). The meeting of the officials of the Ministry of Finance of Azerbaijan and the Bank with the foreign creditors has been scheduled for May 23. The New York court will consider the petition of the IBA on June 7.

If we look at the sums, they seem quite a heavy burden for the economy of the country. According to the budget of SOFAZ for 2017, all revenues of the State Oil Fund for 2017 have been approved at 8bln 370mln 589.8 thou manats, expenditures at 14 bln 483mln 856 thou manats. Besides, the revenues of the Fund have been calculated from the average oil price $40 per barrel. 7 bln 550.750mln manats or 90.2% of all revenues will come from the sale of profit oil and gas of Azerbaijan. As far as expenditures are concerned, 6 bln 100mln manats or 42.1% will account for the transfers to the state budget of Azerbaijan. The rest will account for expenditures on improvement of the social and residential conditions of refugees and internally displaced people (90mln manats), reconstruction of the Samur-Absheron irrigation system (70mln manats), financing of the Baku-Tbilisi-Kars railway construction (165mln 825 thou manats), financing of the Southern Gas Corridor (496.155 mln manats), etc.

Thus, the sum of the debt of IBA will make 10% of all exchange reserves of the country, about 90% of SOFAZ transfers to the budget of the country in 2017, almost 30% of cost of TANAP project and 75% of all SOFAZ revenues gained this year. Besides, payment of IBA’s debts will be almost 10 times higher than the payment on debts of other 10 banks which faced bankruptcy.

Drawing on words of the head of the CBA Elman Rustamov about the decline of the non-oil export volume this year, this indicator reduced by 20% compared to the figure from the same period of 2016. Besides, the non-oil import still keeps considerably exceeding export, which means that it is the growth of oil prices can help the budget to pay the debt of the International Bank. According to estimates of the World Bank experts, the average oil prices will total $55 in 2017, while a $40 price has been set in the budget of the Republic of Azerbaijan. 

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