On Monday, Azerbaijan shifted to a fluctuating currency regime, which prompted the manat to plunge to its lowest point in 20 years. The Central Bank stated that the move aimed to improve competitiveness amid “intensifying external economic shocks.”
Heavily reliant on hydrocarbons, the Azerbaijani economy has been ailing since June 2014 due to dramatic decreases in the crude oil price. Russia and Kazakhstan had already abandoned their currency peg, and analysts were expecting Azerbaijan to follow suit.
Today, the manat depreciated by 47%. The exchange rate, which used to be one dollar for 1.05 manat, is now at one dollar for AZN 1.55.
The depreciated manat caused a shopping frenzy and panic among Azerbaijani citizens, who rush to purchase goods and products at the current prices. Early in the morning, exchange currency locations did not open their doors until the rate was fixed.
Economy expert Natig Jafarli said the economic conditions in Azerbaijan are not favorable for a floating currency. “One of the most important principles behind a floating currency is the existence of solid securities and currency markets in the country. It is important to have a large number of companies that bring currency into the country, so that the market can determine the exchange rates based on the demand and supply of securities markets,” he said.
“However, in the current situation they performed a very basic devaluation process. This basic devaluation happened through administrative means, and it will continue this way,” he said.
The economist predicted that the move would only exacerbate social issues and result in job cuts. The dollar will continue to increase in value, while the manat will drop precipitously.
The fluctuating currency regime will also take a toll on those who have bank loans. “I took a loan for 15 months,” one local resident told Meydan TV. “I paid off the first month, it was $77. And now there are 14 more months to go. The future payments will perhaps increase from $77 to 120 manats, $120. I will have to repay at the new rate.”
“We took a loan in dollars, not manats. I took a loan for $6,000, and now I will have to repay at the increased interest rate, whichever it is,” another resident said.
Market prices will also rise since Azerbaijan depends on import, Jafarli said. Prices of staple foods, clothing and technology items may increase too, according to the economist.
Locals could already feel the pinch on Monday when cigarettes supplies were running low. Some noted they were unable to purchase tobacco. Many are concerned that prices of medical drugs will increase dramatically.
Back in February, the manat dropped by 34% According to Jafarli, only the government benefits from the depreciated currency. “There is no pool for manat to float. Therefore, the manat won’t be able to float. Even if it tries to float, it will drown,” he said.