Azerbaijan

Pandemic 2020 and the Economy of Azerbaijan

by Shahriyar Aliyev

The coronavirus pandemic, which continues to negatively affect the state of the world economy, has a significant impact on the economic situation of Azerbaijan. It is still difficult to make any assumptions regarding the extent of damage to the country’s economy. At the same time, it is obvious that the restrictive measures forced by the authorities under these conditions are hurting the business.

To eliminate the negative impact of the coronavirus epidemic on the economy, President Ilham Aliyev signed a decree on March 19, under which AZN1 billion ($ 588.2 million at the current rate) or 1.2% of GDP for 2019 will be allocated from the state budget for these purposes. These funds will be used to finance measures to ensure macroeconomic stability, address employment issues and minimize the negative impact on the business of the epidemic and the subsequent sharp drop in oil prices.

At the same time, according to the presidential decree, 4 working groups have been created, which are entrusted with preparing a package of proposals. The first group (to assess the impact of the coronavirus pandemic on the economy of Azerbaijan) was led by Economy Minister Mikail Jabbarov. This working group is tasked with approving the criteria for identifying entrepreneurs affected by coronavirus; prepare a package of proposals and submit it to the Cabinet of Ministers on measures that will allow in the short and medium term to reduce the impact of the epidemic on the business environment and ensure economic growth; determine the amount of possible damage to entrepreneurs.

The second working group (to prepare proposals for state support to businesses affected by the crisis) was led by Minister of Finance Samir Sharifov. This working group should prepare and submit proposals to the Cabinet of Ministers on state support to business entities (in certain sectors) within 25 days.

To prepare proposals for resolving employment and social issues, a working group has been created and will be led by the Minister of Labor and Social Protection of the Population Sakhil Babayev. It is expected that this working group will prepare the relevant proposals within one month.

To develop proposals for additional measures to ensure macroeconomic stability, a working group has been created led by Central Bank Chairman Elman Rustamov. Within two months this group should evaluate the possible negative impact of the pandemic on the country’s banking sector and the macroeconomic environment, prepare and submit proposals to the Cabinet of Ministers on protecting the business; implement measures to ensure the stability of the national currency and consumer prices; take additional measures to ensure macroeconomic stability in the country. In addition, a temporary (until December 31, 2020) Coronavirus Support Fund was created, the initial contribution to the capital of which from the state budget amounted to AZN20 million.

The Ministry of Economics, for its part, has identified 12 business areas most affected by the coronavirus. These are tourism, the hotel business, public catering, the entertainment sector, transport, shopping centers, and others. The state plans to provide victims with tax holidays, tax benefits, and softening credit conditions.

The tourism sector has been hit hardest by the epidemic. March was traditionally considered very important for the tourism sector. In connection with the Novruz holiday, an increase in tourist flow to the country was expected. In addition, in connection with the 9-day holidays, the growth of domestic tourism was predicted. According to the most conservative estimates, in March-April, the tourism sector of Azerbaijan will lose at least $ 600 million, the activities of this sector are currently paralyzed, hotels and travel agencies are cutting staff.

In addition, foreign trade and balance of payments are expected to deteriorate. According to the results of the first two months of 2020, the surplus in Azerbaijan’s foreign trade amounted to about $ 1.5 billion with an increase of 48% compared to the same period last year, but the trade turnover amounted to just over $ 5 billion and decreased by 5.3%. According to the results of March, there will be a slight deterioration in export indicators, which amounted to $ 3.2 billion in January-February with an increase of 3.1%, but a peak in the deterioration of foreign trade indicators can be expected in the second quarter. The longer the coronavirus lasts, the negative impact it will have on the economy and the more funds the country’s authorities will have to devote to correct the situation.