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Economic review
Economical Review 

2017 August 10 ( Thursday )  14:16:42
Print version
Русский Azərbaycan


03 - The National Commission for Regulation of Energy and Public Utilities of Ukraine issued a license to the company SOCAR Ukraine (SOCAR's subsidiary) for the supply of natural gas in Ukraine

04 - First electronic auction on sale of state property was held in Azerbaijan

05 - In Brussels (Belgium), the second stage of the negotiations on the Agreement on the Common Aviation Area between the Countries of the European Union and Azerbaijan was completed

09 - Twenty-second World Petroleum Congress opened in Istanbul

10- Ten organizations operating in the information and communication sector established the Azerbaijan Consortium for the Export of Innovations

- Within the framework of the XXII World Petroleum Congress in Istanbul, President Ilham Aliyev met with Secretary of State Rex Tillerson

15 - Prices for domestic lines on railways increased by 20%

12- Under the chairmanship of Azerbaijani President Ilham Aliyev, an expanded meeting of the Cabinet of Ministers of the country was held, following the results of the first half of 2017

- Azerbaijani President Ilham Aliyev approved the State Program for the Development of Cotton Growing for 2017-2022

13 - In Sumgait, the foundation laying ceremony of the plant for the production of solid dosage forms by Scandens Pharmaceuticals Industries Ltd. was held

15 - By the decision of the Tariff Council (TC) of Azerbaijan from July 15, 2017, the retail price of motor gasoline of the brand AI-92 rose from 0.7 manat to 0.9 manat ($ 0.53) per 1 liter

16 - President Aliyev arrived on an official visit to Latvia

17 - During the bilateral meeting in Moscow between the Chairman of the Board of CJSC Azerbaijan Railways Javid Gurbanov and the President of Russian Railways Oleg Belozerov, an agreement was reached on the establishment of the Coordinating Council of the International Transport Corridor North-South with its headquarters in Baku

18 - Producers of medicines from the Republic of Korea held business meetings with representatives of pharmaceutical companies of Azerbaijan in Baku

- Foreign creditors of the International Bank of Azerbaijan (IBA) voted for voluntary restructuring of the bank's liabilities

19 - The fourth tripartite meeting of the Foreign Ministers of Azerbaijan, Turkey and Turkmenistan - Elmar Mammadyarov, Mevlut Cavusoglu and Rashid Meredov started in Baku

A meeting of the heads of the customs services of Azerbaijan, Georgia and Turkey was held in Baku

20 - The first test train went from Turkey to Georgia via Baku-Tbilisi-Kars

21- An unplanned meeting between the Russian President Vladimir Putin and the President of Azerbaijan Ilham Aliyev started in Sochi

25 - A new industrial zone was created by a presidential decree in the Hajigabul region

26 - The Russian President Vladimir Putin signed a federal law on the ratification of the agreement between the Russian Federation and the Republic of Armenia on the unified grouping of troops.


The half-year does not give a clear idea of ​​how the economy will develop further. The government, of course, made a lot of efforts to break the economy out of the crisis - from vigorous efforts to develop the country's transit potential to building new enterprises and supporting exports. The question today is not whether the economy will come out of the crisis - any country sooner or later overcomes the crisis. The question is how soon this will happen and whether the economy will be able to harmonize with the huge changes that take place in world trade and with new technological expectations. It is especially difficult to overcome the crisis when business activity declines in the country, and foreign investors start to leave the economy (oil service, road construction), and unemployment grows. The only clear success of the government is some stabilization in the financial sector. But it is not yet possible to ensure growth. Macro indicators in most sectors of the economy remain rather modest (the well-known table).


Main macroeconomic indices2017 January-Junemln. AZNVI- 2017 VI- 2016 %2016 January-Junemln. AZNVI -2017 V I- 2016 %
Gross Domestic Product31 310,698,732 122,696,6
Industrial Production18 602,494,517 616,6100,6
Agricultural Production2 833,1102,23 290,4103,1
Money incomes per capita (in AZM)2422,9106,22 670,9107,1
Turnover of Goods by Transport, comm. (in mln Tons/km.)109,1102,0123,697,7
Capital Investments7 138,697,17 959,769,6
Trade turnover16 182,9101,816 169,5101,9
Services3 722,3100,44 036,6101,2
Export ($ mil.)4 450,1121,13 821,565,7
Import ($ mil )2 816,984,64 047,281,9
Average monthly salary ( from the beginning of the year, (in AZN)520,1106,3487,5107,6
Index of Consumer PricesX113,9X110,5

Gross Domestic Product

Meanwhile, Kazakhstan and Russia are already providing economic growth.

GDP DYNAMICS OF RUSSIA, KAZAKHSTAN AND AZERBAIJAN (2013-2017 - first half of the year)

Of course, the crisis in these countries began earlier than in Azerbaijan. But the margin of safety in them was originally higher. Kazakhstan has not yet reached a peak in oil production; moreover, the economy of this country was initially better diversified. One cannot help but note the attempts of political reform in the country - in the legislative branch of power and the judiciary. After all, any reform of the economy rests sooner or later on the need for political reforms. In Russia, a clear role in the growth of the economy was played by clear actions of the government's economic bloc. Despite serious sanctions, the economy is still growing, because Russia has a serious internal potential - intellectual, technological and resource.


January-JuneJanuary-June 2017 compared to January- June 2016, the percentage
Gross domestic product31310,631310,698,7
- oil sector12324,69607,093,4
- non-oil sector18986,017031,3101,7

* 2016 figures are determined based on final data

Oil, of course, remained a serious engine of the economy - but extremely unreliable against the backdrop of volatility in oil prices. That is why the government fixes any even weak growth of the non-oil sector and is looking for ways for rapid GDP growth.


They are found quite randomly. Tourism is already contributing to the economy of the country, and the growth of transit is being postponed, although the entire institutional base has already been created for this.


The creation of industrial parks, agrarian and industrial quarters in the country will certainly yield results, but their contribution to GDP will become visible only after a year or a year and a half.


During the first half of the year, the rate of decline in investment slowed.


But it would be naive to consider this a resumption of the investment process. The volume of investment in the country was provided by foreign investment, but it is important that these were, in the main, investments in the oil sector.


By internal sourcesBy external sources
mln. manatShare of total, %mln. manatShare of total, %

The volume of investments in the first half of the year amounted to 7.1 billion manats, of which 4.3 billion was sent to the oil sector, and 2.8 billion manats was sent to the non-oil sector. Construction and installation work as a whole decreased in volume. But in housing construction still there was growth. This year, 838,100 square meters of housing has been commissioned, which is 9% higher than the same period last year. This growth is partly due to the creation of the State Construction Agency MIDA, which is building preferential housing for the population.

The possibilities of domestic investment are limited not only by the reduction in the savings of the population, but also by the total lack of a capital market. The two main sources of investment ceased to grow, i.e. the means of enterprises and the budget.


In January-June 2017, million manatCompared with the last year (in comparable prices),%Share of total, %
Total7 138,697,1100,0
Including funds of enterprises and organizations5 019,389,270,3
Bank loans848,5123,011,9
Budget resources817,4103,411,4
Extra-budgetary funds90,2132,91,3
Funds of population328,5139,34,6
Other tools34,72,7 d.0,5

Attracting foreign investment to the country is one of the key requirements for new growth. Any economy seeks this. It is remarkable that under the pressure of the crisis, observers have almost stopped talking about protecting the national economy. The creation of free economic zones and even the facilitation of the visa regime in the country (through ASAN Visa), of course, contribute to the growth of interest of foreign investors in the country. More joint ventures appear. There is a standard set of requirements for foreign investors - guarantee protection of investments, the quality of the judicial system, macroeconomic stability and stable tax legislation. Experts add to this list the country's membership in the WTO, professionalism in state structures and the establishment of an ombudsman institution for business in the country.

International Trade

If we talk about the balance in trade, the situation began to improve. The foreign trade balance has become positive, and the government will do everything to maintain the positive balance, up to the import reduction policy.


Source: State Customs Service

Gradually, the structure of exports and imports is changing.


In export, not only the export of tea, fruits and vegetables (this was expected), or cotton, but also aluminum and chemical products has increased notably, but the export of petroleum products has sharply dropped. The structure of imports also changes, and the import of cement, grain, furniture and, which is especially bad, machinery and equipment (schedule) has fallen sharply. When they say that cheap manat always makes the local producer competitive, this is only half true. At the same time, it can suppress exports. In devaluation, imports of machinery and equipment become significantly more expensive. And this means the way for production of the same export goods is closed. However, for the new large enterprises, which the state is going to launch in industrial parks, there is a seven-year grace period, relieving these problems.


Annual inflation has been rising since the beginning of the year. In the first half of the year, it reached the level of 13.9%. And in July it reached 14%.


In June 2017 compared with May 2017January-June 2017 compared to January-June 2016
Consumer price Index99,0113,9
Producer price index94,0149,7
The price index of agricultural producers99,9110,4
Transport, Postal tariffs100,3110,6
Postage rates100,0100,3
Communication services100,0100,0

At the level of inflation, even seasonal factors ceased to be reflected. Prices for food products continued to grow.


Source: State Customs Service

It can be even higher: the methodology for calculating the CPI for 561 trade names is still a subject of controversy among economists.

The Central Bank continued to "sterilize" the manat through deposit auctions in order to bring down inflation. But it is already obvious that this inflation of non-monetary origin is a consequence of costs and structural imbalances in the economy. The costs of producers (rising prices for gasoline and railway tickets) were shifted to the population and drove inflation. The best way to combat inflation is to push and expand lending to the real sector, while simultaneously commencing systematic work to increase labor productivity in the economy. But this is another, difficult task.

Social Sphere

The incomes of the population continued to fall, even in nominal terms.


In January-June 2017Compared to the previous year, in percent *)
Nominal income of the population, mln. AZN23526,7107,3
For each, Manat2422,9106,2
Disposable income, mln. Manat21526,8107,2
For each, Manat2217,0106,1

*) In 2017, the indicators were defined on the new information.

The rate of growth of incomes lagged more and more against inflation. The real disposable income of the population decreased by 6.7% in the first half of the year. The average pension fell below the subsistence level. Unemployment and especially structural unemployment grew.

According to official statistics, cash income per capita of the uppermost rich strata of the population (20%) is only twice as large as that of the poorest sections of the population (20%). It was more correct to compare the monthly incomes of 10% of the richest and the poorest parts of the population in terms of income. But economists believe that even choosing the methodology of the State Statistics Committee, one should speak about the difference in incomes in dozens of times. It cannot be otherwise in a country whose shadow economy is rated at 67% today.

SON İSTEHLAK XƏRCLƏRİ, ötən ilə nəzərən,%-lə

Source: State Customs Service

Industry and Agriculture

The industrial sector showed a noticeable 5.5% decline in the half-year, while the non-oil industry grew by 4.4%. .

Finally, the potential of the Azerbaijan Investment Company was used to attract investments to the industrial sector. If earlier AIC was limited only to equity participation in successful companies, increasing its capital base, since the end of last year, it has increasingly acted as a kind of agent of the state, which should support the inflow of foreign direct investment. The state has also chosen it as an operator for at least two new industrial parks, which have been established in the country. AIC is also a shareholder with investors. These zones, which are preferential for investors, begin to give a return.

Of the trends, the development rate of the pharmaceutical industry, which has a quick return, is becoming more and more evident in Azerbaijan. The country is already building three pharmaceutical companies - in Pirallahi and in Sumgait. One of the four largest world manufacturers of medicines, the Indian company Sun Pharma, came to Azerbaijan. The foundation laying ceremony for a large solid dosage unit plant of Scandens Pharmaceuticals Industries Ltd was held In Sumgait on July 13. Sun Pharma will build it.

The enterprise will start work at the end of 2018. The most interesting thing is that the government does not stop there and is also negotiating with pharmaceutical companies in Japan and South Korea. Perhaps there was an idea to create a regional center for the production of pharmaceutical products, but there are many questions (the quality and competitive advantages of manufactured products, the level of use of local raw materials, the regulated prices for medicines and the capacity of markets around Azerbaijan).

Probably, it is necessary to raise native engineering companies in Azerbaijan. The company PROKON appeared quite unexpectedly, able to implement large-scale downstream facilities in the country, in particular the carbamide production complex. This enterprise will begin to work already in the beginning of 2018. There are many calls to "return" to the economy of heavy engineering or automotive industry. Previous attempts in this direction were unsuccessful.

The main chance in the development of industry is the manufacturing industry, which brings a good added value. But for many years it was on the periphery of the government"s attention. Of the 200-billion investments that came into the economy, only 6 billion was sent to the manufacturing sector.


Compared with the previous period,%
Total in manufacturingnon-oil processing industry
January -August100,4108,3
January -September100,7108,5
January -October100,999,8
January -November101,3109,8
January -December101,3109,4

Many calculations of the government are connected with the agrarian sector. The industry has so far been growing at a slow pace - about 2%. But in the second half of the year, this indicator is likely to grow. The area under cotton increased 2.6 times, and the area under sugar beet grew almost twice. Such agricultural crops as hazelnuts, silk cocoons and tobacco are becoming more and more important. These industries have not been engaged for a long time, although neighboring Georgia has strongly succeeded in exporting hazelnuts. Turkish companies, traditional hazelnut producers, today are desperately rushing to the South Caucasus market, trying to monopolize this sphere. For the production of cocoons, saplings of mulberry were purchased from China, and the cost of a kilogram of cocoons during the purchase was doubled. The return here should come soon.

The fragmentation of farms in the agrarian sector is a problem. 385,200 producers have applied to the Ministry of Agriculture for fuel and motor oil for seeding. Most of these producers (74.1%) own land up to 3 hectares. If we recall that there is an average of 3.1 hectares of acreage per producer, it can be concluded that most farms have land plots of less than 3 hectares. They need to unite in order to create enlarged farms, attractive for investors, or create processing enterprises on the basis of such farms.

In view of the high risks, the agrarian sphere has never attracted much interest from financial and credit organizations. So, according to the results of the last year, 441.3 million manats was invested in agriculture (2.7% in the total volume of crediting). Record was only one in 2014, when the agro industry received 847.3 million manats of bank loans with a specific weight of 4.3%. But here there are institutional problems. The expert F. Alizadeh believes the key problems of the local farmers rest in the absence of a developed land market, numerous cases of misuse of agricultural land and meager application of insurance products. To support farms, a well-developed and effective institution for guaranteeing risks is required.

FINANCIAL SYSTEM. In the financial system, all events developed in the triangle: the budget, exchange rate policy and the state of affairs in the banking system. Whatever the skeptics are saying, confident that the devaluation processes may resume, from the beginning of the year the manat rate has noticeably stabilized. Only in February there were sharp surges of the rate - up to 1.9 manat per dollar. In the following months, the manat stopped at about 1.7 AZN per dollar.


Source: CBA

The price of maintaining the manat was quite high - the CBA constantly withdrew manats from the economy through deposit auctions. Although the monetary base has grown by 0.6% since the beginning of the year, the compression of the money supply has become one of the reasons for the sharp decline in banks' credit activity. The budget of 2017, as we have already mentioned, was revised, and now it is loaded with external obligations of the IBA, the payment of which was assumed by the state.

The CBA itself admits that, despite the high refinancing rate, or "washing away" of manat from the economy, it was not possible to achieve a reduction in inflation. It is also obvious that monetary inflation today is much lower than consumer inflation. And it's time to agree that the current inflation is non-monetary. And, in order to give the economy at least some chance for growth, it is necessary, at least, to reduce the refinancing rate of the CBA.

The CBA said at a meeting of the Bank's Board on August 1 that in the remaining months of 2017 the level of overall inflation will be balanced depending on the rate of manat, inertia, aggregate domestic demand, changes in prices for goods and services regulated by the state, trends in international commodity markets and other factors. And the CBA concluded that despite the seasonal decline in monthly inflation and the relative decrease in inflation expectations, short- and medium-term risk factors for inflation have not yet been fully neutralized, and therefore the CBA maintains a discount rate of 15%. This is very wordy and looks like the beginning of a new round of supporting banks through deposit auctions.

And, nevertheless, the most difficult situation was in the banking system, which, despite all the support by the CBA, will not return to normal lending and to moderate support of the country's economic growth.

BANKING SYSTEM. On July 18, the plan of voluntary restructuring of the external obligations of the International Bank of Azerbaijan was finally adopted. Creditors with 94.1% of liabilities subject to restructuring participated in the voting. Of these, 93.9% supported the plan, so the requirement of national legislation, which required the consent of creditors with 2/3 of obligations, was fulfilled. It seems that Azerbaijan has managed to agree with the Pension Fund of Kazakhstan on the remaining $ 200 million of IBA debt to this structure.

In the first half of the year, almost all indicators of the banking system continued to decline.


The assets of the Azerbaijani banking sector as of July 1 this year amounted to 30,036.9 million manat, which is 4.5% less compared to the beginning of the year. The loans granted to customers amounted to 13,462.1 million manat or 44.8% of banking assets. In the first half of this year, the loan portfolio of banks decreased by 15.5%, although a month earlier this figure was 9.8%. Credit squeezing is intensifying.



For six months, the total liabilities of banks decreased by 7.5% to AZN 27.32.9 billion, the deposit portfolio increased by 1.7% to 16,687.2 million manat (6,880.7 million manat - retail deposits, and 9 806.5 million manat - deposits of legal entities). Since the beginning of the year, household deposits have declined by 7.4%, while companies' funds have increased by 9.2%.


June 1, 2015 million manaCompared with last year's period,%
Deposits of population - total6846,790,5
Besides that:in national currency1744,8120,5
in foreign currency5101,983,4

Despite the optimism of the CBA, the dollarization of the economy remained very high. The level of dollarization of bank deposits of the population of Azerbaijan as of June 1, 2017 was 74.52%. Last month, this indicator was 76.6%, on January 1 - 79.63%, and a year earlier - 80.87%. At the same time, the dollarization of the cumulative deposit base as of June 1 was 75.2%. Last month, this indicator was equal to 74.85%, and in the corresponding period of the last year - 80.77%. In the structure of loans as of June 1 this figure was 45.75%, on January 1 - 47.32%, in June of last year - 46.82%, and on May 1 - 48%.

In January-June, the liabilities of the banks to the Central Bank of Azerbaijan decreased by 61.8% to 647.47 million manat. And balance capital of credit organizations increased by 42.2% and reached 2 714 million manat.

For six months, interest income of banks amounted to 1,007 million manat, interest expenses - 482.7 million manat, non-interest income - 460.3 million manat, and non-interest expenses - 476 million manat. In the end, net operating profit of the banking sector amounted to 508.8 million manat.

Banks sent 408.9 million manat to create special reserves to cover losses on assets, bank incomes from other sources amounted to 2.4 million manat, and profit tax amounted to 17.5 million manat. Thus, the Azerbaijani banking sector completed the first 6 months with a net profit of 84.9 million manat.

Let's remind that in January-May the profit of banks amounted to 178.2 million manat. In other words, in June the profit of banks decreased by 93.3 million manat. This is evidence of instability and fever in the banking sector of the country. The profit of the previous month was directed, first of all, to increase reserves to cover losses, and in part, apparently, to taxes on profits and replenishment of the authorized capital.

The statutory capital of many banks fell sharply, below the minimum limit of 50 million manat. And this phenomenon is observed even in previously successful banks.

The banking system inevitably contracted, which was also the result of optimization of business process in banks. At the end of five months, the banking sector reduced 913 employees out of 16,034 of the staff available. According to the FIMSA, 560 banking branches and 141 banking departments remained in Azerbaijan for the first five months of this year. Fitch's forecasts of mass liquidation of banks have not been justified yet. Fitch believed that in 2017 there would be more bankruptcies and measures to clean up the sector due to a lack of funds due to low asset quality and currency risks. But in the banking environment they were convinced that it would be limited to 4-5 banks. In part, this was due to their greater awareness of the alignment of forces in the banking sector. Of the country's 31 banks, several banks are very successful and are connected with the highest echelons of power. A noticeable part of the banks are foreign banks, and their presence in the country is also ritual and political. There are banks with capital of such serious IFIs as the EBRD, and this is also a line of defense. Finally, there are banks that are part of large holdings, and the presence of a bank is a prerequisite for the functioning of these holdings. So there are not so many real candidates for the elimination.

If we talk about the physical contraction of the banking system, a special role here was played by the reduction of cash transactions after the entry into force of the Law on Non-Cash Payments in January this year, as now there is no need to directly visit banks by customers. In addition, financial institutions under the updated legislation are allowed to write off 50% of the debt on the deposits of enterprises, referring to the Financial Markets Supervision Authority (FIMSA). Thus, the Azerbaijani government not only guarantees financial organizations from bankruptcy, but also reduces its own liquidation costs. "However, having solved the problem of banks at the expense of entrepreneurs (the lion's share of uninsured deposits falls to businesses), the government has put the economy of the country at risk," the bank lawyer Hasanov is sure. By the way, being the chairman of the Creditors' Committee (CC) of the abolished Bank Standard, he demonstrated extreme consistency in the struggle for creditor resources and was able to infect all creditors with this mood. First, the committee appealed to the Prosecutor General's Office to start a criminal investigation against the former leadership of the bank. Almost immediately after this statement, the accusation of embezzling tens of millions of manat was presented to the former chairman of the Board of the bank, Salim Kriman, and also arrested were a number of entrepreneurs who entered into a deal with him on unsecured loans from this bank. In addition, the CC for Bank Standard appealed to the embassies of countries where KPMG is registered, as well as to the Accounts Chamber of the country with a requirement to audit the activities of this well-known company in Bank Standard. The Committee also continues to struggle to identify a complete list of those who took large loans from this bank, and much more.

So, the active struggle for survival continues in the banking system. In it, something is constantly happening, except for one and foremost - the growth of lending to the economy.


Source: CBA

Economists constantly emphasize the fact that the supply at deposit auctions has always been below demand, and at the last of them, the demand of commercial banks was six times higher than the supply by the Central Bank, and the funds were placed at the lowest limit of the interest corridor (10.01%). It was expected that during the reduction of the lower limit of the interest corridor to 10% demand for deposit auctions will decrease. This did not happen, and the reason for this was that manat is stable, albeit temporarily, and the placement is short-term. Some experts suggested that the Central Bank either revise the requirements of the deposit auction, or increase the term of placement of funds, or reduce the minimum limit of the interest corridor. The latter would have become possible after the CBA discount rate had been lowered. But this, as we have seen, did not happen.

Some banks have already taken decisive steps to avoid the consequences of the crisis and to achieve a healthy growth. It seems that the long confrontation between the CBA and the emergence of banks with 100% foreign capital is coming to an end. This happens almost in no secret. Thus, the authorized capital of the old and good Demir Bank dropped to a critical 21 million manat. At the suggestion of foreign creditors of the bank, before which the bank has obligations of 105 million manat, a new scheme for saving the bank emerged. Now these obligations will be restructured into fixed assets, and on the basis of an agreed proposal, foreign investors will become the main shareholders of the bank. That is, there will be another bank (like Access Bank), which will be owned by serious Western financial structures. At the rate to date, the authorized capital of the bank will be increased by about 178 million manat. With the consent of the regulator and taking into account the current volume of the authorized capital (AZN 21 million), the authorized capital of the bank will be AZN 199 million.

VTB Bank (Azerbaijan) becomes a 100% Russian bank. OJSC VTB Group acquires a 49% stake in OJSC VTB Bank (Azerbaijan), which previously belonged to Ata Holding. According to the information of VTB 24, by the decision of the Supervisory Board of the company, 124,496,737 shares of VTB Bank (Azerbaijan) with the face value of 0.20 manat each will be purchased at a price of $ 0.25. The transaction amount is $ 31.4 million. In the first quarter of 2017, the loss of VTB Bank OJSC (Azerbaijan) was 261 thousand manat, which, apparently, pushed to this decision. The bank"s aggregate capital is 51 million manat. The bank"s assets reached 430 million manat at the beginning of April this year.

BUDGET FOR HALF-YEAR. The Ministry of Finance of Azerbaijan has published operational data on the execution of the state budget in the first half of 2017. The ministry reports the revenues of the state budget in January-June amounted to AZN 7.722.8 million, and the expenses amounted to AZN 8193.9 million.

"Incomes to the state budget were executed for AZN 7,722.8 million or 102.3% against the forecast, which is by 25.9% or AZN 1,589.0 million more than for the similar period of the last year. Experts emphasize that 92.5% of the budget growth (1.477 billion manat) was provided by the oil sector. The revenue forecast for the State Customs Committee (SCC) was fulfilled at 111.9%. AZN 1,169.2 million was transferred.

From the transfers of the State Oil Fund's budget, AZN 2.991 million was used or AZN 59.0 million less than the forecast. Proceeds from paid services provided by budget enterprises amounted to 151.0 million manat, while other revenues amounted to 58.6 million manat.

Expenditures of the state budget for the reported period were fulfilled by 100.2% or by 8,193.9 million manat. At the same time, 42.7% of expenses or AZN 3.349.9 million was directed to financing of social expenses, which is 18.3% or 541.4 million manat more than in the first half of last year. The deficit of the state budget for the first half of 2017 amounted to 471.1 million manat.

It is noteworthy that the investment expenditures of the budget were fulfilled at the level of 29.2% of the amount of investment funds put into the budget. As it became known recently, the President of the country personally monitors the investment expenditures of the budget. Recall also that the budget for this year has been revised in connection with the need for new and urgent budgets.

DEBTS OF AZERBAIJAN. The growth of Azerbaijan's debts becomes obvious. But while there are SOFAZ assets, they do not seem to be critical. Funds are needed, of course, not only in case of force majeure. A country that has good foreign exchange reserves, and moreover lends to other economies, is certainly attractive to investors. The state is still trying to keep the country's reputation as a net lender. The seriousness of this factor can be proved by the alarm in the Russian government: Russia can become a net borrower as early as 2018 (about -1% of accumulated assets, or about -1 trillion rubles).

Let's not forget that today, due to mandatory transfers to the budget, SOFAZ acts as a regulator of the country's currency market. Today it is the only seller in this market.


SOFAZ's assets have grown significantly since the beginning of the year. In the first half of the year, they amounted to $ 35 billion 117.9 million. This is noticeably more than at the beginning of the year. And, nevertheless, this is 0.93% (327 million manat) less than in the first half of 2016.


YearsAssets at year-end
2017 (1 half)35,1

All this gives sufficient guarantees that the country is not threatened by any debt defaults. The public debt, for example, is considered critical, having crossed the level of 40% of GDP, but this threshold is far away for Azerbaijan. True, in recent years, unexpected debts have started to appear, which put the burden on the state. These can be called $ 2.4 billion of external obligations of the IBA, which the state must now return. At the same time, nothing is said about the $ 1 billion of SOFAZ funds, which fell under restructuring. And anyway, will they be returned to the Fund? The necessity of restructuring foreign debts began to be mentioned in some other departments, for example, in Azerbaijan State Railways.

A different picture is observed with the country's debt, or the so-called international investment position. This index once figured in the statistics of the CBA, and then it disappeared for a long time. A few years ago, the CBA itself stated that it would display this indicator on its website. It is even said that it appeared for a short time, but almost no one noticed this. Meanwhile, the CBA does not hear the appeals of the expert community and is not going to expose these data. The considerations the CBA is guided by, in fact hiding these data, are not completely clear and do not seem rational.

The international investment position is a balance of external requirements and external obligations of all institutions in the country. This is the external debts of the whole country. The economist Rovshan Agayev gives an example. In the Russian Federation, the state's net debt is approximately $ 35 billion, while the debts of private entities are estimated at $ 300 billion. The logic of the general calculation of external debts is clear: it will be necessary to repay debts from the same currency resources of the country. And when these requirements appear in hard currency, the Central Bank will be forced to enter the market with interventions, and the official reserves of the country will begin to decrease. That is, this indicator allows estimating the expected pressure on the national currency rate, regardless of where this pressure comes from - the state or the private sector.

The economist believes that even according to the rudest calculations, the debts of two structures - SOCAR and the banking system - make up about $ 15.5 billion, and together with debts under state guarantees it is $ 25 billion. Excluding smaller institutional units, this makes up about 65% of the entire reserves. Taking into account the external deposits of Azerbaijani banks, this amounts to about 60%. That is, there is already something to worry about, even if after 2020 and the start of gas exports from Shah Deniz-2 the situation will begin to improve. These currency requests can be covered only by a large amount of foreign investment in the country. The latest financial statements of SOCAR provide a more detailed picture of the external obligations of this state-owned oil company. In 2017, the company has to pay back $ 6.7 billion of debt. Long-term debts of the company after the year 2017 so far amount to $ 7 billion. Of these, $ 1.8 billion (3.3 billion AZN) are internal debts, and $ 5.2 billion is external debts. In total, the external foreign exchange debts of SOCAR amount to almost $ 12 billion.


FUEL AND ENERGY SECTOR. Now we can say with certainty that the May OPEC + agreement did not justify itself. In the beginning, there was a short spike in oil prices to $ 55, but all the subsequent weeks, until recently, there was a tendency for a decline in world oil prices.

WORLD OIL MARKET, thousand barrels per day


IEA source

Only at the very end of July prices still went up and quotes of Brent rose slightly above $ 53 per barrel. JP Morgan believes that this agreement was initially unpromising, since the situation when some oil-producing countries increase their activity in the market due to lower production in other countries could not last long. Talking about a parallel increase in the production of shale oil has become a common place. However, Saudi Arabia declared its readiness to reduce production by 600 thousand barrels per day and even by 1 million barrels / day. And on August 7, the countries of OPEC and OPEC + again urgently gather in Abu Dhabi. But no one believes in the long-term growth of prices. City Group, for example, believes that the next year the average price for oil will be $ 45 per barrel. There is a general downward trend in prices, and shale oil is firmly registered in the market.

Another constant factor is the insufficient growth of the world economy. Growth could pull oil prices up. The head of the Central Bank of Russia Nabiullina considers this a serious challenge. Indeed, one could expect that at low oil prices, the country's importers of hydrocarbons will gain a noticeable advantage and can become the drivers of world economic growth. But this did not happen.


Source of IMF, Report on Global Economic Prospects

Some economists believe that in general a large thirty-year cycle ends, after which one can expect a new cyclical growth of the world economy. The same is said about the general expectations about the transition to a new technological cycle of development.

Nevertheless, not all and not always lose in crises. In our region there is a country that, not possessing hydrocarbon reserves, was able to take advantage of the world oil boom, and then quite availed itself of the low prices for hydrocarbons. This is Turkey, which intends to become the largest hydrocarbon hub in the region, and has practically achieved its goal. Recall also that the low price of oil pulled down prices for the entire raw material series, and this made it possible to minimize the cost of building strategic gas pipelines across the country.

In July, an international oil and gas summit was held in Turkey. This time it was particularly representative. Erdogan and Aliyev met on the margins of the summit. The union of the two countries has long become a strategic one, and the "reconciliation of the clock" is ongoing. In 2020, Azerbaijan"s total investment in Turkey will be 20 billion dollars. But there is not enough investment, and Turkey is in their constant search. Within the framework of the conference, President Erdogan held a meeting with the heads of 350 large companies, including the leadership of SOCAR. The Turkish press underlines the fact that the total turnover of the world"s leading companies invited to the meeting amounted to about $ 4 trillion.

Perhaps, Azerbaijan is in the most difficult situation. It does not have the resources to increase oil production. It could not have increased it, even if it had not been bound by an agreement with OPEC +. Extraction constantly falls.


Types of productsProduced in January-June 2017A comparison last year,%The presence of the finished product on 01.07.2017
Crude oil (including condensate), tons19161,091,0481,3
the marketable19 137,091,0481,3
Natural gas, million cubic meters14115.294.6-
the marketable9 343,299,8-

At the main Azeri-Chirag-Gunashli field, it fell by 11.2% (-1.79 million tons) in the first half of the year. But at the same time, the volume of profitable oil in monetary terms increased by 34.7% and amounted to about 3.1 billion dollars. The explanation for this is simple: average oil prices rose by about 30% in the first half of the year, year on year, and the consortium"s costs also fell.

The government"s bid for big gas from Shah Deniz is obvious. But the needs of the economy for gas are growing today, and production is still dying. In this half-year, gas production was stabilized; the decline was only 0.2%. Domestic gas prices have a clear upward trend. This is connected with the fact that SOCAR buys about 30% of gas from the consortium for Shah Deniz, and imports 5%. And in both cases, it has to pay in dollars. This, in turn, explains why the state this year subsidizes SOCAR in the amount of 250 million manat. A new rise in gas prices would create big problems. We could also remember the unscheduled Sunday visit of the President of SOCAR to St. Petersburg, where he met with the head of Gazprom. Before the start of work on the second stage of Shah Deniz, Azerbaijan will have many problems. The coming two years, Azerbaijan will lack gas for domestic consumption. And we need to agree with Gazprom on the acceptable price of Russian gas imports to Azerbaijan. Gas, at least, is needed for a methanol plant in Garadagh and a new enterprise of SOCAR Polymer. SOCAR bought the methanol plant for $ 506 million, or about 810 million manat. It has already paid to Agrarcredit, which disposed of this property, about half of this amount and took possession of the enterprise. True, it has not yet received a net profit from the enterprise.

A tense situation also develops in oil refining. 72% of its output goes to the domestic market.


Types of productsProduced in January-June 2017A comparison with the last year,%The presence of the finished product on 01.07.2017
Car benzinb th. Tons618,3108,040,3
Gasoline for use in oil and himicheskyo industry, thous. Tons101,5105,21,6
Kerosene, thousand thous. tons297,592,31,4
Diesel fuel, thousand thous. tons958,783,6104,3
Fuel oil, thous. tons241,362,05,8
Lubricating oil, thous. tons12,92,5 d.7,1
Bitumen, thous. tons77,3127,63,8
Petroleum coke, thous. tons106,4117,38.7

In the middle of July, the Tariff Council allowed to raise the cost of popular A-92 gasoline by 29%. In conditions of high inflation in the half-year this was a rather risky step. But it is motivated by the fact that SOCAR needs funds for routine repairs and actual reconstruction of the only refinery in the country, named after Heydar Aliyev. Simultaneously, the government dumped customs duties for import of all grades of gasoline for three months to smooth out the effect of a sharp increase in gasoline prices.

INFRASTRUCTURE. On the intensity of negotiations infrastructure projects go, perhaps, towards the finish line. The greatest problem is strategic transport exits from the country, which constantly become an object of intense competition, both geopolitical and geo-economic. We mean not only purely transport, but also pipeline projects. Obviously, the South Gas Corridor will be open in all circumstances. But for the last year we have seen external attempts to somehow influence the construction of TANAP and TAP. 85% of the work was done for Shah Deniz, 77% for TANAP, and 40% for TAP pipes. But the question of who will enter the European market earlier is not at all idle for such projects. A characteristic detail: the media reported in July that Gazprom had begun to stretch the second thread of the Turkish Stream gas pipeline parallel to the first thread and oriented towards Europe. Although there are not even buyers for this gas, apparently, it does not lose hope of being the first to enter the South European gas market. Frequent demonstrations in the south of Italy against TAP are also associated with the policy of Gazprom. An unpleasant story was the seizure of a small section of the Baku-Supsa oil pipeline as part of the delimitation of the borders of South Ossetia. It is unlikely that this will at least somehow affect the implementation of the Southern Gas Corridor project. But here we can also see some hidden threats.

Most likely, this tension is connected with constantly arising new circumstances. TANAP and TAP have not yet been completed, but already attract the attention of many manufacturers who would like to bring their gas to the European market. After four rounds of talks, Turkey and Israel came close to implementing a project to build a gas pipeline between these countries. The agreement can be signed already in the near future, and only at the Israeli field Leviathan the gas reserves exceed 620 bcm. This project provides for the possibility of including the future gas pipeline in the TANAP system, especially since the capacity of the gas pipeline so far allows counting on it. The construction of another Turkish-Israeli project is under discussion: a gas pipeline from Israel to Cyprus (where large gas reserves have been found) and Greece. The leadership of Iraqi Kurdistan also announced the possibility of gas transportation through TANAP: here the gas reserves are almost astronomical - about 8 trillion cubic meters. Even Turkmenistan, cut off from the European gas market, apparently does not lose hope to enter this market through Azerbaijan. In this sense, the July meeting of the Foreign Ministers of Turkey, Azerbaijan and Turkmenistan is indicative. It is clear that the key subject of discussion here was the status of the Caspian and the Trans-Caspian gas pipeline. Russia and recently Iran have virtually completely abandoned Turkmen gas. For today, it has the only active export direction - the gas pipeline to China through the Central Asia countries. The construction of the TAPI gas pipeline (to Pakistan and India) has just begun, so Turkmenistan"s access to the European market is a vital task for it. This month Turkey was able to agree on the financing of the ground part of the Turkish Stream on its territory. But then it became known about the new US sanctions against Russia and, if they get full approval, the foreign companies laying pipes on this project or on the Nord Stream-2 project can suspend the construction of the pipelines.

They constantly talk about the completion of the Baku-Tbilisi-Kars (BTK) project, but the "last meters" are produced hard. In the flow of information this month, the message of the Fineco news agency also flashed with a reference to Turkish sources that some forces in Turkey are deliberately slowing down this project. This could still be believed at the beginning of the BTK implementation, when there were still hopes for the restoration of the Gumri-Kars railway. But all this is already far in the past. Nevertheless, the fact remains that the opening of the railway traffic along BTK is constantly postponed. More recently, officials said the Turkish sector was completely ready and would be opened in June. Then there was another message: the work there is not completed and this longest stretch of the BTK will be ready only by the end of the year. On July 30 there was a message about a trial start-up of a train in the Turkish section. A similar trial train reportedly traveled in the Georgian sector, but now it is said here that the finishing works have remained and they will be completed only in September. It is curious that Kazakhstan, which is making a serious bet on the growth of transit through the country, shows the greatest impatience in the early start of the work of the new railway. Moreover, the ports of the Caspian and customs officials are ready to start work. The heads of the customs services of Azerbaijan, Georgia and Turkey met again in Baku on July 19. This game is worth the candle. If the project is launched in time, then by 2020 cargo traffic only through Kazakhstan to BTK can increase to 2,000 containers per year, said the head of Kazakhstan Railways, who visited Baku in July.

Judging by the degree of hysteria in the Armenian political establishment, the North-South project is also in active work. Otherwise, Armenia would not act with chimerical proposals to build this corridor through this country. But Russia and Azerbaijan have long and successfully worked on this project, proving their commitment to its full implementation. It is understandable, because the crisis-stricken economies of Russia and Azerbaijan need a quick exit to transit revenues.

It may seem strange that Iran does not find several tens of millions to complete the construction of the road of Resht-Astara and constantly appeals to the help of Russia and Azerbaijan. Various options were discussed, and at the end of July Iranian officials again announced the possibility of crediting this construction by Azerbaijan in the amount of $ 500 million. But Iran has big spending on another, no less important sector - the Iranian railroad"s exit to Pakistan and India. Abbas Akhundi, the Minister of Roads and Urban Development of Iran, said the country needs to find $ 4 billion for the construction of the Sistan-Baluchistan railway station in the south-east of the country within the framework of the international transport corridor North-South. And this is one of the key elements of this large-scale project. To implement this railway project, Iran signed a contract with India in 2016. The Indian state company IRCON then gave its consent to the construction of a 500-kilometer section of the railway from Chabahar to Zahedan. The construction of the site was allocated 1.6 billion dollars.

A fundamentally new point in the transit policy of Azerbaijan is the government's firm intention not to give a chance for unproductive pauses in the implementation of these projects. In July, the railways of Russia and Azerbaijan agreed to establish a Coordination Council for the development of the North-South project with headquarters in Baku. A joint Russian-Azerbaijani logistic center is already being built in Iran's Astara. Without waiting for the full launch of the BTK project, the State Railway Company already negotiates with Turkish companies on the construction of a logistics center in Kars.

POLITICAL BACKGROUND. At the G-20 summit in Hamburg, it seemed that it was possible to move slightly in the Syrian problem: the United States and Russia agreed on de-escalation zones in Syria. The United States even for the first time refused to support one of the opposition groups in Syria, although President Trump did not miss the opportunity to once again accuse former President Obama of having admitted the appearance of Russians in Syria.

Russia's optimistic expectations did not last long. The end of July was really blown up by the decision of the House of Representatives and the US Senate. With the overwhelming majority of votes, a law on sanctions against Russia, Iran and the DPRK was passed there, and the text of the sanctions itself was the result of a consensus between Republicans and Democrats. Sanctions have already taken the form of a law, and Trump even complained publicly that this is a restriction of the powers of the executive and, in general, an "unconstitutional decision," but signed the law. The movements of President Trump are constrained not only by the constant exaggeration of the theme of his team's relations with Russia, but also by the specifics of the American political system itself. He tried to subvert the system for himself, but almost immediately began to lose one position after another. Trump's attempts to bring elements of economic rationality into foreign policy were also unsuccessful. He actually left the Paris agreement on the climate, motivating it with the interests of American industry. He stopped US participation in such serious projects as the trans-Atlantic economic union with Europe. Everyone noticed that the new sanctions also open the way for the export of American gas to Europe. But this is probably the only thing that appeals to President Trump, who has already announced the US energy hegemony in the next decades. Europe regarded this as an attempt to infringe the interests of European business, especially since shale gas is still much more expensive than the pipeline gas that Russia supplies to Europe. No matter how weak Russia today is economically, it was, of course, stung by these harsh measures. Sanctions are usually directed against something: we saw this in the case of Iran, when the sanctions were aimed at stopping the nuclear program of this country. Of course, the implementation of the law will not be rapid, and the requirements for countries that fall under sanctions are rather vague. But everyone agrees that the new sanctions are now for a long time. And it does not matter what became a trigger - events in Ukraine, the war in Syria, or the new US energy ambitions. What is important is that Russia is not ready for concessions or any conciliatory gestures: just look at Russian talk shows.

Until recently, Russia demanded from the West the recognition, at least, of the fact that it has zones of its own interests, where it has the right to protect these interests. The silence of the West over the results of the short four-day war in Georgia in 2008 consolidated it in the thought that it is possible. The new world order in the understanding of Russia is at least recognition of the zones of its regional influence. The annexation of the Crimea under certain conditions could still be perceived as the will of the people of the peninsula. However, the Kremlin acted not only with a desire to stand up for the Russian-speaking population of the South-East of Ukraine. It wanted to punish Kiev for its quick drift to the West. Now it turns out that it's very difficult to get out of this story. And the matter is no longer in evidence if there are Russian troops there, or not. Russia does not want to and will not close the border with Ukraine in the South-East of the country, and Kiev in these conditions will never agree to negotiate with the separatist regime, or hold elections in the Donbas. But even if the authorities change, it will be an illusion to expect that this will change the pro-Western course of Ukraine.

Russia itself has violated the norms of international law, and after that, any accusations against the US lose all meaning. It was its challenge to the West, and the response of the Western community was tough. And the calculations for a split in the Western community were not justified: Europe also adopted new sanctions against Russian individuals and companies in connection with the supply of Siemens electric turbines to the Crimea.

Azerbaijan was apprehensive about the intensified confrontation between Russia and the United States. Azerbaijan has too close ties with its northern neighbor, and Russia's problems will also affected Azerbaijan. There were even fears that sanctions would affect Lukoil, which has a stake in Shah Deniz. But this project is beyond the sanction. But, as a whole, sanctions have been introduced for a long time and can cause serious technological backwardness of Russia. On the other hand, economically weak and angry Russia can be dangerous. After all, in response to US sanctions, Russia can begin to increase military-political pressure on countries along the entire perimeter of its borders, that is, wherever it would like to gain a foothold politically. The base for this already exists: the region is sufficiently militarized, and the likelihood, for example, of large-scale military actions in Karabakh seems very high. And the peacekeeping efforts of 2017 are clearly of an inertial nature. Not without pressure from external players, the Foreign Ministers of Azerbaijan and Armenia met again in Brussels in July. The head of the Ministry of Foreign Affairs of Azerbaijan immediately after the meeting characterized it as a routine and unproductive one. But, nevertheless, a new meeting between the Presidents of Armenia and Azerbaijan, initiated by France is not ruled out yet.

A variety of circumstances are driving the situation. We have already mentioned the seizure of one and a half kilometers of the Baku-Supsa oil pipeline by the Russian military. At the end of the month, Putin signed a decision on the establishment of the United Group of Forces of Armenia and Russia. Finally, an unplanned meeting of Putin and Aliyev took place in Sochi in July, of which no one is aware.

The tension in the region is obvious. And in this sense, one cannot exclude the outbreak of hostilities in the conflict zone today. On this occasion, the well-known Stratfor analytical center said an interesting idea. They believe Russia would like such a peaceful solution to the problem when it could bring its own peacekeeping forces into the conflict zone. But there is also another option: Russia encourages military actions in the conflict zone, and then, on the pretext of reconciliation, it will introduce its own troops there. Previously, it would seem almost absurd. But today it is quite likely just because Russia will seek a point where it can openly oppose the US. And Karabakh can become one of such places. For Armenia, the main thing is to keep the status quo as long as possible. But Russia can provoke it to military actions if it considers it necessary to prove the importance of its own role in this region: for example, by supporting the idea of ​​returning to the status quo at the beginning of April 2016. In this sense, Armenia's current military stance and constant firing on the front line no longer seem casual.

All this is also interesting because in this confrontational situation another intrigue is already being tied up around the seemingly forgotten program of the Eastern Partnership. Armenia has started talking about the fact that it is ready to speed up the signing of the association agreement with the European Union. This statement is surprising in its own way, because it was the possibility of signing such an agreement between Ukraine and the EU that triggered the dramatic events in Ukraine. We should also remember that, unlike Ukraine, Armenia is a member of the Eurasian Economic Union and the CSTO. Moscow has not yet expressed its attitude to these statements, although here one cannot exclude some of the Kremlin's own views on this issue: for example, building some kind of implicit bridges with Europe. But we must remember that in the fall in Brussels there will be a question of signing a bilateral agreement on strategic partnership between Azerbaijan and the EU. Will Russia take these attempts of "exodus" into Europe calmly?

Yet some political scientists are inclined to think that the war today, in 2017, is unlikely. The political and economic situation in Armenia is too complicated, and it is dangerous to aggravate it. For Azerbaijan, 2018 is the year of presidential elections and the completion of a number of major strategic projects aimed at the outside world. And war is always a risk.

Finally, interesting metamorphoses began to occur with the notion of democracy. Trump almost immediately announced that democracy is not a US priority. And Tillerson's recent statement suggests that America is abandoning the idea of ​​promoting democracy around the world. Perhaps it is recognition of the fact that democracy cannot be imposed by force, and previous experience has proved the inefficiency of such efforts. But, unfortunately, if this rejection of democratic values ​​becomes clearer, authoritarian regimes will feel more confident, and the weak germs of democracy in such countries can be easily trampled.




Types of productsProduced in January-June 2017In comparison with the previous year,%Inventories of finished goods on 07/01/2017
Electricity million. Kilowatt-hours11199,6102,2-
Wind power8,087,0-
Solar Stations19,381,1-






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