Azeris Trumpet Bonds, Warning That Thieves, Fires Threaten Cash

  • Finance minister advises Azeris to spend money on manat bonds
  • Two devaluations in 2015 led to depositors' exodus from banks

Azeri authorities battling to restore trust in the national currency want to coax citizens to part with their money by buying bonds denominated in the manat as the government looks to prevent a “frenzy” in the foreign-exchange market, according to Finance Minister Samir Sharifov.

The Finance Ministry will “very soon” start selling manat debt that offers yields above inflation, paying 12 percent annually, Sharifov said in an interview broadcast late Sunday on the television channel ANS. The government will also sell dollar bonds in the domestic market to tap into some of the foreign currency accumulated by households, Sharifov said. The yield on dollar bonds will be closer to 3 percent, he said.

“I call on people to buy these bonds using the money they keep under their pillows at home,” Sharifov said. “Keeping money at home is risky. There’re thieves. There can be fires.”

Azeris rushed to withdraw their savings in manat and convert them into dollars after the central bank announced a shift to a free float last month. The Azeri currency is down almost 52 percent in the past 12 months against the dollar after two devaluations last year, making it the world’s worst performer in 2015, according to data compiled by Bloomberg.

The Caspian Sea nation, the third-biggest former Soviet oil producer after Russia and Kazakhstan, sold its debut international debt in 2014. Government 2024 dollar bonds fell for the first time in three days, sending the yield up five basis points to 6.47 percent.

Taxing Outflows

Azerbaijan’s parliament amended laws last week to cope with the fallout from collapsing oil prices. Lawmakers approved measures proposed by central bank Governor Elman Rustamov on Tuesday, ranging from a 20 percent fee on foreign currency exported for investment abroad to fully insuring bank deposits.

Sharifov said the 20 percent tax on capital outflows won’t apply to foreign individuals or companies investing in Azerbaijan. The fee will also exclude foreign currencies taken out of the country to pay for the import of goods and cover “current expenses” such as education and health care.

‘Unclear’ Origin

The tax will apply to people and businesses -- both local and foreign -- if the source of the currency is “unclear,” Sharifov said.

The legislature will review the state budget to increase projected revenue by 1.9 billion manat ($1.2 billion) to 16.4 billion manat and spending by almost 2 billion manat to more than 18 billion manat, the minister said.

Additional funding is needed to increase pensions and salaries of public-sector employees, he added. President Ilham Aliyev signed decrees in the past two weeks to increase retirement payments and public wages by 10 percent.

Sharifov said the budget also needs to be reviewed and based on an average oil price of $25 a barrel, down from the current estimate of $50. The central bank governor had earlier proposed to assume an oil price of $30 for the budget.

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