Azerbaijan Turns to IMF, World Bank After Collapse in Crude

  • Government has no urgent need to borrow, finance minister says
  • Azeri manat has slumped in response to collapse in oil prices

Azeri officials met for talks with the International Monetary Fund as the former Soviet Union’s third-largest oil exporter reels from the collapse in crude prices, with Finance Minister Samir Sharifov saying the government isn’t yet asking outside lenders for financial aid.

“We do have the right to borrow from the IMF and others,” Sharifov told reporters on Thursday in the capital, Baku. “But we aren’t in an urgent need to borrow now. We aren’t burning. We can borrow in three months, five months, at year-end or next year.”

Discussions with the IMF and the World Bank focused on programs to liberalize the economy and improve the business climate, Sharifov said. While these plans may require financing, no decision has yet been made. The Financial Times reported earlier that the IMF and the World Bank are discussing a possible $4 billion emergency loan package for Azerbaijan.

The Azeri central bank moved to a free float on Dec. 21 after burning through more than 60 percent of its reserves last year to defend the national currency as crude prices tumbled. The manat, which hadn’t depreciated against the dollar in a decade, nosedived by about half last year and slumped further to record lows this month, stirring public unrest over rising prices for food and other essential goods.

Azerbaijan relinquished control of the exchange rate after its former Soviet allies Russia and Kazakhstan moved to floating currency regimes in the past year.

Strings Attached

“The problem with IMF financing is that it would come with conditionality, in terms of really improving transparency in the banking sector, and more broadly in the economy,” said Timothy Ash, head of emerging-market strategy at Nomura International Plc in London. “I guess the Aliyev regime is not quite ready to fully let go of all the levers just yet, and likely thinks in Sofaz it still has plenty of domestic financing options just yet.”

The State Oil Fund of Azerbaijan, known as Sofaz, had $33.6 billion in assets as of Dec. 1. The wealth fund, established in 1999 to manage Azerbaijan’s income from sales of crude and natural gas, receives most of the government’s oil-linked revenue and uses transfers to finance the budget.

The manat traded at 1.6308 against dollar at 6:28 p.m. in Baku, down 2.2 percent to the weakest on record. Government 2024 dollar bonds had their biggest jump in almost a week, sending the yield down 21 basis points to 6.399 percent.

IMF Mission

The “fact-finding staff visit” was requested by the Azeri government to “discuss areas for technical assistance and assess possible financing needs,” the IMF said in an e-mailed statement Wednesday.

Azerbaijan seeks to borrow $3 billion from the IMF and $1 billion from the World Bank, whose officials are in Baku for discussions, the Interfax news service reported, citing a person it didn’t identify.

A delegation from the European Bank for Reconstruction and Development has also arrived in Azerbaijan to discuss a package of assistance to the private sector, Trend news service reported, citing Nil McCain, head of the lender’s Baku office. The EBRD team will hold meetings at the Azeri central bank and Sofaz on Thursday and at the ministries of finance and economy on Friday, he said.

Debt, Privatization

President Ilham Aliyev told his government last week to look into opportunities to borrow more abroad, saying that Azerbaijan’s foreign debt was “very low” at 12 percent of gross domestic product last year. He also called for the preparation of a “comprehensive” program of state-asset sales to draw in foreign and domestic investors.

Azerbaijan imposed some restrictions on the movement of capital last week, including a 20 percent tax on foreign currency exported for investment abroad, and announced plans to insure all retail deposits. Central bank Governor Elman Rustamov said that five to seven banks may be merged to consolidate the industry, and six lenders were closed this week for failing to comply with minimum capital requirements.

The Finance Ministry announced plans this week to sell $500 million in sovereign bonds on the domestic market to cover a budget deficit this year. The ministry will also sell 400 million manat ($245 million) of debt in an effort to restore trust in the national currency.

While the government has no plans to sell debt abroad this year, a state-owned energy company will offer $2 billion in bonds next month, according to Sharifov. Azerbaijan is estimating proceeds from privatization at 100 million manat this year, he said.

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