Central Bank released “Main Directions for 2016”
Central Bank of Azerbaijan Republic (CBAR) released its “Statement on the main directions of monetary and financial stability policy for 2016.” The document states that CBAR moved to a floating exchange rate regime to address challenges posed by low oil prices. The floating exchange rate regime is expected to balance the current account, preserve reserves, contribute to the diversification of the economy, and lift non-oil exports. During 2015, CBAR met the demand for FX in light of falling transfers from the Oil Fund to the state budget. This resulted in reserves falling from US$ 15.2bn in August 2014 to US$ 5.0bn by the end of 2015.
Main banking requirements eased
CBAR cut the capital adequacy ratio for commercial banks from 12.0% to 10% on December 29, 2015. Currently actual capital adequacy of commercial banks stands at 17.8%. At the same time, CBAR also reduced leverage (the tool binding assets growth to capital growth) from 6.0% to 5.0%.
State Oil Fund (SOFAZ) 2016 budget approved with AZN 1.5bn deficit
SOFAZ revenues in 2016 are set at AZN 6.7bn (US$ 4.3bn at the current exchange rate), compared to the 2014 actual figure of AZN 11.6bn (US$ 14.8bn), while expenditures are set at AZN 8.2bn (US$ 5.2bn) compared to the 2014 actual figure of AZN 10.6bn (US$ 13.5bn). Another decree increased allowable investments by SOFAZ in equities from 10.0% to 15.0% of its portfolio and in real estate from 5.0% to 10.0%, while keeping investments in gold at 5.0%.
Oil production up 17.8% y/y in November 2015, down 0.8% y/y in 11M15
Due to the low base of the previous year, November 2015 oil production was up 17.8% y/y and gas production was up 30.6% y/y. In 11M15, however, oil production was down 0.8% y/y and gas production was down 2.7% y/y.
