Just a few months ago, authorities in Azerbaijan spent tens of millions of dollars on hosting a Grand Prix auto race, which critics derided as a vanity project that satisfied the leadership’s craving for international attention, but did not produce any tangible benefits for the general population. Now, there are several indicators that government finances are tight and Azerbaijan’s economy could spin out.
The clearest sign of Azerbaijan’s fiscal vulnerability is the late-August move by commercial banks to suspend the sale of foreign currency, specifically US dollars. In the weeks leading up to the suspension, demand for dollars spiked, thus causing the Azerbaijani currency, the manat, to slide.
The manat’s summer woes fuelled fears that the government would carry out the third devaluation of the national currency since the winter of 2015. In September 2014, the manat traded at 0.78 to the US dollar. The rate on September 7, 2016, was 1.66 per dollar. The Central Bank in late August, prior to the suspension of foreign currency sales, characterized devaluation fears as “groundless.”
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