Currently, Azerbaijan’s external public debt stands at $5.5 billion—a relatively low level, according to experts, achieved through targeted government efforts.
It’s worth recalling that the head of state has repeatedly urged the Cabinet of Ministers to reduce external public debt whenever possible to avoid pressure from external creditors, and if necessary, to increase internal debt instead.
Minister Sharifov’s statement immediately raised the question, “Did Samir Sharifov make a mistake?”
However, the Finance Minister quickly clarified the situation, explaining to the Milli Majlis deputies that given the low level of external public debt, “it was deemed appropriate to attract loans, expanding cooperation with financial credit organizations to address certain challenges and projects facing the country.”
Sharifov did not rule out a conservative borrowing policy in foreign currency for large-scale infrastructure projects facing the country.
There is no doubt that Azerbaijan faces significant challenges. These include enhancing national security, addressing social issues, and restoring territories liberated from occupation.
A glance at central Baku, bustling with construction scaffolding, confirms that the reconstruction efforts in Baku’s central districts are as extensive as those in Karabakh or Zangezur.
Baku is no stranger to high-level international forums. However, in a few months, the Azerbaijani capital will host COP 29, welcoming around one hundred thousand foreign guests, including many heads of state and government, as well as leaders of major international organizations. For nearly a month, global issues related to climate change will be discussed and addressed in Baku, requiring significant expenditures, including in foreign currency. Hence, the Finance Minister’s acknowledgment of the need for external borrowing.
Moreover, the country’s internal debt increased for reasons that many have forgotten. Back in 2015, to stabilize the International Bank, the non-bank credit organization Agrarkredit, following the President’s directive, took on the toxic debts of the systemic Interbank. To save the bank, the state took extraordinary measures, allocating significant resources. However, these proved insufficient as the damage inflicted by the former Interbank management amounted to billions of manats.
As a result, bonds with state guarantees were issued to stabilize these toxic assets. However, as often happens, toxic assets purchased at balance sheet value had to be returned at market, i.e., lower, prices, resulting in substantial losses that needed to be covered.
Initially, Agrarkredit managed this, albeit with difficulty, thanks to a substantial loan from the Central Bank. But it eventually became clear that this non-bank credit structure could no longer handle the debts. Consequently, the debt was reclassified as state debt and became the country’s burden.
Additionally, the Finance Minister expressed concern over the total value of issued government securities, which has reached 7 billion manats. Nonetheless, Sharifov views these securities as an important and potentially high-yield investment instrument for financial markets. It is no coincidence that Azerbaijan’s chief financier urged citizens to invest in these securities.
In conclusion, Samir Sharifov reminded the deputies that overall, Azerbaijan’s public debt remains one of the lowest in the world. Combined internal and external debts currently amount to less than 23 percent of GDP, a result of the conservative policy pursued by the Ministry of Finance.
Therefore, it is crucial not to overextend both internal and external public debt.
Mammad Efendiyev
Translated from haqqin.az