In a previous article, I analyzed the state of households. The main conclusion was that households had greater immunity in 2015 when faced with an economic crisis. We are talking about a crisis that resulted in a sharp depreciation of the national currency, capital flight of about 12 billion USD from the country, bankruptcy of about a quarter of all banks, the collapse of the state bank which had been the largest player in the sector by market share, the sudden loss of more than 3% of national income, a fiscal contraction of at least 20%, and a monetary contraction of about 50%.[1]

However, the country’s economy had more than doubled in the last 10 years preceding that crisis.[2] Although domestic production remained stagnant in the face of stable exchange rates, an expensive manat, cheap imports, and low inflation, according to the system of national accounts, households at that time increased their wealth in the form of fixed capital (mainly apartment construction) by 10 billion AZN, and as bank deposits by an additional 5 billion AZN.[3] Undoubtedly, if we take into account unregistered savings, about which official information is not available, in the form of foreign currency, gold, and jewellery, as well as non-bank manat savings, it is clear that households were more resilient to that crisis than the current situation. At that time, the biggest risk for the population was the high share of the manat in deposits, while a large amount of debt owed to banks was in foreign currency. Therefore, in the first stage of the crisis of 2015, the heaviest economic blow to households came from its relationship with the banking sector.

What resources do the business and banking sectors, as well as the government, have to face the current crisis, which is expected to intensify in the near future and last longer than the 2015 crisis? What are the risks? Can the available capacities and resources be considered sufficient to mitigate these risks?

Business resources: before and after 2015

At the outset, let me make one very important point about business: until 2015, business preferred to save cash and keep their reserves in their own cashboxes, rather than in the banking sector. This can be clearly seen in the deposit statistics: at the end of 2014, business deposits amounted to about 4 billion AZN, while at present, this figure is 3.6 times higher – 14.5 billion AZN.[4] Given that real GDP did not increase in 2015-2019, remaining at 2014 levels, and business sector savings in 2015-2016 decreased by 20-25% compared to the preceding period, it is clear that this sharp increase in business deposits in the last 4 years is not the result of economic growth. It is true that about 2 billion AZN of this growth is known to come from the difference in the manat exchange rate after 2015. But even without taking into account the difference in the exchange rate over 4 years, we are talking about a tripling of business deposits. The amount of business savings in the system of national accounts also confirms this conclusion. The total business savings in 2006-2014 amounted to 63.3 billion AZN, of which 44.3 billion AZN was invested in fixed assets.[5] It is clear that, after the investments in fixed assets, the remaining 30%, or 20 billion AZN, must go to financial savings in the form of foreign currency or precious stones. However, according to bank statistics, business deposits in that period amounted to only 2.5 billion AZN. Thus, a comparative analysis of national accounts and banking statistics suggests that in 2006-2014, it seems quite realistic that the business sector saved the equivalent of at least 15 billion AZN (about 20 billion USD at the exchange rate at that time) as non-bank cash resources in the form of foreign currency.[6] It is unknown, however, what part of business’s cash reserves is in dollars and how much is in manats. There are no official statistics on this. However, an analysis of balance of payments statistics shows that in 2006-2014, 67 billion USD in foreign currency had been accrued thanks to a surplus in the balance of payments in the Azerbaijani economy.[7] While 49 billion USD from this amount was used to increase the reserves of the Oil Fund and the Central Bank,[8] it is clear that the remaining approximately 18 billion USD of foreign currency ended up in the hands of businesses and households.

It would seem that after 2015, enterprises and companies have preferred to put pre-devaluation cash reserves in banks. It is very probable that bank holding companies have played a very big role in this: their business network extended a helping hand to resource-deficient banks after the devaluation. In addition, high deposit interest rates since 2015 may have encouraged businesses to keep their savings in banks.

There are great advantages for the economy when business keeps its savings in the banking sector – it eliminates the resource deficit and makes a significant contribution to the expansion of the formal part of the economy. On the other hand, with a floating exchange rate regime which runs the risk of devaluation from time to time, it does not allow the flexibility to change the currency structure of deposits in the national currency. Cash savings allow businesses to make more flexible financial decisions in such situations. Certainly, if Azerbaijan had mechanisms to insure exchange rate risk and business deposits, there would be no need to view this situation as a risk for business. In any case, the business sector entered the 2015 crisis with a larger amount of cash in its coffers, flexible to alter the currency structure, than ever before.

At the same time, in the 3 years (2017-2019) following the balance of payments deficit of 2015-2016, about 11 billion USD of foreign currency accumulated in the economy thanks to a balance of payments surplus. During this period, if we take into account the 11 billion USD growth of the reserves of the Oil Fund and the Central Bank, that means that in the post-devaluation period, businesses have not had the opportunity to accumulate as much in foreign currency savings as during the pre-devaluation period.[9] In short, the last 5 years have not been a period of growth for business, but rather a period of restoring its potential to the level of 2014 and transitioning to a more sustainable financial position. However, it is clear that the early onset of this serious crisis did not allow business to recover.

Potential risks for business

At the beginning of 2015, business owed a larger amount to banks. The total volume of business loans was 11.3 billion AZN. At the beginning of March 2020, the liability had decreased by 2.5 billion AZN, or 22%, compared to that period. Reducing the debt burden could be seen as a risk-reducing factor, but currently the share of business loan debts in foreign currency is 53.4% (4.7 billion AZN). At the end of 2014, this figure was 28.8%.

In other words, in the event of a devaluation, for every 1% of value that the manat loses, the amount that businesses owe to banks will increase by 47 million AZN. In a 10% devaluation, business will increase its debt burden by 470 million AZN. manat, while in a 20% devaluation, the debt burden will increase by 940 million AZN. Certainly, the share of turnover taken up by exports is high, and this risk is lower for businesses with foreign currency earnings. The level of “dollarization” of loans varies according to the sector of the economy. For example, it is 26.4% in agriculture, 46.5% in trade and services, 54.8% in industry, 58.2% in construction, 77% in transportation and communications, and 98.2% in the real estate sector.

However, there is another factor that reduces this risk – while the level of dollarization of business deposits was 44.6% at the end of 2014 , now it is 65.2%. The currency position of business in terms of assets and liabilities in relation to the banking sector is more favorable. Thus, at present, businesses have 4.7 billion AZN in foreign currency liabilities in relation to banks, while they have 9.5 billion AZN in foreign currency savings in bank deposit accounts. We are talking about a 4.8 billion AZN open foreign exchange position.[10]

Deposits are another risk. Before the devaluation, business’s manat deposits amounted to 2.2 billion AZN, while now they are at 5.1 billion AZN. In other words, a devaluation of any scale could devalue business deposits in the national currency 2.5 times more than 5 years ago. In addition, the potential scale of business deposits at risk in the event of the bankruptcy of any bank is several times higher than in 2015. Note that, unlike household deposits, business deposits are not insured.

Finally, business went into the 2015 devaluation and economic contraction in the context of an economy that had tripled in real terms in the preceding 10 years, without having felt the impact of the economic downturn. Now, however, the effects of the severe turmoil and economic losses of 2015 have not subsided, and the economy is still unable to fully restore its real scale to the level of 2014. So how can business be immune to a severe and long-lasting economic crisis?


[1] Balance of payments data:, monetary indicators data:, fiscal indicators data:

[2] Data on the real scale of the economy are taken from the calculations of the State Statistics Committee on the volume of GDP on the basis of 2005 prices:

[3] Data on household capital investment are taken from national accounts statistical yearbooks (, data on the volume of household deposits are from the Monetary Statistics Department of the Central Bank (

[4] Business deposits statistics:

[5] Data on business’s capital investments and savings are taken from national accounts statistics:

[6] Calculated by the author on the basis of payment and national accounts statistics

[7] Balance of payments statistics:

[8] Oil Fund reserves data (, Central Bank reserves data (

[9] Balance of payments statistics:

[10] Data on business loans and deposits are taken from the Central Bank’s statistical bulletins:


23 April 2020