On December 21st, Azerbaijan’ central bank relinquished control of its exchange rate sending the manat down to its weakest on record. The move followed the country’s decision to abandon the currency peg against the dollar as oil prices slumped to the lowest in 11 years.
The news of the sudden currency devaluation hardly made headlines but the country now joins a host of developing nations from Vietnam to Nigeria that have weakened their currencies in 2015 as a result of China moving to devalue the yuan. This caused commodities prices to tank and added more ammunition for the Federal Reserve to raise interest rates.
Azerbaijan is the third-biggest oil producer in the former Soviet Union and the central bank explained its decision to free float the currency as an effort to support the country’s foreign-exchange reserves and improve competitiveness amid “intensifying external economic shocks.” The manat, which has fallen only once in the past 12 years, plummeted 32 percent to 1.5375 against the dollar.
The currency has lost almost half its value against the dollar this year, the worst performance of currencies globally. The Azeri central bank’s reserves were at $6.2 billion at the end of November, down from more than $15 billion a year earlier.
90 percent of Azerbaijan’s exports are hydrocarbons and with the Russian ruble’s collapse and a 70 percent plunge in crude prices since June last year, the country’s economy is now highly volatile. Moody’s rating service predicted the nation’s budget deficit would increase to 9.2 percent of gross domestic product this year and said its debt-to-GDP ratio will “spike” in 2015 from about 11 percent in 2014.