A feud between Saudi Arabia and Russia that sent oil prices plunging on March 9 has rewritten economic forecasts across Eurasia, according to Eurasianet.
Azerbaijan, Kazakhstan and Russia, which are CIS’s largest oil producers, are reportedly preparing for budget shortfalls, pressure on their currencies and possibly recession. Adding to uncertainty is the panic over the quickening spread of the novel coronavirus causing COVID-19, which has cut consumer demand around the world.
Only last year Azerbaijan increased pensions and other social services to ease the pain of inflation and address rising discontent. At the time, President Ilham Aliyev said the spending would be covered by reforms to the tax system. Some of those funds would come from higher customs revenues, consumer spending (via a value-added tax), and an expected uptick in tourist arrivals. Yet these returns are now expected to fall because of COVID-19, Gubad Ibadoglu, a senior analyst at the Economic Research Center in Baku and an assistant professor of economics at Rutgers University, was cited as saying by Eurasianet. .
According to IMF data, Azerbaijan needs an oil price of around $53 per barrel to balance its budget. Benchmark Brent crude was trading around $36 on March 9, a market holiday in much of the former Soviet Union.
“It is impossible to cut social payments, which are almost 65 percent of the state budget,” Ibadoglu told Eurasianet in an interview. “The only way is to cut the investment budget and the defense budget.”
After the last oil crash, in 2014, Azerbaijan reportedly devalued the manat twice.
In Kazakhstan, where the budget is based on an oil price around $57.80, President Jomart Kassym-Tokayev on March 9 promised to fulfill all government social obligations, but said Nur-Sultan would be forced to cut somewhere.
The oil crash couldn’t come at a worse time. In recent days, citing force majeure due to the coronavirus, China has signaled it may slow purchases of gas from Kazakhstan, Turkmenistan and Uzbekistan, according to Eurasianet.
Turkmenistan is China’s largest gas supplier and China buys almost 80 percent of Turkmen gas.
