WB assesses impact of Russia-Ukraine war on Azerbaijan’s economy

The economy is expected to be adversely impacted by the war between Russia and Ukraine through potential loss of market for Azerbaijan’s non-energy exports, access to vital imports, inflation, and the loss of assets, Report informs referring to the March issue of the WB Azerbaijan Monthly Economic Update – March 2022.

“While the country’s non-energy exports are relatively small, Russia is the main destination for these exports, accounting for 32 percent of country’s total non-oil/gas sector exports in 2021, or 4 percent of total exports (2.5 percent of GDP). The vast majority of these exports are food products and this trade has picked up significantly in the past five years. While there may be opportunities to expand market share on the Russian market if it closes to other exporters, Russian demand may be driven down by the loss of value of the ruble.

On the imports side, the country is reliant on wheat imports from Russia and Ukraine which poses potential risks to food security, especially among the poor. In addition, surging global food prices will add to already elevated domestic food inflation. The war and sanctions will also likely erode the value of Azerbaijani investments in Russia and Ukraine, although these do not represent a significant share of GDP,” the WB noted.

Global energy prices skyrocketed in February supporting fiscal and external balances, according to the report. “Brent oil futures reached $130 per barrel in March as energy markets were disrupted by the war. Azerbaijan is abiding by the production quotas agreed with OPEC+ and a potential increase in oil production will depend on OPEC+ decisions and existing production capacity which has been declining in the past decade. On the upside, Azerbaijan’s state budget is based on an oil price of $50 per barrel and, hence, rising energy prices will provide a windfall to fiscal and external balances.”