COVID-19 and Azerbaijan: Is the System Resilient Enough to Withstand the Perfect Storm?

ABSTRACT

COVID-19 has significantly impacted many countries of post-Soviet Eurasia, affecting both political and economic realms. Azerbaijan is not alone in suffering from the pandemic and paying a high price. All the problems the country inherited are being exacerbated, forcing the government to seek different modes of development and the managing of governmental affairs. The following article will examine the possible impact of COVID-19 on the political and economic situation in Azerbaijan, and try to predict the future implications of the government’s actions for the system.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. The IMF asserted that Azerbaijan was recovering from the banking crisis and recession caused by the prolonged decline in oil prices since mid-2014. Monetary conditions remained tight under a de facto peg. The IMF once again confirmed that despite rising government spending, the fiscal position was projected to strengthen in 2019 mainly due to firmer oil prices and improvements in revenue administration.

2. Eighty-seven members of the 125-seat parliament retained their seats. Most of the seats were taken by the ruling New Azerbaijan Party.

3. Despite efforts to diversify the economy, Azerbaijan remains hydrocarbon-dependent. Over the last few years oil output has declined, and this was accompanied by a significant drop in oil prices. During this period consumption and government spending remained elevated. The Azerbaijani Central Bank was forced to devalue its currency in late 2015 and early 2016, in response to falling foreign currency reserves. Overall, the Azerbaijani manat lost nearly half its value against the Euro and the USD, immediately affecting the general price level in the country.

4. The crisis created a momentum for structural reforms that began to be implemented from 2015. Dozens of licenses for business activities were eliminated, while tax and customs authorities were made more transparent. Trying to break the monopolistic nature of the economy, the government also eliminated some duties and taxes for import–export operations. In September 2016, the State Committee on Property Issues launched a new “Privatization Portal” to provide potential investors with information about state privatization efforts and legal frameworks. As a result, in 2018, in the World Bank’s Doing Business Report, Azerbaijan was included in the top ten list of reformist countries in the world. The country also jumped up 32 places in the ranking to become 25th out of 190 countries for ease of doing business. Meanwhile, another report, called the Global Competitiveness Index, compiled annually by the World Economic Forum (WEF) for 140 countries in the world, placed Azerbaijan in 35th place in 2017—its highest ranking for the whole period of its independence. Unfortunately, a year later, in 2018, Azerbaijan dropped to 69th place—still considered a good indicator (WEF 2018). However, on other indexes of international organizations, Azerbaijan’s ranking has been worse. For example, UNIDO’s Competitive Industrial Performance Index (2019) ranks the country 115th out of 150 economies.

5. KPMG, Azerbaijan 2020, “Government and Institution Measures in Response to COVID-19.”

6. On July 12–14, Armenian and Azerbaijani military forces clashed at the junction of the Tovuz region of Azerbaijan and the Tavush region of Armenia. This was one of the largest and deadliest confrontations since the April 2016 escalation. Within a few days, 12 Azerbaijanis, including one civilian and a high-ranking officer, were killed, while the Armenian side reported four dead soldiers. It is difficult to establish with accuracy what caused the hostilities in the southwest of Azerbaijan, two hundred kilometers from Karabakh. Both sides accused each other of escalation, coming up with various explanations and conspiracy theories. In early August, Russian foreign minister Sergei Lavrov stated in an interview that the reason behind the skirmishes was a decision of the Armenian side to restore the old border checkpoint located 15 kilometers from the Azerbaijani export pipelines, which ignited heightened anxiety on the part of Azerbaijan and led to disproportionate response.

7. Interview with anonymous military expert, August 2, 2020.

8. There are various definitions presented by many scholars for explaining the concept of a small state (Fukuyama 2004; Handel 1981; Maass 2009). However, a generalized explanation based on all the previous definitions offered by Thorhallsson and Steinsson (2017) is considered throughout the article. In this regard, based on their explanation, the smallness of the state central to most previous definitions refers to the shortage of resources and capabilities that determine the power and influence of the state, which concerns not only the territorial size but also economic and military size. Thus, a small state can be conceptualized as an entity lacking power that can be used in international affairs (Handel 1981; Olafsson 1998).

9. For more, see the CSIS conference at https://www.csis.org/events/chinas-rise-eurasia.

10. Seventy-five percent of Azerbaijani citizens associate the EU with their personal values, such as: “peace, security and stability”; “honesty and transparency”; “economic prosperity”; “freedom of speech”; “human rights”; “rule of law,” and others.

11. With EU funds, the vocational education schools in several regions of Azerbaijan will purchase equipment to produce personal protection garments for medical personnel.