Vusal Qasimli, Executive Director of the Center for Analysis and Communication of Economic Reforms (CAERC), answered questions regarding the economic impact of the virus officially known as COVID-19, which has been spreading from China in recent months.

How do you assess the global economic impact of coronavirus?
Even if the virus itself were absent, its psychological and economic effects have already reached pandemic levels worldwide. According to the Organisation for Economic Co-operation and Development (OECD), global economic growth was forecasted at 2.9% this year, but due to the virus, this may decrease by up to half, reaching 1.5%.

China, the origin of the virus, has been most affected. Last year, its GDP grew by 6.1%, but in the first quarter of 2020, growth is expected to fall below 5%. According to Morgan Stanley, depending on how effectively the virus is contained, China’s GDP growth for 2020 may range between 5.6% and 5.9%.

Economic growth is also slowing in Japan, Korea, and Australia. The effects are spreading in a domino pattern from the Asia-Pacific region to Europe and North America.

For comparison, during the SARS outbreak in 2003, China accounted for only 4.3% of the global economy; today, it accounts for 16%. SARS infected 8,000 people, whereas COVID-19 has already infected over 80,000. Therefore, the economic impact of coronavirus is significantly larger than that of SARS.

Last week, financial markets experienced sharp declines. Globally, more than $3 trillion in securities lost value, with emerging markets’ stocks and bonds dropping by $1.1 trillion.

China’s reduced oil demand caused crude prices to fall: Brent crude has decreased by 26% to $51.37 per barrel, and Light crude to $46.15 per barrel.

The International Air Transport Association (IATA) projects a $29.3 billion loss due to decreased air travel. Additionally, Chinese tourists not visiting Europe in January caused roughly €1 billion in losses to the European tourism industry.

What are the macroeconomic implications of falling oil prices for Azerbaijan?
A $1 change per barrel affects the current account by about $250 million annually. Azerbaijan is relatively insulated from oil price drops below $30 per barrel, as seen in 2015. Current institutional and psychological measures by the government, businesses, and citizens allow the country to maintain current account stability even if prices fall to $40–45 per barrel.

The state budget assumes $55 per barrel. Budget rules cap expenditures based on disposable oil revenues, non-oil revenues, and other inflows. If oil prices exceed forecasts, strategic foreign currency reserves increase; if below, reserves cover the gap.

In January 2020, state budget revenues were 1.8 billion AZN and expenditures 1.4 billion AZN, resulting in a surplus of over 400 million AZN. Average oil prices in January–February were above $60 per barrel, increasing Central Bank and SOFAZ reserves. The country’s strategic foreign currency reserves stand at $52 billion, over 8% of GDP, ensuring fiscal stability.

How will the State Oil Fund respond to global shocks?
SOFAZ’s assets increased 12.5% to $43.3 billion in 2019. Its portfolio comprises 56.6% USD, 31.4% EUR, 5.1% GBP, and less than 1% CNY. USD is expected to gradually strengthen in 2020, supporting SOFAZ’s conservative and resilient portfolio. Only 14.1% of the portfolio is in equities, insulating it from recent global market shocks.

What is the outlook for external debt?
Azerbaijan’s public external debt is 17% of GDP, among the lowest globally. State enterprises’ debts, such as SOCAR and the International Bank of Azerbaijan, remain manageable. Government policies and regulations support prudent corporate governance. High savings rates (33% of GDP in 2018) further strengthen fiscal stability.

How prepared is the financial-banking sector?
Institutional reforms, resolution of toxic assets, full deposit insurance, support for cashless transactions, and overall macroeconomic stability have revitalized the sector. Broad money supply is 28.5 billion AZN, 63% in local currency. Commercial banks’ net foreign assets are 5.2 billion AZN. Dollarization of deposits is 55%, reducing pressure compared to 2015. Regulatory reforms have enhanced competitiveness.

How will coronavirus affect Azerbaijan’s trade?
In January 2020, exports totaled $2.1 billion (+66.5% YoY) and imports $720 million (−29.7% YoY), creating a $1.4 billion trade surplus. China and Iran were minor contributors in exports but notable in imports. Trade with Turkey increased 33% in 2019, reaching $4.5 billion, and is targeted to reach $15 billion by 2023. A Preferential Trade Agreement with Turkey will facilitate substitution of some imports and expand non-oil exports.

Impact on non-oil exports?
Non-oil exports in January 2020 reached $141 million (+2.5% YoY). Exports to China were $5.9 million (4.2% of total non-oil exports), indicating resilience despite issues in those markets. Alternative markets, particularly Turkey, provide new opportunities.

Impact on tourism and services?
Global tourism declines affect service exports. In 2019, Azerbaijan received 3.2 million foreign visitors (+11.3% YoY). Visits from Iran and China are minimal relative to total visitors. Reduced outbound travel due to the virus may improve the current account.

Overall outlook for Azerbaijan amid global shocks:
Azerbaijan is integrated into the global economy. Sectors most exposed include trade, transport, logistics, and tourism. The government has established an operational headquarters to mitigate coronavirus impacts. Stable macroeconomic fundamentals, strategic reserves, and institutional reforms provide resilience, while alternative markets and service diversification create opportunities.