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The Week in the Neighbourhood

Madona Gasanova
25.06.23 18:11
Turkey has seen a major shift in its approach towards managing sky-high inflation. For the first time in nearly 3 years, the country's central bank has hiked its interest rates. The lending rate has been hiked from 8.5% to 15%. That's a massive 6. EU's 11th package of sanctions against Russia includes Armenia-registered companies. Azerbaijan almost doubled gas exports to Italy. In April 2023, Azerbaijan exported 814 million 775 thousand cubic meters of natural gas to Italy compared to 473 million cubic meters in March.

Here is a rundown of the latest economic, business and political developments around Georgia's neighboring Turkey, Armenia and Azerbaijan during the last week.


Turkey has hiked its main interest rate from 8.5% to 15%, reversing one of President Recep Tayyip Erdogan's unorthodox economic policies. The 6.5-point rise was far lower than economists were expecting, but it marked a major shift in policy by his new economic team brought in to tackle rampant inflation. Turkey's leader has until now insisted on keeping interest rates down. Inflation is almost 40% and Turks are in the grip of a cost-of-living crisis. The head of Turkey's central bank, Hafize Gaye Erkan, 44, was only recruited from the US this month in the wake of Mr. Erdogan's re-election as president. Her decision marked the first rise in interest rates since December 2020, after a turbulent period in which three central bank governors were fired in less than two years, as they sought to stick to orthodox economics. Although the increase almost doubles Turkey's policy rate to 15%, it is far less than many economists had forecast. US-based investment bank Morgan Stanley had suggested it would go up to 20%, while Goldman Sachs said it could hit 40%.

The Turkish lira sank to new record lows after Turkey’s central bank raised the country’s benchmark interest rate by 650 basis points in a dramatic monetary policy reversal. The central bank lifted its key interest rate by almost double, from 8.5% to 15% Thursday, marking the country’s first hike since March 2021. However, that was still below Reuters’ expectations of a hike to 21%. The lira — which has been extending its plunge since President Recep Tayyip Erdogan’s reelection — was last trading at 24.97 against the greenback. ″[The lira] is tanking big time and probably will continue to do so as they attempt to play catch up,” said Steve Hanke, professor of applied economics at Johns Hopkins University, adding that the central bank decision is “a little bit behind the curve.”

Turkey's external assets dropped to $297.3 billion at the end of April, falling 3.6% from end-2022. Liabilities against non-residents decreased 7.9% to $561.9 billion, Turkish Central Bank data showed. The net international investment position (NIIP), defined as the difference between Turkey's external assets and liabilities, reached minus $264.5 billion at the end of April versus minus $301.5 billion at the end of last year. Showing a snapshot in time, the NIIP — which can be either positive or negative — is the value of overseas assets owned by a nation, minus the value of domestic assets owned by foreigners, including overseas assets and liabilities held by a nation's government, the private sector, and citizens.

Turkey announced it would raise the monthly minimum wage by another 34% beginning on July 1, marking a second increase this year in an effort to safeguard households from stubborn inflation. The monthly net minimum salary will increase to TL 11,402 (nearly $483), Labor and Social Security Minister Vedat Işıkhan said in a televised address from the capital Ankara. "The minimum wage assessment commission completed its work with an agreement between the workers and employers," Işıkhan said. He added tax exemptions for employers would continue. The increase will help boost purchasing power among workers, over a third of whom earn the minimum wage. President Recep Tayyip Erdoğan, who won reelection late last month to extend his rule into a third decade, had pledged his government would not allow workers "get crushed under" high inflation. "On behalf of my nation, I would like to thank all stakeholders, especially the employee and employer sides, who contributed to the determination of the minimum wage within the consensus culture," Erdoğan wrote on Twitter following the announcement. Inflation touched a 24-year peak of 85.5% in October, prompting Ankara to raise the minimum wage by 100% over the course of last year. It lastly hiked the wage by 54.5% in January to TL 8,500.

Turkey’s competition watchdog announced it had launched a new investigation into Alphabet Inc., Google LLC and the Turkish Google advertising unit on whether they had abused their dominant position in the market. Preliminary findings indicate that the company had violated competition law by favoring its own online video advertising and ad technology services, a statement by the Competition Authority (RK) said. The investigation covers the integrity composed of Alphabet, Google LLC, Google International LLC, Google Ireland Limited, and the Turkish Google advertising unit, the authority said. The Competition Authority earlier this year initiated another investigation into Google's alleged abuse of its dominant position in the general search services market. The probes follow a series of fines in recent years after investigations found the tech giant had abused its market dominance and breached the competition law. In April 2021, Google was handed a $36.6 million fine for abusing its dominant position in the search engine services area. The RK said the tech giant had provided advantages to its own accommodation price comparison and its local search services over its competitors. That came just months after the RK November 2020 slapped Google with some $25.6 million fine for breaching the country's competition law.

Turkey attracted 4.5 million foreign visitors in May, marking a 16.2% year-on-year rise, the Culture and Tourism Ministry said. The famed Turkish resort city of Antalya was the top draw for foreign visitors with a 33.6% share, welcoming 1.51 million foreigners last month. Istanbul, Turkey's largest city by population and a top tourist spot, came in a close second, hosting 1.5 million foreign visitors in May. The Aegean province of Mugla and the northwestern province of Edirne, which borders both Bulgaria and Greece, followed them with 380,899 and 349,123 foreigners, respectively. Russia topped the list of visitors by country, with 640,844, followed by Germany with 617,617, and Britain with 452,724.

Turkey's trade deficit widened 17.6% year-on-year to $12.5 billion in May. Turkish exports grew 14.4% from a year ago to $21.7 billion in May, while imports surged 15.5% to $34.2 billion, the Turkish Statistical Institute (TurkStat) said. Excluding energy products and non-monetary gold, Turkey saw a foreign trade deficit of $5.9 billion last month. The exports-to-imports coverage ratio decreased to 63.4% in May this year compared to 64% in May 2022. Turkey's main trading partner Germany received $1.8 billion worth of Turkish exports in May. Other main overseas shipments were to the U.S. mounting $1.3 billion, to the U.K. with $1.1 billion, to Iraq with $1.01 billion, and to Italy with $1 billion. Russia was the main source of Turkey's inbound shipments in May with $4.6 billion, followed by China ($4.3 billion), Germany ($2.7 billion), the United Arab Emirates ($1.8 billion), and the U.S. ($1.6 billion). In January-May, Turkey's overseas shipments posted a slight hike of 0.1% from the prior year to $102.5 billion, while its imports jumped 8.8% to $158.5 billion. Turkey's foreign trade deficit widened 29.3% annually to $43.3 billion in the first five months of this year.


Armenia-registered companies are included in the EU's 11th package of sanctions against Russia. The European Union governments agreed earlier this week to the 11th package of sanctions against Russia over its invasion of Ukraine designed to stop other countries and companies from circumventing previously imposed sanctions. The sanctions aim to close loopholes so that goods and technology vital to Moscow’s war effort don't reach Russia via nations that trade with the European Union. The new package adds 87 new entities to the list of those that directly support Russia's military-industrial complex in its aggressive war against Ukraine. It allows the implementation of measures restricting the export of sensitive dual-use goods and technology to third countries, which could then transfer them to Russia. The new rules allow the EU to exert much more pressure to end the practice than before. In addition to the Russian and Iranian entities already listed, the new package now includes entities registered in China, Uzbekistan, the United Arab Emirates, Syria and Armenia.

Moody's expects Armenia's economy to grow by 7% in 2023 and 5-6% in 2024. Moody's Investors Service has affirmed the Government of Armenia's Ba3 local and foreign currency long-term issuer ratings, as well as the foreign currency senior unsecured ratings. Concurrently, Moody's has changed the outlook to stable from negative. Moody's projects also real GDP growth to moderate to around 7% in 2023 and 5-6% in 2024, on the expectation that financial and labor flows will ease from the heady pace recorded in 2022. A slowdown in global growth and tighter financial conditions will also moderate activity in Armenia. Meanwhile, Moody's does not expect a sharp reversal of financial and labor flows back to Russia over at least the next two to three years. Instead, the inflow of people, income and capital is likely to boost levels of economic activity in a structural way.

Russia has opened 15 additional traffic lanes for vehicles on its side of the Upper Lars checkpoint on its border with Georgia. There are now 39 lanes at the checkpoint, 12 of which are for trucks (6 entries and 6 exits), 24 - for passenger cars (12 entries and 12 exits), 2 - for passenger buses and 1 - for oversized cargo. The capacity of the checkpoint has increased by 30%, with an average of 1,300 trucks being processed daily, which has led to the elimination of queues on both sides of the checkpoint, the State Revenue Committee said. Russia and Armenia have no common border, and the only overland road connecting the countries runs through Georgia.

Armenia will spend the €92.3 million loan from the International Bank for Reconstruction and Development (IBRD) to finance the budget deficit. According to Armenian Deputy Finance Minister Eduard Hakobyan, the IBRD loan (around $100 million) is part of the government plan to raise $350 million 'to meet its financial needs.' The agreement signed between Armenia and the International Bank for Reconstruction and Development (IBRD) was approved by the government in April. IBRD will provide €92.3 million loan for the Armenia Green, Resilient and Inclusive Development Policy Operation project.

Armenia is ranked 85th in the latest ranking of the richest countries of the world compiled by U.S. Global Finance magazine. Armenia is ahead of Azerbaijan, which is ranked 92nd place and is one position behind Iran. Turkey is ranked 53rd, Russia is 60th and Georgia is 79th. Of the post-Soviet countries, the ranking includes also Kazakhstan (61st), Belarus (76th), Turkmenistan (82nd), Ukraine (111th), Uzbekistan (127th), Kyrgyzstan (145th) and Tajikistan (149th). The top three are Ireland, Luxembourg and Singapore. South Sudan (193th), Burundi (192nd) and CAR (191st) are the outsiders.

Online cab service providers in Armenia will be obliged to pay state duty from each order. Online taxi service providers are very common in Armenia, but they are not regulated and controlled in any way, Armenian Minister of Territorial Administration and Infrastructure Gnel Sanosyan said. He said the ministry proposes to regulate this sector that consists of both companies and individual entrepreneurs, which accept or redistribute cab orders through electronic platforms. In his words, this type of business will be designated as an activity requiring notification. He said a state fee of 1 million drams will be established. Introducing the package of relating legislative changes he said a state duty will also have to be paid from each order. In case of non-cash payment from September 1, 2024, the duty will be 1.5%, 2.5% in 2025 and 4% in 2026. If paid in cash, from September 1, 2024 the duty will be 2%, 3.5% in 2025 and 5% in 2026.

Armenian and Azerbaijani foreign ministers will have a fresh round of talks in Washington, USA, this week, Prime Minister Nikol Pashinyan announced at a government session. "We must make every effort to establish peace and conclude an agreement to normalize relations with Azerbaijan. Next week a meeting of Armenian and Azerbaijani foreign ministers will be held in Washington, and our delegation is leaving for the U.S. with this position," Pashinyan said. Armenian and Azerbaijani Foreign Ministers Ararat Mirzoyan and Jeyhun Bayramov had been scheduled to have another round of talks on June 12 in Washington, but the meeting was postponed at the request of Azerbaijan. Mirzoyan and Bayramov had already four-day talks outside Washington D.C. in early May. After the talks U.S. Secretary of State Antony Blinken said Azerbaijan and Armenia made "tangible progress" towards reaching a consensus.

Russia urged Azerbaijan to fully unblock the Lachin corridor on Friday, the only road that links Armenia with the Nagorno-Karabakh enclave where more than 100,000 ethnic Armenians live and rely on it for vital supplies. Nagorno-Karabakh is internationally recognized as part of Azerbaijan, but its inhabitants are predominantly ethnic Armenians. The enclave broke away from Baku's control in a war in the early 1990s. After heavy fighting and a Russian-brokered cease-fire, Azerbaijan in 2020 took over areas that had been controlled by ethnic Armenians in and around the mountain enclave, and Baku is now pushing for ethnic Armenian government and military structures to be dissolved and for the population to accept Azerbaijani passports. Russian Foreign Ministry spokeswoman Maria Zakharova said in a statement on Friday that the entrance to the corridor had been blocked by Azerbaijan in a move she said increased tensions at a time when Baku and Armenia are trying to agree to a peace treaty. There have been reports that the road was totally closed after June 15, when shots were fired in an incident in which the South Caucasus countries said in separate statements that one Azerbaijani and one Armenian border guard had been wounded.


The Board of the Central Bank of Azerbaijan (CBA) has decided to keep the discount rate unchanged at 9%. The lower threshold of the interest corridor is kept at the level of 7.5%, and the upper one is at the level of 10%. The next decision of the CBA Board on the parameters of the interest corridor will be made on July 26.

In April 2023, Azerbaijan exported 814 million 775 thousand cubic meters of natural gas to Italy compared to 473 million cubic meters in March. Thus, this figure increased by 1.7 times compared to the previous month. At the same time, the value of exports was 392,949,687 euros in April compared to 486,051,445 euros in March, which means a decrease of more than 19 percent. It should be noted that according to the Azerbaijani Energy Ministry, from January to April 2023, the country exported a total of 3.9 billion cubic meters of natural gas to Europe, which is 10.5 percent more year on year.

In five months of the current year, the number of visitors to Azerbaijan has increased by 1.5 times. According to the information of the Azerbaijan State Border Service, 713k and stateless persons from 176 countries of the world arrived in Azerbaijan in January-May of 2023, or 1.5 times more than in the corresponding period of the previous year. Azerbaijan Statistics Committee told that 32.4 percent of the arrivals came from the Russian Federation, 20.0 percent from Turkey, 8.1 percent from Iran, 5.2 percent from Georgia, 4.9 percent from India, 2.3 percent from Pakistan, 2.2 percent from Kazakhstan, 2.1 percent from United Arab Emirates, 2.0 percent from Saudi Arabia, 1.9 percent from Uzbekistan, 1.6 percent from Belarus, 1.5 percent from Ukraine, 1.3 percent from Great Britain, 1.3 percent from Turkmenistan, 1 2 percent from Kuwait, 12.0 percent were citizens of other countries. 74.1 percent of the arrivals were men, 25.9 percent were women.

For first time in last 5 years, Azerbaijan banks' purchases of cash dollars exceeded their sales. Demand was less than supply in 98 percent of currency auctions held in the Central Bank in five months of 2023. For the first time since 2018, purchases of cash US dollars by banks exceeded sales in the last period of the current year. During this period, the volume of the organized interbank foreign exchange market increased by 45 percent compared to the same period last year. The nominal effective exchange rate of the Manat (AZN) strengthened by 8.4 percent in 2022, and by 5.1 percent in 5 months of 2023. In recent months, seasonal factors also have had a reducing effect on inflation.

The State Oil Fund of Azerbaijan (SOFAZ) earned a total of $7.8 billion in revenue from the date of its establishment until the end of 2022. According to the document, it means 2.3% profitability in annual terms. Last year, the Fund faced a 5.2%-loss. In addition, the report states that by the end of 2022, SOFAZ investments covered 66 countries and 17 currencies.