IMF announces ways to reduce dollarization level of borrowing in Azerbaijan

The inability of the countries to borrow in their own currency is present in the Caucasus and Central Asia, and the share of public debt in the foreign currency remains extremely high, said the "Reducing Dollarization in the Caucasus and Central Asia" report of IMF, Report informs.

According to the document, for some countries, such as the Kyrgyz Republic, Azerbaijan, Georgia and Armenia, it remains above 70 per cent. Gradual de-dollarization of public debt is expected to go in tandem with the decline in deposit dollarization.

“As countries develop their local currency bond markets and these markets gain depth over time, one would expect a more visible decline in public debt dollarization in the coming years.

Despite their increasing share over time in public borrowing, domestic currency-denominated bond issuances currently account only for a small fraction of public debt. Countries in the region have intensified their efforts to develop domestic capital markets. Georgia, Kazakhstan, Armenia, and Azerbaijan started issuing long-term bonds about a decade ago. Currently, almost all countries in the region issue long-term securities. Uzbekistan is the latest that has issued long-term local currency bonds.

The bond markets are still nascent and lack a sufficient level of development. Hence the markets do not seem to be at a stage of development that can materially impact the level of dollarization.

Most CCA countries lack availability of floating rate or inflation-indexed bonds that could allow the investor to partially hedge against the foreign currency volatility without actually holding the foreign currency,” said the IMF.