Most countries couldn’t wait to dismantle travel curbs that were used to contain the coronavirus. Azerbaijan is gaining a boost to government finances by clinging to them months after the global pandemic was declared over.
For all the disruption to the $79 billion economy, the decision by the South Caucasus nation in June to keep its land crossings shut for another three months is closing off the biggest channel through which hard currency leaks out at a time when Azerbaijan’s oil output hovers near the lowest since 2007.
The self-isolation from its neighbours that include Russia and Iran is the last remaining safety measure imposed by Azerbaijan during the pandemic, with requirements such as wearing face masks long abandoned.
“Land borders are the main gates for the outflow of dollars,” Samir Aliyev, an analyst at the Center for Support to Economic Initiatives group in Baku, said by phone.
Azerbaijan, once a Silk Road stop on the western shore of the Caspian, is among a handful of countries with strict travel restrictions still in place two months after the World Health Organization announced that the emergency phase of the pandemic was over.
And more than three years into a border lockdown, Azerbaijan’s balance sheet has never looked better.
The sovereign wealth fund that manages the country’s income from oil and natural gas saw its assets rise to a record high of over $53 billion as of March 31.
Central bank reserves swelled by a quarter from last year as dollar demand by lenders dried up at auctions held twice a week. The government’s gross debt as a percentage of gross domestic product shrank by the most in decades last year, according to the International Monetary Fund.
Azerbaijan has also benefited from higher oil prices and increasingly emerged as an important supplier of natural gas to Europe as states search for alternatives to Russia. A year ago, the European Union reached a deal to double natural gas imports from Azerbaijan.
Travel to and from Azerbaijan — a country of just over 10 million people — is now only possible by air, a costly proposition in a nation where GDP per capita is still below its 2014 peak.
The closed land borders are drastically capping international travel by Azeris, with visits abroad last year still more than 73% below their level in 2019. The amount spent by Azeris abroad almost halved in 2022 from the last full year before the pandemic in 2019.
Coronavirus toll
Azerbaijani President Ilham Aliyev has said his only intention in keeping the borders closed is to protect citizens from the infection, which has killed more than 10,000 people, according to government data.
But by now, not everyone is convinced. Politicians and even lawmakers from the ruling party express doubt the restrictions are a response to the coronavirus. As of July 7, Azerbaijan reported just eight “active” Covid-19 cases, while claiming two to three new infections daily.
Though the government hasn’t said if it has broader aims beyond ensuring public safety, the consequences were widespread as the region was coming to terms with Russia’s February 2022 invasion of Ukraine.
The closed-door policy deterred hundreds of thousands of Azeri immigrants in Russia from returning home after the war broke out. Skyrocketing prices for flights meant many chose to stay in Russia despite a deteriorating economic situation and fears that those with dual citizenship could be mobilized into the Russian army.
Different path
Even though Azerbaijan hasn’t joined sanctions against Russia and cargo transportation via land borders continues as normal, it’s seen little of the windfall experienced by neighboring Georgia and Armenia. Azerbaijan’s frontier with arch enemy Armenia has been shuttered for over three decades because of the conflict over the Nagorno-Karabakh region.
Money transfers from Russia and the arrival of people fleeing the war have contributed to a boom that pushed economic growth above 10% in Georgia and Armenia last year — twice the pace of expansion in Azerbaijan — and turned their currencies into some of the world’s best performers.
The Azeri manat has been pegged to the dollar since 2017 and economic growth is close to zero in the first five months of this year.
The number of Russian nationals who visited Azerbaijan last year was down 52% from 2019, according to official data, compared with only a 1% drop in Turkish visits.
The impact was equally stark on the Iranian border, Azerbaijan’s longest after its frontier with Armenia. Although Iran unilaterally lifted the visa regime with Azerbaijan more than a decade ago, the Baku government — a close ally of Israel — never reciprocated, fearing the intentions of the Islamic Republic.
A decision by the Azeri government to toughen visa regulations with Iran briefly fed optimism that the borders would reopen from July.
“The closed borders are causing a lot of difficulties in people’s daily lives and the government will have to reopen them in the near future,” said Vahid Ahmadov, a prominent member of parliament.
© 2023 Bloomberg
