How one country’s COVID border closures, still in place, are helping its finances

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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 $US79 billion ($118 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.

Shops belonging to carpet dealers in the historic Old Town of Baku, Azerbaijan. Credit: Ronald Wittek

The self-isolation from its neighbours, which 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 Centre for Support to Economic Initiatives group in the capital, 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 Organisation 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 only way to leave: Baku airport in Azerbaijan.Credit: Nik Long

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 $US53 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.

The Heydar Aliyev cultural centre, a futuristic monument designed by architect Zaha Hadid, in Baku, Azerbaijan.Credit: Alamy

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 per cent 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.

The inner city of Baku with the Flame Towers in the background.Credit: iStock

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 that many chose to stay in Russia despite a deteriorating economic situation and fears that those with dual citizenship could be mobilised 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 neighbouring Georgia and Armenia. Azerbaijan’s frontier with arch enemy Armenia has been shuttered for more than three decades because of the conflict over the Nagorno-Karabakh region.

Azerbaijan’s President Ilham Aliyev (right) with his Turkish counterpart, Recep Tayyip Erdogan, in Baku on June 13, 2023.Credit: AP

Money transfers from Russia and the arrival of people fleeing the war have contributed to a boom that pushed economic growth above 10 per cent 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 per cent from 2019, according to official data, compared with only a 1 per cent 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.

Bloomberg

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