28 October 2020

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CURRENCY

IMPROVING THE SOCIAL STATE

The size of the minimum wage in Azerbaijan will exceed the subsistence minimum

Author:

01.07.2019

A new package of social decisions in Azerbaijan, recently adopted by President Ilham Aliyev, will allow to solve one of the most important tasks of social protection of the country's citizens - the prevalence of the minimum wage and pension over the size of the established subsistence minimum. The authorities went to this goal a long time ago, but the negative impact on the economy of the global financial and energy crises forced to postpone the necessary measures. The onset of stability has allowed in a short time to make a whole list of decisions to improve the well-being of people and increase their social security.

 

Salaries

On June 18, President Ilham Aliyev signed a set of orders to raise public sector salaries from September 1, 2019. In particular, the salaries of servicemen and law enforcement officers will increase by 50%, the salary of teachers who have undergone a diagnostic assessment by 20%, the minimum wage by 40% and the salary of a number of civil servants by 40%. According to published data, the order to raise salaries, including the minimum living allowance, covers 1.35 million people, of which 1 million work in the public sector and 350 thousand in the private sector.

By the way, this is not a complete list of government decisions to increase the salaries. According to rough estimates, they cover more than 2 million people, which is 80% of employees.

But perhaps the most revolutionary, as Minister of Labour and Social Protection of the Population Sahil Babayev said, was the increase of the minimum wage to ₼250. Given that the size of the subsistence minimum in Azerbaijan was ₼180, the recent increase exceeded the previous indicator by no less than 40%. Note that this is the second in the current year increase in the minimum wage. Earlier on March 1, it was increased from ₼130 to ₼180.

“Thus, Azerbaijan is actively moving towards becoming a social state,” the minister said, adding that raising the minimum wage from October will allow Azerbaijan to rise to the second level among the CIS countries on the purchasing power index (PPP).

As for the cost of this step, an increase in the minimum wage will require ₼780 million annually from the state budget, including ₼245 million in September-December 2019. “In Azerbaijan, reforms increase budget funds. As a result, very serious social packages have been adopted for citizens. Soon people will see the benefits of these packages. For the government of Azerbaijan, there is no more important task than improving the welfare of citizens,” Deputy Prime Minister Ali Ahmedov said.

By the way, he also said that salary increases are also planned for employees of the private sector. In principle, this is a logical step aimed at maintaining competitiveness in the salary market.

Thus, according to Deputy Minister of Labour Anar Aliyev, the average salary of civil servants in Azerbaijan will increase in September 1, 2019 from ₼833 to ₼1,200. Therefore, in the private sector, salaries must meet this level. Otherwise, employers will face an outflow of qualified employees to government agencies. Moreover, the level of social protection of workers in state structures today is much higher than in the private sector.

 

Pension benefits

It is extremely important that, in parallel with the steps to increase salaries, the government issued orders concerning the most socially vulnerable groups of the population, pensioners. Thus, their minimum wage will increase since October 1 to ₼200. Since March 1, 2019, the minimum pension has already been raised from ₼116 to ₼160. New legislative initiative of President Ilham Aliyev will bring the excess of the minimum pension over the minimum subsistence level of pensioners (₼149) to 34.2%.

“More than ₼70 million will be allocated for these purposes by the end of this year, up to ₼220 million in 2020,” said Deputy A. Aliyev.

The reform of the pension system of Azerbaijan will cover 750 thousand people, which means about 60% of all pensioners in the country. However, according to Minister S. Babayev, the other 40% of pensioners were not ignored, though their pensions will increase from 2020. “The forecast for an increase in the average monthly wage is 15%. In accordance with this, from January 1, 2020, all pensions will additionally increase by 15% and the minimum pension up to ₼230,” Babayev said.

At the same time, another important change in this area is expected next year - the pension capital, noted in the insurance part of the personal account of the insured, will be indexed from 2020 according to a new parameter - once a year according to the annual inflation rate. This is provided for by amendments to the Law on Pensions, discussed at the plenary session of the Milli Majlis (parliament). In principle, it is like a return to the indexing method that existed several years ago. But then it was decided that, along with the insurance part of the labour pension, the pension capital would be indexed once a year, according to the growth rate of the average monthly nominal wage.

It is also quite possible that the sphere of pensions in the coming years will undergo a number of changes, since Azerbaijan is preparing a development concept for this sector until 2050. “In developing a new document, an innovative approach will be used with the use of an automatic electronic system that will be improved based on the experience of European countries,” Minister S. Babayev said, adding that the concept is aimed at improving the pension system in Azerbaijan to bring it closer to international standards.

 

Social protection

As we noted above, key reforms in social sphere were re-started in 2019. Apparently, this year will have the main share of transformations. By the way, earlier this year the government increased scholarships of about 100 thousand students, age benefits for disabled people, for children under 18 with disabilities, payments to guardians of orphan children, social benefits for children in urgent active military service, women with more than 5 children, payments for the birth of a child, funeral allowances, etc.

A large package of social decisions affected the families of martyrs, which included a transfer of a lump sum ₼11 thousand to their heirs (almost 12 thousand 200 families), and an increase in benefits for them from ₼242 to ₼300, and providing them with apartments.

“Social package of services in the country currently cover 3 million people. Just under the automated pension system, the government assigned pensions in electronic format to ten thousand pensioners,” S. Babayev said. At the same time, there are about 35,000 people in socially vulnerable groups of the population, including refugees, women, people with disabilities. Measures to provide social support for this category of citizens will continue.

If we add to these reforms, the opening of new DOST centres targeting to provide a significant part of state social services (employment, types of social security, targeted state social assistance, pensions, social insurance and other services) through operational, simplified procedures, it becomes clear that the scope of coverage of new initiatives really broke all records.

According to Vusal Gasimli, director of the Centre for Analysis of Economic Reforms and Communications of Azerbaijan, the total financial value of orders signed by the Azerbaijani President since the beginning of the year to improve the social status of citizens, civil servants, state employees, and military personnel exceeds 3 billion manat.

On the other hand, some experts expect that situation can change negatively if we add inflation to the equation. The rise in prices, in their opinion, always accompanies such initiatives. Unfortunately, the rise in prices is far from always caused by objective economic factors - for the most part it is the unauthorized decision of wholesale and retail shopping facilities to make money on the next increase in the material wealth of citizens.

However, Minister S. Babayev assures that an analysis of the dynamics of expenditures related to the increase in the minimum wage and salaries of people working in various fields shows that no serious impact on inflation is expected. The fact is that expenses are covered by the growth of revenues to the state budget, and in comparison with GDP and retail trade turnover, their share is quite small. It should be said that due to the increase in the minimum pension and wages, it became necessary to increase the budget of the State Social Security Fund under the Ministry of Labour by ₼200 million, and the income and expenses of the fund from residual funds resulting from the implementation of the budget of the unemployment insurance fund – by ₼15 million.

The Minister of Finance Samir Sharifov explained this point in more detail, according to which the implementation of social measures is divided into stages, and the first stage began in March 2019. “We do not observe any significant pressure in terms of inflation. But we are monitoring it. The second increase will occur in the autumn months. It takes time to implement the decision taken at the moment. We do not see immediate inflationary pressure. Today, inflation is quite low. As is known, according to the State Statistics Committee, the inflation rate is below 2.5%. I think that this is a positive factor, and we see some of its signs now,” Mr. Sharifov noted.



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