THERE ARE DIFFERENT TYPES OF DEBT...

Today, the whole world is living in debt. Even future unborn generations are potential debtors. This is due to the fact that for the development of national economies, most countries are not able to rely on their own financial resources to cover their budget deficit and conduct socioeconomic transformation.

You cannot claim that the emergence of public debt is linked only to the deterioration of the economic situation in the country. Moreover, making efficient use of borrowing, it is possible not only to improve the economic situation and solve acute social problems, but also simply to use them in accordance with the principles of financial management with great benefit to the country.

Element of sound policy 

If the classical school of political economy considered the national debt as a temporary phenomenon, which must definitely be settled, since the time of J. Cairns it has stopped being perceived as evil and has been viewed as a sound economic policy.

It is clear that the state can and should borrow on affordable and reasonable terms. Normal debt is a real testament to lenders' confidence in the state. Practically, in an effective developing and stable economy, foreign public debt is not the key issue of development and social life.

In this sense, there is the graphic example of Azerbaijan, which has accumulated significant foreign exchange reserves as a result of sound economic policy in recent years. For example, the strategic currency reserves of the country in the middle of 2013 totalled 47.7bn dollars. This amount is enough for the three-year importation of goods and services. Simultaneously, the strategic currency reserves are eight times higher than the country's foreign debt. Despite the successful development of the national economy and the presence of significant gold reserves, Azerbaijan, like other countries of the world, carries out external public borrowing. At the beginning of 2013, the value of the country's foreign debt was 5.7bn dollars (diagram 1). The foreign debt is in the following currencies: US dollars, euro, SDR (Special Drawing Rights), Japanese yen, and others. The interest depends on the maturity of such loans: from 5 to 10 years - 6.8 %, from 10 to 20 years - 46.3 %, and more than 20 years - 46.9 %.

By and large, external borrowing is used for infrastructure projects (roads, water supply), electricity, land reclamation, irrigation, etc.

In 2012, payments for servicing the foreign public debt amounted to 427.7m dollars.

In 2012, Azerbaijan signed 8 loan agreements with international financial institutions for a total of 1,405.72m dollars under state guarantees:

- The World Bank (1 credit) - 30m dollars;

- The Asian Development Bank (2 credits ) - 500m dollars;

- The Islamic Development Bank (1 credit) - 200.05m dollars;

- The German Development Bank, KfW (3 credits) - 135.46m dollars;

- The consortium of Czech banks (1 credit) - 540.21m dollars

According to the standard 

To what extent can the value of the foreign debt adversely affect the economic security of the state? What are the absolute and relative indicators for measuring it and what is the foreign experience in this area?

According to the Maastricht standard accepted in the European Union, it is recommended that the debt load must not exceed 60% of GDP. Regarding exports, the figure is 200%. As for the share of foreign debt service in the country's exports, there is no clear criterion, but it is believed that it should not exceed 15-20%.

In Azerbaijan in 2012, the ratio of the total foreign debt to GDP was 8.3 %, which is 7 times less than the threshold. The ratio of the total foreign debt to the export of goods and services is 23.8%: more than 8 times less than the threshold value, the ratio of payments for serving the debt to the export of goods and services is 1.8% : 11 times less than the threshold value. The country's per capita foreign debt is 610.1 dollars.

The analysis of the dynamics of the share of foreign debt and export in Azerbaijan's GDP (diagram 2) indicates the sufficient stability of these indicators. The share of foreign debt in GDP reached its highest value in 2001-2003, when the country used loans for the reconstruction of infrastructure while oil revenues did not arrive in Azerbaijan in significant amounts. Later this indicator started to decline and fluctuates from 7 to 9%. The share of foreign debt in exports was the highest in that period as was the abovementioned figure, and then, after the growth of hydrocarbon exports it decreased to 20-23%. 

Thus, we see that the country's foreign debt indicators are satisfactory in comparison with the Maastricht standard. This fact is a testament to the prudent foreign borrowing policy of the state.

It should be noted that today the practice of foreign borrowing is treated with understanding by the international community, and almost any developed country has a debt to foreign creditors. In order to lend to the economy, implement reforms and modernize production, there are a number of international organizations in the world: the International Monetary Fund, World Bank, etc. However, it should be noted that the essence of the problem is precisely the need to balance the public foreign debt with regard to GDP. There are certain boundaries that can be called the framework of a reasonable loan. If a country goes beyond these boundaries, there is a strong possibility that it may become dependent on its creditors. This situation is very dangerous. Why not remember the words of the British writer and Nobel Prize winner George Bernard Shaw: "Debt is like any other trap, easy enough to get into, but hard enough to get out of."

The developments that took place in the world economy in the last 3-4 years such as the global financial and economic crisis, the instability of the exchange rates of international currencies and fluctuations in energy prices compel the government of Azerbaijan to increase the effectiveness of management of foreign borrowing. As you know, Azerbaijan receives the lion's share of foreign currency earnings from energy exports, and reduced revenues from oil exports may be one of the reasons for the government to use foreign loans. However, given the "turbulence" in the global financial and economic system, access to external borrowing becomes more difficult. This leads to the importance of and the need for research in the field of foreign borrowing, developing methods of assessing the effectiveness of the use of borrowed funds and assessing the rationality of the terms on which loans are provided.

In confirmation of what has been said, we would like to quote the words of Azerbaijani President Ilham Aliyev at a meeting of the Cabinet of Ministers (on 7 October 2013) dedicated to the results of socioeconomic development in the 9 months of 2013 and the challenges ahead: "Today there is no problem with attracting any amount of foreign financial resources to Azerbaijan. Simply, we avoid increasing the foreign debt and conduct a very conservative policy in this area. Today, Azerbaijan takes one of the first places in the world in this indicator.

"The foreign debt in our country is only 7-8% of the gross domestic product. In some developed countries, it is close to 100%. If the figure is 70%, it is believed that the country's financial situation is good. In Azerbaijan it is 7-8%. This means that we are creating for today and for the future such a powerful foundation that Azerbaijan will never - not today and not even in 10 or 20 years - face the debt problem. The debt problem is a very serious problem. The events taking place in some countries today are the result of this unnecessary debt... 

"In general, we can fully repay this debt at any time. It is just that some economic and financial issues do not dictate it yet. But we can reduce our foreign debt to zero at any time."