THE MAIN TREND

According to the passed legislation and the traditions that have emerged in recent years, in the economic community of Azerbaijan the month of November is associated with discussions and approval of the drafts of state, consolidated and other budgets of the country. After all these procedures and developments, the Milli Maclis, Azerbaijan's parliament, passed the entire budget package for next year by a 100-2 vote during its session on 22 November.

Let's point out upfront that right after the first submission by the Ministry of Finance of the new state budget figures there was a controversial reaction from experts, economists, journalists as well as rank-and-file citizens. And here's why: in 2014 revenues are expected to be 4 per cent below the projected figures for this year, while expenditure will increase by 1.1 per cent. It is worthy of note that the oil price is estimated at 100 dollars a barrel next year.

In the meantime, government sources have assured that there are absolutely no grounds for concern, that the 2014 budget is balanced, and its main advantages include increasing its non-oil slant and reducing the level of reliance on the oil sector by means of cutting the amount of transfers from the State Oil Fund, SOFAZ. 

Fewer transfers, more non-oil GDP

Thus, the revenues of Azerbaijan's state budget in 2014 will amount to 18.384bn manats, while the expenses will make up 20.063bn manats; thus, the budget deficit will be at 1.679bn manats or 2.87 per cent of GDP. Proceeds from the privatisation of property, the remainder of funds held in the Finance Ministry's treasury account, domestic and external borrowings will serve as sources to cover the deficit.

Revenues of the consolidated budget in 2014 were estimated at 21.986bn manats, which is 6.1 per cent over the 2013 projection, while the expenditure was set at 24.444bn manats, or 0.2 per cent below the forecast.

As mentioned above, the reduction in budget revenues is due to the expected decrease of transfers to the state coffers from SOFAZ by 2.013bn manats to 9.3bn manats (17.7 per cent) in 2014. If the SOFAZ transfers are not taken into consideration, the state budget will grow by 1.2bn manats or 15.9 per cent, in comparison with 2013.

"Growth of the share of revenues from the non-oil sector and reduction of the tax arrears will be the priorities in the formation of the revenue part (of the budget)," Minister of Finance Samir Sarifov said in his remarks during the discussions in parliament.

According to Sarifov, the trend of substituting the Azerbaijani oil sector with the non-oil economy will continue at least until 2017.

"According to the expectations, the country's GDP will grow 5.2 per cent next year, while the non-oil sector of the national economy by 10 per cent. Growth of the share of the non-oil sector in the structure of state budget revenues will be retained in 2014," he added, providing assurances that the budgetary package is insured against potential woes in the global economy, as it had been compiled while taking into account all of its current tendencies.

Revenues from the oil sector are envisaged at the level of over 12bn manats, and more than one-third of this amount will be made up of direct tax contributions. As for non-oil sector revenues, they are expected to top 6bn manats in 2014 -- up from 5.1bn manats projected in 2013. The growth of the non-oil sector budget revenues next year will be ensured by means of streamlining the tax and customs administration.

The significant reduction of transfers from SOFAZ is the main trend in the new budget. This is actually a shining example of warding off the threat of the "Dutch disease" and other adversities inherent to the economies of many extracting countries. It is enough to point out that the growth of Azerbaijan's GDP will be provided entirely on account of the non-oil sector in 2014. While the share of the non-oil GDP constituted 48.6 per cent in 2011, the figure is projected to reach 61.5 per cent in 2014 and 72.4 per cent in 2017. Thus, stable growth will be seen in the non-oil sector of the Azerbaijani economy in the coming years, according to

Deputy Minister of Economy and Industry Sevinc Hasanova.

In a nutshell, Azerbaijan has once again demonstrated its determination in the actual realization of its outlined plans.

"Over the past 10 years the country's state budget has grown more than 19-fold, having exceeded the growth rate of the national economy six-fold," says the chairman of the Central Bank of Azerbaijan (CBA), Elman Rustamov. "The reduction of the bulk of transfers from the Oil Fund indicates that in the future the economic growth of the country will be leaning on other factors -- the non-oil sector."

According to Rustamov, the 2014 state budget lays down the basis of a new economic doctrine of the country, and also allows fully complying with SOFAZ's philosophy. This means that the oil fund will now focus on its main duty, which is saving and multiplying the country's oil revenues and financing the most important projects and activities. As for SOFAZ transfers, they will be replaced by investment in various sectors of the economy, such as infrastructure, education, etc.

"The state budget for next year heralds a new approach to the economic development of Azerbaijan and the financing of the budget deficit on account of non-inflationary sources," Rustamov said.

This being said, inflation, just like the rate of manat (the Azerbaijani national currency), will be maintained at a stable level (the growth rate of the consumer price index is predicted at around 3-4 per cent).

To preserve and multiply

It is extremely important that alongside the mentioned new trends the state budget has managed to retain its social and investment focus, which for many years has been the top priority in the state treasury spending.

"The continuation of the social policy, financial provision for the increase of pensions and wages, and improvement of the well-being of the refugees and displaced persons will remain the priorities of Azerbaijan's 2014 state budget," Minister Sarifov said.

Two-thirds of the state budget expenditure will be designated for the social and investment purposes. Samsaddin Haciyev, chairman of the Milli Maclis committee for science and education, says a considerable increase in spending in the fields of education, healthcare, culture, art and science is expected in 2014. According to him, the expenses on education in 2014 will increase by 12 percent in comparison with 2013, while those on health will grow 14 per cent, and science 15 per cent.

"Serious reforms are being carried out in the field of education in Azerbaijan," the MP said. "The state strategy on the development of the education sphere has been approved, and we are expecting a lot of novelties in this area. In this connection, 1.655bn (manats) is planned to be allocated for the education sphere in 2014, which is almost 0.2bn manats more than this year."

As regards the execution of these and other items of the budget expenditure and whether or not problems will emerge, according to the finance minister, the state budget expenses will exceed 25bn dollars for the first time, which will provide for meeting the social obligations and the provision of the required funding to the budget sector.

In addition, according to the first deputy chairman of the Accounting Chamber, Adil Maharramov, overall, the actual state budget deficit will be below the projection, because "we are expecting the income to be above the planned level, and the expenses are unlikely to be executed in full".

"Therefore, the real deficit will be below the forecast," Maharramov added.

According to both government officials and parliament members, the 2014 state budget reflects absolutely realistic figures and objectives, and no serious challenges are in store during its execution. Moreover, the execution of the macroeconomic projections for next year, which is a reflection of dynamic economic development and of the improvement of the key socio-economic indicators, will allow Azerbaijan to reach the level of developed countries in terms of economic growth in the nearest future.

Thus, according to MP Ziyad Samadzada, Azerbaijan currently accounts for 75 per cent of the South Caucasus economy -- compared to 49 per cent in the early 1990s.

At the same time, Azerbaijan is far ahead of many CIS countries on GDP per capita, and this distinguished position is absolutely unrelated to the oil factor. The per capita GDP in the country's non-oil sector generally exceeds relevant figures in neighboring countries.

"Azerbaijan's state budget exceeds the budget of Georgia five-fold and that of Armenia six-fold, and 80 per cent of the total budget of the South Caucasus countries is made up exactly by Azerbaijan's share," Samadzada said. 

Thus, officials and lawmakers as well as experts concur that the 2014 state budget will usher in a new stage in the development of Azerbaijan. But first and foremost, it will allow Azerbaijan to retain the image of a sustainably developing country, which is seeking to comprehensively diversify its economy and achieve high-level prosperity of its citizens.