BUDGET 2012: OPTIMAL AND CONFIDENT

Traditionally, the end of autumn in the economic life of Azerbaijan is marked by parliamentary hearings on the main macroeconomic indicators and the draft state budget for the next year. In any case, the package of budget documents has not drawn specific criticism from deputies for many years. Although this time the debates somewhat differed due to the fact that some interesting suggestions were put forward not only by MPs, but also representatives of the government.

Social orientation

So, the main parameters of next year's state budget are: revenues - 16.4 billion manats and expenses -17 billion manats. Compared with forecasts for the current year, the budget revenues will increase by 5.67 per cent and expenditure - by 6.5 per cent in 2012. The state budget deficit will account for 1.3 per cent of GDP projected for next year.

According to Finance Minister Samir Sarifov, while preparing budget forecasts, special attention was paid to the social and investment orientation of the budget, the strengthening of social security for the poor, increasing the country's defence potential, its economic strength, the strengthening of energy and food security, support for business development and financing of targeted government programmes.

As can be seen, the main focus of the budget is its social orientation again - the proportion of these costs will account for 27.8 per cent. Compared with the 2011 budget year, social expenses will rise by 9.7 per cent.

Of course, when we talk about social expenses, the first thing that springs to mind is the increase in pensions and wages - next year's state budget provides for about 800 million manats for these purposes, and, in the opinion of the minister of finance, "it is a rather large sum". "Overall, we have some money to raise salaries and pensions, but we need to look at this issue through a long-term prism. We can now dramatically increase salaries and pensions, but if we cannot secure the same rate in three or five years, it will lead to big problems," the minister explained.

It is hard to disagree with the minister: today, many European countries are faced with great challenges in meeting their sometimes unreasonable and financially unsubstantiated social obligations. As a result, they have drastically cut budget spending on social benefits, which has caused unrest among the population.

Most of the deputies share the minister's arguments. However, in their opinion, in such vital areas for the future of the state as science and education, it is still necessary to speed up the process of improving social welfare.

The issue of spending on education was also raised by the country's Central Bank board chairman Elman Rustamov, but in a slightly different way. He said that recently, the company Baker & McKenzie conducted a study on the education systems of 20 leading countries and in all of them, education expenses make up 6 per cent of GDP. "This is a guide for us. Of course, this is not done in one day and we must achieve this step by step," Rustamov said.

International experience shows that 65 per cent of these expenses are funnelled into the payment of wages. "We have now raised the issue of increasing salaries for educators. This is very objective and relevant, but the cost should be directed at specific reforms. And pay rises, like in international practice, should be in parallel to the increase in the professional level of workers of this sphere," Rustamov said.

We should note, incidentally, that compared with 2011, the state budget of 2012 envisages a 12.6-per-cent increase in spending on education while the actual increase against 2010 will be 33.5 per cent. The share of education expenditure in total budget spending is 9.3 per cent, which 0.5 per cent higher than in 2011.

Speaking of solving social problems, we should also add that the authors of the draft state budget, in particular, the Ministry of Finance, state that issues of increasing social benefits are being solved sequentially in Azerbaijan. "And one of these decisions was taken in 2011 in connection with the adoption of a two-tiered approach in the pension system, and for certain categories of pensioners, the method of calculating pensions changed as a whole," Minister Sarifov said. This decision, he said, required more funds, but these financial commitment will be reflected in the state budget and in subsequent years. For example, in 2012, transfers from the state budget to the State Social Security Fund of Azerbaijan are planned to be increased by more than 40 per cent compared to 2010.

Summing up the theme of social expenditure in the budget, we should note that the minimum wage in 2012 will be increased from the current 85 manats to 93.5 manats. By 2015, the minimum wage is supposed to increase to 140 manats.

As before, the structure of budgetary expenditures is dominated by state expenses on capital investments and defence. As the occupation of Azerbaijani territories by Armenia continues, Baku is planning to spend about 1.4 billion manats on defence needs next year. Defence spending will account for 14.8 per cent of the total budget expenditure, which is 1.9 per cent higher than in the current year.

Along with this, in order to enhance military potential, the budget for 2012 will allocate an additional 1.7 billion manats to specific projects and activities in the field of defence and security.

The investment costs of the budget on capital construction next year will total approximately 5.8 billion manats - Azerbaijan will continue to improve its transport, energy and social infrastructure. Given the cost of servicing foreign loans taken for capital construction, expenses on this sphere will total more than 7.2 billion manats in general. Another 5.8 billion manats will be directed into industry, construction and mining.

Conservative, but optimal

We must say that the particularity of the 2012 state budget has increased attention to the non-oil sector. "About 57 per cent of GDP in 2012 will come from the non-oil sector. Next year the focus will be on reducing the dependence of the economy on the oil factor and the development of the service sector, processing industry, tourism, agriculture and so on," the speaker of parliament, Oqtay Asadov, said. Minister of Economic Development Sahin Mustafayev noted that in general, a great role in the development of the non-oil sector will be played by activities envisaged under the state programme on the socioeconomic development of Azerbaijan in 2009-2013, including the construction of enterprises in the manufacturing and services sectors.

At the same time, according to Minister of Finance Sarifov, one of the major challenges facing the government of Azerbaijan is the full transition of regions to self-financing. "Of course, in some regions it is impossible, but we try to make it happen in regions that have such potential and opportunities," Sarifov said.

However, the deputies, in turn, are convinced that, together with the above plans, the government should not forget to support the country's agricultural sector. The head of the Parliamentary Committee on Regional Affairs, Arif Rahimzada, is convinced that in addition to the existing ones, it is necessary to find new forms of assistance to the country's agricultural sector. "It's time to adopt the practice of granting privileges and subsidies on the basis of the results. We issue subsidies per hectare, but it is not known whether this will yield any result," Rahimzada said. In his opinion, the influx of people from agricultural areas to the capital will continue in the future, and to prevent this, it is still a very important to create new jobs in the regions.

Returning to the main macroeconomic parameters for the next year, we should note that in general they are just as impressive as in previous years. Suffice it to say that in 2012, economic growth in the country will account for 5.7 per cent, which is almost equal to the growth of budget revenues. And according to the chairman of the parliamentary committee on economic policy, Ziyad Samadzada, it is important that Azerbaijan has had no problems with the formation of the state budget revenues for several years.

At the same time, the level of expenditure can also be considered optimal. According to Samadzada, the growth of budget expenditure by 44 per cent in the last three years is one of the rarest indicators in the world. "If in 2003, the per capita external debt exceeded the amount of per capita budget income, in 2011 this ratio changed. Now, the per capita income is 4.2 times higher than the external debt," the deputy said.

The head of the Central Bank, Rustamov, believes that the growth in spending is conservative, since there is a problem of sustainability. "The amount of the country's consolidated budget now stands at $ 25 billion, and budget spending has already reached 37 per cent of GDP. This is the level of G8 countries. Scientists argue that it is too dangerous to exceed this figure, because the greater the part of GDP the state concentrates in its hands and divides, the more it can affect business development. We believe that this level is the best," Rustamov said.

According to him, the price of one barrel of oil, set in next year's state budget at $ 80, is also conservative and realistic. "We have set it at $ 80, while the IMF predicts the average price of a barrel of oil at $ 102 next year," Rustamov said.

The projected budget deficit of 548 million manats is symbolic and technical in nature, he said. In any case, Finance Minister Samir Sarifov also acknowledged that the financial resources of Azerbaijan make it possible to implement the budget without a deficit, but it is necessary to preserve it to secure the stability of the country's financial system. "We need a budget deficit because it is an important element for the financial system, primarily for the banking system and insurance companies, as the government puts government securities into circulation so that banks are able to place their excess liquid funds in them. Unlike other countries, we do not increase the budget deficit from year to year and do not fill it with money from the placement of securities," Sarifov said. The existing budget deficit of the country can be covered with proceeds from the local and external market, he says.

"As for the need to place debt instruments on foreign markets, we are constantly conducting discussions, and each year it is set in the budget as one of the sources of covering the deficit. We already have the necessary ratings to enter international markets, but the situation on the market today is not appropriate for borrowings," Sarifov said.

According to the chairman of the State Securities Committee, Rufat Aslanli, Azerbaijan is also continuing to reduce the limit on foreign borrowings: "In 2010, it was 4.2 billion manats, in 2011 - 3.5 billion manats, and in 2012, it is planned to be 3 billion manats."

Thus, despite the interesting discussions and debates around some of the parameters and figures set in the main economic document, the deputies and government representatives acknowledged that the 2012 budget aims to ensure social and economic stability in Azerbaijan, and this is important in light of the unrest caused by the crisis in the world.