OLD FIGURES POINT TO NEW GROWTH

It is a tradition in Azerbaijan that the final summary of the year's socio-economic results is made by MPs, having heard the government's report from the prime minister. This year the Milli Mejlis deputies also approved the work of the country's cabinet in 2010 by majority vote. However, this is no surprise, bearing in mind the positive dynamic of Azerbaijan's socio-economic development in all spheres last year against the backdrop of post-crisis fluctuations internationally.

"Real growth in GDP in 2010 was 5%; in the non-oil sector it reached 7.9%. Therefore, in terms of GDP growth, Azerbaijan was first among CIS countries" reported parliamentary speaker Oqtay Asadov during the debate, adding that, according to international organizations, Azerbaijan is an attractive country for investors. So, during the course of last year AZN13.9m were invested from all sources, 32.4% up on the previous year. At the same time, figures quoted by the prime minister presented the country's economic situation in even more positive light. 

A year of stability

According to Prime Minister Artur Rasizada, these pleasing figures were achieved because last year the cabinet focused attention mainly on preserving macroeconomic stability, diversifying the oil sector by attracting substantial investment and raising production levels by using state-of-the-art technology. The government also kept under regular scrutiny the way social issues were resolved, well-balanced development of the regions, increased entrepreneurial business activity and the reduction of unemployment.

As already noted, bearing in mind that last year the world was only gradually emerging from the destructive wave of global economic crisis, the Azerbaijani government also, naturally, focused its policy on neutralizing the effects of the crisis and ensuring economic stability. Its monetary policy helped to maintain the stability of the manat and to keep inflation at a low level. At the same time, the country's strategic currency reserves grew rapidly to approximately $30bn. On the other hand, particular attention was given to building a strong seam of entrepreneurs and increasing financial support for them. To this end, 1,430 businesses were issued with a total of AZN115m in preferential credits through the National Fund for Support to Business.

In short, it is significant that, apart from the figures on the general economic situation in the country, this time the prime minister submitted for deputies' approval the achievements in individual spheres of production and even in specific major enterprises. For example, he said that following structural changes at the Azerikimya production association, work on its technical re-design was carried out. The export of 85% of the association's output brought in $40m more than in the previous year. This also helped to pay off the last of the credit received under government guarantee for the construction of a steam-generating device. Rasizade also said that production volumes in the metallurgical industry had increased by 44.6% compared with the previous year. Production of iron concentrate had begun at the Daskasanfilizsaflasdirma joint-stock company. Finishing work was in progress on construction of the first section of the Gyanja aluminium plant, whose annual production capacity is 100,000 tons.

There was a significant increase in the production of precious metals and in this new sector of the country's economy 2,058 kg of gold were produced.

In the machine-building industry, production levels were 2.5 times higher than the previous year.

The prime minister dwelt particularly on the situation in the technology park under construction in Sumqayit - a qualitatively new general production complex. Five enterprises at the complex, which will consist of 16 plants in all, are already up and running. A broad range of output, of great importance to the country and with great export potential, is being produced there using state-of-the-art technology.

While speaking of new spheres of production, it should be acknowledged that in recent years the state's attention has been focused on the development of the defence industry, which is particularly important for a country in a state of war. For obvious reasons, achievements in this field are not made public, but the single fact that last year over 350 different defence-oriented items were produced in the military-industrial sector, and their volume increased 2.3 times, speaks not only of the strategic solvency of the sector, but also of its long-term economic viability. That said, let us recall that in 2010 a total of $3bn was allocated for defence, which was 40% more than the previous year.

Review of the budget

So, we can say that last year the government coped well… Of course, not without solid help from oil revenues, but at present this is inevitable. Incidentally, MPs even believe that transfers from Azerbaijan's State Oil Fund to the state budget should be preserved for the next 20-25 years.

"We should not be ashamed about transfers from the State Oil Fund to the state budget. I believe that we should continue this policy for the next 20-25 years. We have the oil, so why shouldn't we use the revenue from it?" first deputy speaker Ziyafat Askarov said. He said other industries should be developed using oil revenues, and "there is no need to be afraid of this". Transfers from the State Oil Fund (SOF) to Azerbaijan's state budget in 2010 amounted to AZN5.915bn, or 51.9% of all budget revenue for last year.

Given this situation, is there any point in altering state budget indices in the course of the year, as we have done in all previous years? Experts differ in their opinions here, and some economists are inclined to suggest that budget parameters should only be reviewed if there are significant deviations from the forecast indices as a consequence of international or domestic change. As we learned from Elman Rustamov, chairman of Azerbaijan's Central Bank, this will occur this year because oil prices will probably be higher than the government predicted. "We believe that by the end of the year, prices will be lower than they are now, but higher than we predicted before the start of the year," Rustamov said in an interview with Reuters.

It will be recalled that Azerbaijan's budget is based on an oil price of $60 a barrel, but Brent oil has been trading at over $110 a barrel for the last three months. The following statistic is significant: in 2010, oil extraction in Azerbaijan reached nearly 51m tons, a large part of which was exported. Rustamov said that the government earned a total of $47bn from oil sales, of which 50% was held in the fund for future generations and the rest was used by the government for current requirements. 

Meanwhile, adjustments to the budget and increases in oil prices could affect inflation processes in the country, which would be extremely difficult not just for the people, but for the government, too, although the head of the NBA's board is confident that the government will take measures to help keep inflation in single figures. According to Rustamov, the budget will probably be reviewed in 2011 in order to ensure food security in view of the high prices on food products. The cost of consumer goods and service tariffs increased by 2.2% in February this year, compared with January, and in January-February by 8.9% over the same period last year. "I don't believe that a significant adjustment is needed, because the budget is fairly well balanced and we must take account of the problems of macroeconomic management and steady development," Rustamov said. "Thus, the increase in oil prices and the volatility of external upheavals should not be transferred to the budget."

Variations in special-purpose state expenditure are not directly linked to the increase in oil prices, but are determined by the government's plans to update the infrastructure, he went on. "That is precisely why the country is in the process of improving and updating its infrastructure, and some of these major projects may require additional funding."

In other words, this year the government is still intent on maintaining stability, especially in the economy. It cannot to be ruled out, of course, that an adjustment to the budget might have a positive impact on how improvements to the well-being of certain sections of the population are tackled; among other things, we can expect increases in the wages of public-sector workers, pensions and benefits, as used to be the case when budget expenditure was reviewed. However, it must be said that the rises will be small, so as not to provoke inflation which, as Rustamov pointed out, the government certainly does not want. At the same time, working for stability in our very unstable world is a positive aim, thus one may suppose that the government's next report will be received by MPs just as amicably as the current one.