DOCUMENT OF THE YEAR

"If the government had accepted all proposals from members of parliament, the state budget would have been 22-25 billion dollars. This is not realistic because you have to use the possibilities you have." Such a fair remark was made by the first deputy chairman of parliament, Ziyafat Asgarov, during active parliamentary discussions on the draft state budget for 2008.

Our current possibilities allow for 7.383 billion manats in budget revenues in 2008 (27.9 per cent more than in 2007) and 8.509 billion manats (34.9 per cent more) in expenses. The state budget deficit will be 1.126 billion manats, or 3.6 per cent of GDP. At the same time, five billion manats in the state budget will be provided by the Tax Ministry (17.9 per cent more), 1.1 billion manats by the State Customs Committee (42.9 per cent more) and 1.279 billion manats - from other sources. Revenues from the value added tax will increase by 46.6 per cent, from customs duties - by 44.8 per cent, from the simplified tax - by 40 per cent and from excise duties - by 12.7 per cent.

The record budget deficit (in the history of independent Azerbaijan) in 2008 will be covered by revenues from privatization (50 million manats), revenues from short-term government bonds (361.4 million manats) and the remains of funds in state accounts (715 million manats).

What will the state money be spent on?

As we can see from figures, next year the state is planning to spend more than it earns. And of course, there is a question: What will the money be spent on?

The head of the budget department of the Ministry of Finance, Fazil Faracov, said that in 2008, 3.04 billion manats will be spent on special programmes in all sectors, which is 48.4 per cent more than in 2007. "Allocations to special programmes will account for 35.7 per cent of all budget spending," Faracov said.

At the same time, the investment revenues of the budget will total 3,691 billion manats. "State capital investment next year is expected to be 2,841 billion manats, which 926 million manats or 48.3 per cent more than in 2007. In 2008, special attention will be paid to the completion of the financing of projects that have already been launched," Finance Minister Samir Sarifov said.

Some 350-400 million manats will be allocated for the implementation of the regional development programme. These are only state investments, while expenses on regional development as a whole are higher because the private sector is actively involved in this. It must be noted that 85 per cent of new jobs are created by the private sector.

At the same time, the social spending of the budget will increase only by 16.5 per cent and total 2.8 billion manats. In 2008, it is planned to increase the salaries of all public sector employees - about 630,000 people, on which 183.1 million manats will be spent, not to mention expenditure to increase the minimum wages. For example, out of the two billion manats allocated to education, 70 per cent will be spent on pay rises, while in the health sphere this figure will account for 60 per cent. The salaries of public sector employees have been steadily growing in the country. It is also planned to increase the average monthly salary from 177 manats in 2007 to 233 manats.

"In 2008, 184 million manats will be spent to increase the minimum wages, 183.1 million to increase the salaries of public sector employees, 140 million to increase the insured part of the basic pension and 27.8 million manats to increase social allowances," Sarifov said.

Will the minimum subsistence level depend on inflation?

At the same time, during the preliminary hearings on the draft budget at parliamentary commissions, the deputies expressed their displeasure with the level of the minimum subsistence level shown in the document. Even the parliamentary commission on economic policy demanded that the Azerbaijani government review predictions regarding the minimum subsistence level in 2008, carrying out indexation in line with consumer inflation. A member of the commission, Ali Mansimli, said that in 2008, the government is planning to increase the minimum subsistence level by 9.3 per cent (from 64 manats in 2007 to 70 manats), which is lower than the official inflation figure of 16 per cent. "We believe that the minimum subsistence level in 2008 should be identified on the basis of inflation. The commission has prepared an alternative proposal according to which the minimum subsistence level will increase to 75 manats in 2008," Masimli said.

The commission suggests that next year's minimum subsistence level for the employable population be not 79 manats as the government proposes, but 82 manats, for pensioners - not 55, but 58 manats and for children not 59, but 61 manats. Even this proposal does not take into consideration the officially predicted level of consumer inflation at 14 per cent in 2008. As a result, the commission suggests reviewing the size of the minimum subsistence level every quarter.

Nor is the parliament happy with the level of the criteria of needs to calculate targeted social aid at 45 manats (12.5 per cent more).

All these complaints, as we said above, are based on predictions of high inflation next year. The limit of consumer inflation in 2008 is established at the level of 12 per cent, though the country's leadership has set the government the task of achieving one-digit inflation. The rate of inflation is 15-16 per cent right now. But the same goal was set for this year, and unfortunately, it was not achieved. Officials of various ministries and departments say in their remarks on this issue that there are objective and subjective factors for that. Firstly, it is the price hike in countries that export goods to Azerbaijan, secondly, it is the hike in oil prices. "In order to solve this problem, I think we should ensure development in the spheres of the economy where there are development opportunities in order to avoid importing more goods. Among the problems we can also point out the monopolies that exist in the country's economy," said the chairman of the permanent parliamentary commission on economic policy, Ziyad Samadzada. In a word, the problems are the same, but the most important thing is to solve them next year.

Oil is retreating

But there will be enough positive things next year. Samadzada says that the revenues of the state budget in 2004-2008 increased by 4.9 times while the gross domestic product increased by 3.9 times, which testifies to the government's successful economic policy. On the one hand, revenues from the Tax Ministry steadily account for 69-70 per cent of all revenues, which meets the indicator of developed countries. Secondly, special state programmes are expanding and thirdly, the share of current budget expenditure is falling. In 2000, 92.8 per cent of all expenses were current expenses and in 2008, they account only for 56.6 per cent, Samadzada said at budget hearings. Although experts of some European countries believe that the increase in Azerbaijan's budget might cause difficulties, we have to manage this process, because an increase in the budget is an objective process."

Of course, it is a bit annoying that revenues from the oil sector in 2008 will secure 51.9 per cent of budget revenues, which is 4.1 per cent lower than in 2007. But in any case, this is an achievement in view of the fact that the country is making more and more money from oil. At the same time, taxes paid by oil enterprises into the budget are expected to be 2.73 billion manats (3 per cent more) and from the non-oil sector - 2.27 billion (42.8 per cent more).

As for macroeconomic predictions for 2008, the volume of GDP is planned to be 31.5 billion manats with a real pace of growth at 18.2 per cent. Minister of Economic Development Heydar Babayev says that next year the growth in GDP in the non-oil sector is expected to be 8.1 per cent and 26.1 per cent - in the oil sector. Per capita GDP in 2008 will reach 4,550 dollars, and 89 per cent of GDP in 2008 will be created by the private sector. The volume of the population's money income is expected to be 16.7 billion manats, while the volume of the foreign trade turnover - 31.2 billion manats. The price of one barrel of oil is assumed to be 50 dollars.

The average exchange rate of national currency in 2008 will not exceed 0.8 manats for one US dollar and 0.5 manats in 2011. Samir Sarifov said that the manat is expected to strengthen by 5 per cent in 2008, and this macroeconomic indicator is not groundless. "On the one hand, the strengthening of the manat is a factor holding back inflation and is related to the global process of reassessing dollar assets, which affects Azerbaijan as well. On the other hand, 2008 will see an influx of oil dollars into Azerbaijan, investments will grow and there will be more portfolio investors," Sarifov said. In 2007, the exchange rate of the manat strengthened from 0.8714 AZN for one dollar to 0.851 AZN.

Thus, we can say that the draft budget of 2008 is quite realistic. There are no artificial figures on revenues and inflation or promises of high salaries and pensions here - everything depends on current and expected economic processes. And this is an achievement in itself, which will ensure some stability - the most important thing for the country's further economic development.