MAKE THE STATE'S POCKET BIGGER

Increasing Azerbaijan's budget mid-year has become a welcome tradition in recent years, actively supported by the president, government and parliament. For the second year running at the end of May, the Milli Maclis confirmed an increase in both the revenue and expenditure sections of the budget. The macro-economic situation in January to April was favourable and, consequently, the volume of contributions to the state treasury exceeded the official forecast. As a result, 2007 revenue forecasts have been increased by an additional 435.2m manats and expenditure forecasts by 600.2m manats, while the overall budget deficit has reached 544m manats or 2.4 per cent of GDP. Including the spring amendments, the Azerbaijan state budget's revenue in 2007 will be 5,770,900,000 manats and expenditure 6,314,900,000 manats.

Oil ahead on all counts

The government is not hiding the fact that this progress has been achieved largely on account of the famous oil factor. Moreover, Finance Minister Samir Sarifov has said that in the short term oil revenue's proportion in the Azerbaijani state budget will increase: "Azerbaijan's economy is at present closely linked to the oil factor. The government does not deny this. I state with full responsibility that in 2008-09 this dependence will increase." He said that, depending on the price for oil on the international market, income to the State Oil Fund from Azerbaijan's profit oil could reach $4bn. 

At present 42 per cent of Azerbaijan's budget revenue comes from the oil sector. "The State Oil Company today regularly extracts 200,000 barrels of oil a day, while the Azerbaijan International Operating Company extracts 600,000 barrels a day. We plan that under the contract to exploit the Azari-Ciraq-Gunasli field the volume of daily extraction will reach 1.2m barrels. That is why the budget revenue will depend substantially on oil in the short term," the minister said.

No-one has revoked the government's plans to reduce the level of dependence, although the finance minister has admitted that, "It is not so simple to do this in the short term. With this aim in mind the government intends to develop the non-oil sector and improve infrastructure, including social infrastructure."

The head of the parliamentary commission on economic policy, Ziyad Samadzada, has said that the dynamic development of the non-oil sector can already be seen. "Against the backdrop of the increase in oil revenue, it is natural that the state budget's dependence on it should increase. Judging from the calculations of the Finance Ministry and Economic Development Ministry, by 2011 the growth in Azerbaijan's GDP will be 1.2bn manats, and the growth of the non-oil sector 2.5bn manats," he said.

The deputy, who is also an economist, thinks that the increase in customs duty on the import of certain types of goods is completely normal: "The country has to ensure its food security, and this requires the development of the agro-industrial complex. I agree that there are plenty of problems in this area, but think that they can be tackled after radical reform."

Who will give more?

Of course, the decision to increase the budget is counting first of all on the budget's tax revenues. The country's Tax Ministry must ensure additional revenue of 260m manats and the State Customs Committee 140m manats. Another 12m will be received as revenue from the management of free treasury funds, 15.9m will be the non-budget income of budget-funded organizations and 7.3m will be income from other sources. (Interfax Azerbaijan) Finance Minister Samir Sarifov said that as a result of the changes to the state budget the plan for the collection of taxes and duties for the Ministry of Finance will be increased to 4.34bn manats and for the State Customs Committee to 770m manats. Including the additional revenue in 2007 budget revenue will be 25.5 per cent of GDP. "Additional tax and customs contributions to the state budget will be provided by extending the taxation base, increasing budget income in direct taxation, stepping up the activity of customs posts and contributions from the oil sector," the finance minister said.

As for what the new income will be spent on, 409.5m manats will be capital expenditure and 190.7m manats will be allocated to the state budget's current expenditure. The finance  minister said that out of the additional expenditure 129.5m manats will be spent on social measures, 137.5m on the agro-industrial complex, transport and communications, 44.7m on defence and the law-enforcement agencies, 11.3m on general state expenditure and 369m manats on state capital investment. "Including the additional financing, state capital expenditure is increasing to 1.915bn manats and will make up 30.3 per cent of all budget expenditure this year," he said.

Of the additional state capital investments, 34.5 per cent will be spent on energy and infrastructure projects, 17.6 per cent on improving the material and technical basis of ministries and departments, 5.5 per cent on education, culture and health, 27.1 per cent on the construction of social facilities and purchase of equipment for state bodies and 6.6 per cent on increasing the charter capital of a number of state enterprises, including the International Bank of Azerbaijan. Another 2.7 per cent of these funds will be spent on improving Baku's infrastructure and the rest on other aims.

In correcting the state budget the government has clearly also taken account of inflationary processes. The treasury's additional expenditure is divided in such a way that it enters the economy not in the form of social payments or other indirect monetary inflows, but through particular buffer mechanisms (capital investments, the purchase of equipment abroad, increasing the capital of state companies etc.), allowing the monetary pressure on the economy to be considerably reduced.