MODERATE AUSTERITY POLICY

In the words of prominent politician Winston Churchill, "a pessimist sees difficulty in every opportunity; an optimist sees opportunity in every difficulty". Of course, any economic crisis brings a lot of problems, and most importantly, an unpleasant sensation of instability. Today, there are plenty of reasons for negative feelings - falling oil prices, currency devaluation, dire forecasts of economists, etc. However, by taking the right steps, a country can benefit from a crisis even in such circumstances.

The decline in oil prices on world markets, which became the main reason for a sharp reduction in the government revenue of Azerbaijan, has set new challenges to the country's economy. However, the current level of development of the non-oil sector, political stability and wisely implemented social programmes make it possible not to panic and maintain the existing pace of development.

This is confirmed by studies conducted by international financial institutions. Meanwhile, it is only logical that the government will have to follow a policy of economy and tighter control over the spending of public funds at least during next year.

"We must not allow ourselves to be wasteful. It is necessary to further strengthen financial discipline and try to save money. Now all countries implement this policy, and we have to pursue it more seriously, too". This statement by President Ilham Aliyev at a meeting dedicated to economic issues and the preparation of the state budget for 2016 may be considered a keynote of Azerbaijan's economic policy in the short term.

In forming the state budget of Azerbaijan, as well as of any oil and gas producing country, the correct forecast for the price of oil on world markets is of paramount importance. In this context, the prudence of the government, which formed the 2016 budget based on an average price of 50 dollars per barrel, is well founded. Most analysts are agreed on this figure, too, when speaking about the price of oil on world markets over the next couple of years.

While in previous years the profits of the State Oil Fund of Azerbaijan (SOFAZ) were more than enough for transfers to the state budget to finance investment projects and for the growth of assets of the fund itself, the lower oil prices and the unfavourable situation in the financial markets that is reflected in the real estate market already seriously affect SOFAZ income. "We must and we shall protect our foreign exchange reserves next year, especially the reserves of the State Oil Fund," President Ilham Aliyev said, in particular.

The expected reduction in transfers next year will inevitably lead to reduced expenditure on capital investment, but this will not affect social spending, given that the government retains the social orientation of the state budget as one of the main priorities. "First of all, I should note that all social programmes will be implemented without cuts. At the same time, institutional reforms related to social policy will continue," the head of state said.

Thanks to the president's order, Azerbaijan managed to achieve a serious breakthrough in the regulation of the pharmaceuticals market and ensure the reduction in drug prices by a factor of two to three on average even during a crisis in the global economy, currency devaluation and inflation in neighbouring countries. This is the best evidence that the solution of social problems is a priority in any economic scenario.

That is why the head of state pays great attention to expanding the functions of ASAN service [state-run agency for services to citizens] the Azerbaijan Service and Assessment Network, which really helps fight corruption and bribery, reduce public dissatisfaction with instances of red tape, etc.

"Every citizen of Azerbaijan knows the situation in the housing and utilities sector - how many illegal demands are put forward, how excruciating they are for people. Based on the decree I have recently signed, ASAN is endowed with new functions (in this area. - Ed.). Now everything is going to be easy in ASAN service centres," Aliyev said.

In this context, it is not by chance that negative signals about serious violations in the transport sector have led to the transfer of part of the services in this sphere to ASAN service. "In the future, standards of ASAN service centres should be implemented in all spheres," Ilham Aliyev said.

Turning to next year's budget, it should be noted that strict austerity policy does not mean the abandonment of infrastructure projects. In previous years, the government implemented major infrastructure projects in the transport, irrigation, industrial and other areas, which should foster the accelerated development of the non-oil sector in the coming years. Last year, it was forecast that the share of the non-oil sector in the country's GDP would grow from 66 per cent in 2015 to 71.3 per cent in 2018. Having a basis for the development of all non-oil sectors of the economy, the existence of specific state programmes on each of them and especially the current challenges, it is quite realistic to reach this figure. According to the Trend news agency, budget revenues are reduced by about 250m dollars per every 10-dollar drop in oil prices, and they can only be compensated for by growth in the volume of the non-oil sector.

In short, while in previous years the state invested heavily to ensure the development of various sectors of the economy, this year it is time to get first gains. Hundreds of enterprises, industrial towns, technology parks and large farms that have been commissioned should begin to justify government investments put into them.

Given the current conditions, it is necessary to provide for a more efficient work in solving problems of entrepreneurs and eliminating delays in their work lest the head of state should be forced to pass these functions on to ASAN service centres as well. After all, the private sector now generates the bulk of the country's GDP. Taking into account that, under conditions of declining revenues from the oil sector, the structures responsible for the filling of state coffers are clamping down on unscrupulous businessmen, the main thing here is to strike a balance which would not interfere with the work of businesspeople doing business in compliance with all laws.

"The government will work in a new situation. Oil revenues are declining, so it is necessary to give more preference to innovation," President Aliyev said.

Of course, the "new situation" of economic development should not cause panic. It should be noted that neither the president nor the government members call the current situation a "crisis" because it is not. Moreover, the international financial institutions also agree that there will be no regression in the economic development of Azerbaijan. Thus, the World Bank has improved the country's economic growth forecast for 2015 to 2 per cent, while in June this figure stood at 1.5 per cent.

"We have revised our forecast upwards mainly due to the fact that, based on the results of the first half of 2015, Azerbaijan's economy showed an unexpected growth of more than 5 per cent," a World Bank representative said. It will be recalled that according to the State Statistics Committee, the total volume of Azerbaijan's GDP in the first half of 2015 amounted to 26.3bn manats, which exceeds last year's indicator for the same period by 5.7 per cent. Certainly, the final GDP growth rate will be considerably higher than the WB forecast, which is largely based on conservative estimates.

As for next year, President Ilham Aliyev said that all the necessary measures are being taken so as to maintain the economic development. "We will develop successfully in 2016, too, and fulfil all the tasks facing the country. Until the end of the year, the government should work more seriously, especially in view of expenditures, next year's investment programme, our financial position, and make new proposals," the head of state said.

Thus, the government will have to deal with new challenges in the unfavourable global economic situation. Given a solid set of measures for developing the non-oil sector, which were implemented in previous years, further steps may become a turning point towards a large-scale diversification of the country's economy.