OPTIMAL ESTIMATES

In short, the national budget for 2018 can be characterised as a transition from a tight budgetary economy to the regime of soft regulation. Although the spending will prevail over revenues, as before, the overall growth rate parameters will remain. However, the performance budget indicators have not undergone drastic changes either: as always, the government is particularly focused on the key infrastructure and social projects.

Key figures

After numerous discussions, the parliament approved the budget revenues for 2018 at ₼20.1 billion (20% increase compared with the forecast for 2017) and the budget spending at ₼21 billion (17.3% growth). The deficit is 1.3% of GDP. After the parliamentary discussions, the government decided to increase the spending by ₼141.3 million but more on that later.

The main supply sources of the budget are the same: taxes, duties, and oil revenues. The VAT revenues are projected at ₼4.3 billion, taxes on profits at ₼2.3 billion, and the income from individuals at ₼1.2 billion. Customs duties and excises will reach ₼535 million and ₼726 million of all the budget revenues, respectively.

As before, the State Oil Fund of Azerbaijan (SOFAZ) will provide the lion’s share of the budgetary supply (45.8% of revenues). According to the Ministry of Finance, the oil revenues of the budget, including the SOFAZ transfers, will reach ₼11.1 billion (55.1%). At the same time, as compared to 2017, the growth of oil revenues in the state budget will amount to 39.7%. This is mainly due to the fact that the budget for 2017 was based on the oil price of $40 per barrel, while this year this indicator was increased to $45. According to the chairman of the Parliamentary Committee on Economic Policy, Industry and Entrepreneurship, Ziyad Samadzadeh, this was the best of the three proposed budget scenarios. "If we took the oil price below or above $45, it would lead to certain risks," said Samedzadeh.

As always, there were three scenarios. "The worst-case scenario was based on the oil price of $30 per barrel; the best-case scenario assumed $50 per barrel. Finally, the basic scenario assumed $45 per barrel, which was taken as a basis," said the Deputy Minister of Economy Sevinj Hasanova. According to her, in Russia and Kazakhstan, the budgetary price for oil in 2018 is $43.8 and $45, respectively.

The speaker of the Milli Majlis (parliament) Ogtay Asadov assured that if the rising trend in the global oil markets continues, the government could make changes to the budget parameters. "Of course, we would like to see the oil prices remain high. If the oil price is above $60 per barrel in the next year, as it is today, then we can amend the state budget in May," said Asadov.

The oil factor

Meanwhile, the situation in the world oil stock markets during the recent years has demonstrated how volatile and risky the oil price was. According to Vahid Ahmadov (MP), both the oil price as an external factor and the problems in the banking system as an internal factor do negatively affect the state budget. After all, a $1-change in the oil price influences the state budget by ₼13 million. "It is commendable that the price of oil in the state budget is taken at $45. But we must remember that given the ongoing global political processes, oil prices can change at any time. Also, it is necessary to consider the impact of oil prices on the exchange rate of manat," warned Ahmadov.

In 2017, the State Oil Fund transferred ₼6.1 billion to the budget. In 2018, as indicated above, the forecast amount of transfers reaches ₼9.2 billion. In total, the transfers from oil revenues to the state budget have reached $76 billion for the past ten years.

According to V. Ahmedov, the next three to five years the energy sector will remain the main source of revenue. "Based on my entrepreneurial experience, I can say that the commissioned enterprises of the non-oil sector  will only pay off the invested money in the next few years. If we are lucky, they will start earning profit and supply revenues to the state budget only after three years," said Ahmadov.

On the other hand, experts believe that the process can be accelerated by taking additional measures to stimulate entrepreneurial activity and "whitewashing" part of the shadow business. "I think we should not ask who and how has raised the capital. It is important that the money works for the national economy and the budget receives additional taxes accordingly," said Ahmadov.

Incidentally, the share of revenues from the non-oil sector is also growing. In 2017, the expected level of the non-oil revenues is ₼9 billion, which is 2.3% more than the forecast for 2017.

Orders and requests

The growth of non-oil budget revenues would help save more funds in SOFAZ, which was also pointed out by the Minister of Finance Samir Sharifov. "We should optimally regulate our expenses and try to increase revenues at the expense of the non-oil sector. The oil revenues should be kept in reserve, as they are always needed at difficult times," said Sharifov.

Meanwhile, the government still agreed to increase the spending by ₼141.3 million, and the funds for the needs of the parliament, as requested by the members of parliament...

Social projects

The volume of expenditures for defence, social protection, education, etc. was also increased for the next year. The deputies were unhappy that the health care spending for 2018 was rather lower than expected this year. According to forecasts, the government is planning to allocate ₼745.4 million and ₼740.7 million for the health care for this and the next years, respectively. The chairman of the Parliamentary Committee for Health, Ahliman Amiraslanov, believes that the state budget should provide for additional financial resources to increase the salaries of doctors and the money needed for the purchase of drugs for those who undergo organ transplantation operations. "After the organ transplantation, the patients have to constantly use medicines, which are expensive. But they do not have enough money to afford the purchase," said Amiraslanov.

In 2018, the pension allowances will grow by 9%, and the average pension in Azerbaijan will be ₼216.5 compared to ₼208.9 in 2017 (3.6%-growth). Based on the president's recommendations, the amount of the minimum payment for the under-privileged in Azerbaijan will be increased by ₼14 (12%) reaching ₼130.

Another major social project in 2018 will be the Unemployment Insurance Fund. Its budget for 2018 is approved at ₼89.04 million, which will cover both the unemployment insurance fees and the organisation of vocational training and extra education, labour exchanges and fairs, etc.

Also, a positive trend of the budget in 2018 is the reduction of subsidies to the regions. In particular, according to the Deputy Speaker of the Parliament Bahar Muradova, there are no subsidies for 33 cities and regions of the country. In general, the estimated spending of local budgets is ₼724.1 million, which is 0.4% more than in 2017. The estimated revenues of local budgetary organisations for the next year is ₼650.7 million; subsidies will amount to ₼73.4 million.

In short, considering new challenges and external factors, the state will continue to support the key social and economic areas of development paying special attention to regulating the spheres that affect the welfare of the population.