START OF BUDGET MARATHON

Over the past decade, it has become a tradition in Azerbaijan to set and hit new records for the state budget. The tradition was followed even during the most critical years, when the national economy suffered from a record fall of oil prices or the pandemic that has slowed down many economic processes. Or when Azerbaijan finished the hard and expensive, but victorious war, which resulted in the liberation of the occupied lands. Certainly, with many of these problems now left behind, the satisfactory price of oil, and promising news about the end of the pandemic, why should the government deny setting a new budget record.

Thus, Azerbaijan entered the year of 2022 with a new budget, which expects the state revenues to be ₼26.8 billion (10.2% more the 2021 forecast) and state expenses at ₼29.9 billion (+4.7%).

Old and new priorities

"The 2022 state budget is the largest budget of independent Azerbaijan both in terms of its scale of revenues and expenditures, and social orientation," Prime Minister Ali Asadov said during the budget hearings at the Milli Majlis. 

The government will stay committed to the old priorities (maintaining economic and macroeconomic stability, increasing sustainability of the national currency, social protection measures) this year too. However, it is the second time that another very important and long-awaited item has been added to the state budget: recovery and reconstruction of the liberated areas and their integration into the national economy. In the coming year, ₼2.2 billion will be allocated for these purposes. In parallel, Azerbaijan will continue building its army and strengthening its defense capabilities. "Our top priority expenditures for this year include the supply of modern military equipment and ammunition to the army, creation of necessary military infrastructure to ensure security, improvement of social and living conditions of our troops,", Prime Minister Asadov said.

So, taking into account that we have a neighbour like Armenia, defense spending of ₼4.5 billion looks quite justified. Please note that in 2003-2004, defene spending from the state budget reached only ₼0.9 billion but more than quadrupled (₼3.9 billion) in 2020. Therefore, the Azerbaijani Armed Forces are listed among the 40 leading armies of the world.

However, despite these large budget items and the realities of the post-war period, the government has managed to maintain the traditional social orientation of the state budget. Thus, social expenditures will make a little less than half of the state budget (46.4%) and will increase by ₼1.7 billion. This amount includes the growth of funds allocated for social security, education, healthcare, environment protection, science, etc.

These funds also cover salaries, pensions, allowances, and social benefits. All of them have already been increased this year amid recent inflationary fluctuations, rising prices of utilities, gasoline, etc. So, according to the order of President Ilham Aliyev, from January 1 the minimum monthly salary was raised from ₼250 to ₼300, which is by 43% higher than the living wage forecast in 2022 (₼210). Also, minimum labour pension reached ₼240 (+20%).

In other words, the state budget takes into account the current situation in the national economy, where, in addition to addressing the current challenges within the country, the negative impact of external factors created by the pandemic crisis in the global economy also needs to be mitigated. 

Stable income

Another important question is how these funds will be provided while the effects of the crisis still apply. Fortunately, traditional sources of income are still available, despite the heavily discussed global transformation to green energy. Azerbaijan’s oil sector is expected to provide 54.8%, or the lion’s share of state revenues—₼12.71 billion as transfers from the State Oil Fund (SOFAZ) to the state budget, or 47.4% of the total state budget revenues. Revenues from the State Tax Service are planned at ₼8.8 billion. Another ₼4.3 billion will be provided by the State Customs Committee.

The state budget of Azerbaijan set the minimum oil price for 2022 at $50 per barrel. Almost all experts agree that this is a more than optimal figure. Given that the leading financial institutions forecast the annual average price of Brent oil in 2021 in the range of $65-$70, it seems there is no reason to worry about the budget income. And stability of oil prices means stability of the national currency manat. So, no need to worry about the devaluation of manat this year too, although the situation with national currencies in the neighbouring countries and trade partners is quite serious.

One important note that characterises the direction of the Azerbaijani economy as a whole. Although the oil sector revenues still weigh more than the other budget items, the non-oil sector of Azerbaijan lags behind by only 2.4% compared to 2021. So, the growth of budget revenues due to the non-oil sector are expected to reach 21.4%. It is clear that all the measures taken by the government in recent years to achieve transparency in the fiscal sphere, liberalisation, favourable conditions for the development of new production areas, as well as individual sectoral development programs give real results.

Last year the non-oil sector and exports increased by more than 20% and 44%, respectively. These are quite significant figures. As the Economy Minister of Azerbaijan, Mikayil Jabbarov, said, this is a historically high figure.

Thanks to the changes in the global economic situation and some innovations inside the country, the approach to budget spending of savings also change. Thus, according to the amendments to the Law on Budgetary System, they will be transferred to the Budget Reserve Fund. In addition, a new budget rule will regulate transfers and debts from SOFAZ. Accordingly, parameters were proposed in the draft law to regulate the upper limits of transfers from SOFAZ to the state budget and to prevent the growth of the state debt.

Thus, Azerbaijan's state budget for 2022 can be described as stable and risk-free, balanced according to external challenges and the internal needs of the national economy. Obviously, stability is a great achievement in these turbulent times full of surprises.