Page 6 - FSUOGM Week 25 2022

FSUOGM COMMENTARY FSUOGM

Fiscal challenge for Azerbaijan is

to not spend the oil price boom

A counter-cyclical fiscal policy is needed, with more modest budget spending

helping the country combat soaring inflation

AZERBAIJAN FUELLED by the Russian invasion of Ukraine, the budget of 2022[1], which concerns me
the price of Brent crude oil in the first five greatly. Because it was those mistakes that led to
months of 2022 has averaged 103 USD per bar- the devaluation of 2015 and made the ensuing
rel. This is substantially above the 50 USD per economic contraction inevitable.
barrel price which Azerbaijan’s policymakers
used when drafting the state budget for 2022. Mistakes of the past
With a sizable surplus in the budget of the State Throughout recent years, the Azerbaijani state
Oil Fund (SOFAZ), Azerbaijan’s fiscal policy budget has developed an unhealthy habit of be-
faces another challenge. ing amended rather frequently. Since 2015, the
Contrasting the fiscal challenges of previ- budget has been amended four times[2].
ous years (such as 2015 and 2020), this one is One of the leading factors that affect Azerbai-
fundamentally different. While the economic jan’s fiscal stance is naturally the oil price. When
downturns and plunging oil prices resulted in the difference between the oil price in the budget
adverse consequences like devaluation and larg- legislation (in other words, the price on which
er-than-intended budget deficits before, those the calculations of the state budget were based –
risks do not exist today. Instead, the challenge for the sake of simplicity I am going to call that
before us is whether Azerbaijan repeats the same the “legislation price”) and the actual oil price
blunders that it made in the 2010–2012 period becomes wide, numerous problems arise.
when oil prices were above 100 USD per bar- Look at the graph and table below to see an
rel. Unfortunately, some parliamentarians have overview of the past amendments[3].
already hinted at the “likelihood” of amending One point is evident when we look at the

P6 www. NEWSBASE .com Week 25 22•June•2022