Page 7 - FSUOGM Week 25 2022

FSUOGM COMMENTARY FSUOGM

Graph 1: Timeline of
Azerbaijan’s Budget
Amendments
Source: Ministry of
Finance, World Bank

information above: Azerbaijan’s timeline of expenditures went from 21 billion to 23.1 billion
budgetary amendments certainly had no appar- AZN?
ent fiscal objective in the past and has been
exceptionally erratic. The amendments have Challenge Ahead
been carried out haphazardly with little eco- The challenge facing the Azerbaijani govern-
nomic logic and justification. In some cases, the ment today is straightforward: to persist amid
budget transfers increased significantly when the the temptation of over-spending and follow the
oil prices trended above the legislation amount counter-cyclical fiscal policy. Azerbaijan’s econ-
(such as in 2018). The exact same thing also omy needs no expansionary policies now as the
happened in the years when oil prices turned statistics show real GDP growth of 7.2% in the
out to be lower than expected (such as in 2016 first four months of the year. On the contrary,
and 2020). In 2017 the budget was amended, but shrinking budget spending can help the coun-
transfers from SOFAZ remained unchanged in try in combatting the current soaring inflation.
spite of the higher oil prices. Instead, the addi- What we need to do is clear: stick to the origi-
tional expenditures were met by deficit financ- nal budget plan, drafted upon the expected oil
ing. Conversely, the budget for 2021 was not price of 50 USD per barrel. Any extra revenue
amended at all, despite oil prices being 61% generated due to high oil prices must be saved
greater than the legislation price during the first in the State Oil Fund, in line with its mission of
six months of 2021. The Azerbaijani govern- preserving the oil wealth for the future genera-
ment’s response to large variations in oil prices tions of Azerbaijan. That means, not counting
has been all over the place in the past. any technical changes, the budget should not be
These inconsistent amendments, coupled amended in 2022.
with a general lack of distinct mid-long term A lot of counterarguments can be brought
fiscal goals, are worrying phenomena. The Min- against my case, such as the hefty cost of recon-
istry of Finance often cites counter-cyclical fiscal structing the liberated lands, as well as the need
policy as one of its primary targets (anecdotally, to boost the social welfare of the population.
the arguments for counter-cyclical fiscal policy Inasmuch as these arguments carry some value,
are only given when the oil prices are on the we must remember one fact: the state budget of
decline, and they are magically “forgotten” when Azerbaijan in 2022 derives 47% of its revenues
oil prices are rising). By basing our arguments on directly from transfers from the State Oil Fund.
counter-cyclical fiscal policy we can somewhat If there are going to be amendments (of which
justify the amendments of 2016 and 2020 where there has been lots of talk lately), it is ensured
the economy needed a push due to the slumping that those transfers will be bolstered greatly due
oil sector[6]. to hiking oil prices. Suddenly, we can end up
But then how do we support, for example, with a budget where 50-55% of revenues come
amendments in 2018? According to official sta- from transfers and another 5-10% from taxation
tistics, the economy was growing at 1.3% (slower of oil companies. This effectively means going
than usual, but not enough to rationalise massive back to extremely dangerous oil dependency
over-spending). The state Budget had a surplus levels. In that case, all the reforms, policies, and
of 300 million AZN. Official inflation was at a actions taken since 2015 towards lessening the
healthy 3%. In this case, how can we possibly fiscal dependency on oil, such as the implemen-
explain why the transfers from SOFAZ were tation of the fiscal rule and the shift towards a
heightened from the previous 9.2 billion AZN Medium Term Expenditures Framework are
to 10.9 billion? What was the reason behind completely wasted. Even though the reconstruc-
the aggressive expansionary fiscal policy, as the tion of Karabakh and other causes are important

Week 25 22•June•2022 www. NEWSBASE .com P7