Critical Look at Government’s Anti-crisis Program

In Azerbaijan, the total amount of state support is provided in the amount of 2.5 billion manat, which is about 3% of GDP. In neighboring Georgia, $ 613 million (3.5%) was allocated for these purposes, in the US - $ 2.2 trillion (10.7%), and in Germany, 500 billion euros (14%). The anti-crisis package of two million Slovenia is 3 billion euros. If we were guided by the level of Slovenia, then the Azerbaijani aid package should have amounted to 28 billion manat.

According to the program, compensating measures will be implemented to prevent personnel cuts by 304 thousand employees of the selected enterprises that have suffered the most from the crisis. They will be allocated assistance at the level of the average salary in the republic. Azerbaijan has 5 million 190 thousand economically active population. Of these, 4,938.5 thousand people are employed. 1.8 million people work in agriculture. If we assume that in the village it is possible, while maintaining a two-meter distance, to organize field work, then with the deduction of the peasants, 3.1 million employed people remain.

However, the state support program was based on 1.6 million working people. Of these, 900 thousand work in government agencies and will receive salaries from the budget. 604 thousand work in the private sector, of which 304 thousand will be covered by the assistance under the crisis program. The remaining 300 thousand, we dare to assume, work in large holdings (Azercell, Azersun, banks, etc.), which themselves are able to compensate for the damage to employees.

After deducting from 3.1 million of this category, 1.5 million people remain, which are not covered by the government program. This is a very large number and is an omission of the Ministry of Economy. The Corona Virus crisis is global; all sectors of the economy suffer from it. In the United States, despite the great accumulative opportunities of workers, the government allocated $ 1,200 to each adult and 500 dollars to each kid. In Slovenia, 80% of the salary was compensated to all those who lost their jobs, and the injured self-employed received a basic allowance of 350 to 700 euros. In foreign examples, we are primarily interested in not the amount of payments (each country has its own financial capabilities), but coverage with the help of the affected population.

The statistics show that in Azerbaijan the number of unemployed is 251.5 thousand people, and 200 thousand unemployed will receive assistance, 190 manat each. We consider this a great success of the program since 81.3 thousand unemployed were registered on January 1, 2020. That is, the program took into account unregistered ones.

The program of financial support for micro and small entrepreneurs will cover 292 thousand business entities. Here we are talking about legal entities, where, in addition to the head, not more than 10 employees are involved. This program affects 30 percent of all taxpayers in the country. For two months they received the right to reduce tax payments and holidays on the following taxes:

- simplified tax;

- property tax;

- land tax;

- income tax (income tax);

- reduction of the simplified tax rate in the field of catering;

- exemption from income tax (public catering);

- extension of the deadlines for the payment of income tax (income tax) following the results of 2019;

- extending the deadlines for paying taxes and the deadlines for filing tax returns;

- exemption for a certain period from the payment of VAT of certain categories of taxpayers.

Ensuring tax cuts and tax holidays are a positive factor. But if we have them provided for a two-month period, then Georgia announced benefits for 4 months. Given that it will take a lot of time for a post-crisis recovery, Georgian timelines are more optimal. At the same time, it must be said that according to the Azerbaijani government, if the pandemic in our country drags on, the terms of assistance to businessmen and the population will be revised.

One of the biggest expenses is rent and utilities from enterprises. In Georgia, enterprises, along with tax breaks, received benefits on utility bills. Tbilisi City Hall for three months exempted from land rent land and premises in the city for rent. In the Russian Federation, these powers are given to regional governments. The Legislative Assembly of St. Petersburg will consider the issue of limiting rents and utilities. The Azerbaijani government should not ignore this issue. The government should appeal to private lessors to support the national economy with a reduction in rents of 30-50%. Landlords are one of the wealthiest classes and would be sympathetic to such an appeal. These measures were very popular during the 2008 crisis in different countries. Such an initiative in front of quarantine was shown by the leadership of the Sadarak shopping center, near Baku.

Enterprises involved in the provision of food, medical and other important goods to the population are exempt from taxation of raw materials used for the production of goods for this purpose, and also received a zero VAT rate. All world experts indicate that the consequences of the crisis will be felt at least until the end of the year. Therefore, it was advisable to provide for a reduction in customs rates and VAT for a very large group of goods. We dare to suggest that businessmen will first have to reorient themselves from the Chinese market to others. The cheapness of the Chinese market is unusual for others. Therefore, a decrease in these rates would stop the price increase.

In Georgia, they met even importers of automobiles and eased the conditions of their business. In addition, the government, instead of the planned 600 million lari (about $ 204 million), will return 1.2 billion lari to companies as excess VAT. This is not provided for in our program.

Next, we consider a loan guarantee program to support new bank loans for businesses.

The state will provide guarantees worth a total of 500 million manat to cover 60% of the size of new bank loans. Interest rates on such guaranteed loans should not exceed 15%, and the maximum term should be no more than three years. Here will be subsidized half of the percent (7.5% of 15%) on guaranteed loans by the state. This money will be allocated from the funds of the Enterprise Development Fund. To support the existing loan portfolio, entrepreneurs have been allocated 1 billion manat, and there will be subsidies for the first year 10% of the entire interest rate on non-guaranteed loans, regardless of the term and interest rate of loans. This money will also be provided through the Enterprise Development Fund. Providing government guarantees for future loans and subsidizing half of interest rates will positively affect the post-crisis period of the economy. But for this, you first need to get out of the crisis.

The government program does not cover consumer loans. In addition, credit holidays for payments are not provided, as in Georgia. Interestingly, some of our banks operating in Tbilisi responded to the request of the Georgian government and stopped credit payments for a period of three months. Therefore, the attitude of the Azerbaijani government and banks at such a serious moment is not clear. If banks refused to dividend dividends to shareholders, this would improve their financial capabilities by the three months in which they would make a concession in the payment of loans. Large English and European banks have used this method to improve financial opportunities.

In support of utility bills, an increase in the preferential limit on the use of electricity and gas by the population is envisaged. In this case, the most affluent sections of society win. And families that spared energy would not feel the support of the government. In Georgia, where energy resources, unlike us, are imported, the government will pay off the use of a limited share of electricity and gas for three months. This will apply to payment for the use of water, and for garbage collection.

By a separate program, the state will support the payment of tuition costs for students who are members of families from socially vulnerable groups. This is a very important measure and we hope that the government will not disregard this issue in the future.

Summarizing the above, we can conclude that the weakest side of the program is the lack of coverage of a wider range of people affected by the pandemic crisis. The funds allocated by the government for these purposes were not enough. To do this, it was possible to sequestrate the budget in terms of capital construction (7.8 billion manat), and funds for sports and cultural events. It is bolder to use the funds of the oil fund and begin the privatization of enterprises of interest to foreign investors, begin an accelerated withdrawal of the economy from the shadows (67% of GDP).