Legacy of the Former Finance Minister: A Blueprint for the Successor

This article examines public participation in budget management during the tenure of Samir Sharifov, who served as Azerbaijan's 5th Minister of Finance throughout a significant portion of the country's post-independence period. By analyzing his 19 years of service, we aim to assess his contributions and the Ministry's approach under his leadership.

On January 10, 2025, Azerbaijani President Ilham Aliyev signed a decree dismissing Samir Sharifov from his position as Minister of Finance.  After 19 years of serving as Minister of Finance, Sharifov has now been appointed Deputy Prime Minister, marking a shift in his responsibilities while maintaining his influence in the government.

According to Article 1 of the Statute “On the Ministry of Finance of the Republic of Azerbaijan,”[1] approved by the Presidential Decree No. 48 dated February 9, 2009, the Ministry of Finance is the central executive body that develops and implements Azerbaijan’s financial policy, organizes the management of state finances, prepares draft state and local budgets, ensures the cash execution of the state budget, and carries out state regulation in the fields of managing state debt and financial obligations, organizing and conducting accounting, as well as exercising state control over the use of state budget funds, and the production, processing, and circulation of precious metals and stones. The Ministry's responsibilities encompass developing, implementing, and overseeing state policies related to finance, budgeting, and taxation in the Republic of Azerbaijan, in collaboration with relevant state bodies and other organizations. Its duties include preparing draft state and local budgets in accordance with existing legislation, ensuring the execution of the state budget as prescribed by law, and organizing state financial oversight to ensure allocated funds and state-guaranteed credit are utilized for their designated purposes. Among these functions, budget management stands out as a core focus of the Ministry of Finance.

Expert assessments reveal that while the Ministry of Finance has achieved certain positive outcomes over the past 19 years, significant missed opportunities have also been identified. Among the notable achievements, the introduction of medium-term financial planning in 2022 stands out. However, the lack of integration with a performance-based program budget limited the overall impact of this framework, particularly in enhancing the efficiency of public expenditures.

A performance-based program budget classifies expenditures and activities according to programs, aligning spending priorities with policy goals and objectives while ensuring transparency, accountability, and resource efficiency. This approach provides a robust foundation for determining expenditure needs, improving efficiency, and increasing transparency. Moreover, it fosters public participation by incorporating outcome-oriented principles and establishing necessary evaluation and monitoring indicators within development programs funded by the budget.

Despite the clear advantages of such a system and the ample time available over nearly two decades, Azerbaijan has not yet transitioned to a performance-based program budget. Furthermore, the government has yet to announce a defined timeline or concrete plans for adopting this critical budgeting methodology, which remains essential for improving fiscal management and accountability.

The former Minister of Finance previously headed the State Oil Fund of the Republic of Azerbaijan (SOFAZ) during the period of 2001–2006 when active independent civil society institutions flourished in Azerbaijan. At the end of that period, during his tenure as the Executive Director of the State Oil Fund of the Republic of Azerbaijan (SOFAZ) from 2001 to 2006, Samir Sharifov operated in an environment where independent civil society institutions were actively engaged in the country. This period coincided with Azerbaijan's selection as one of the five pilot countries for the Extractive Industries Transparency Initiative (EITI), a milestone in promoting transparency in the mining sector. However, Sharifov’s approach was marked by resistance to the equal participation of civil society institutions in this process, as he reportedly exerted pressure to limit their involvement. His reluctance to engage constructively with NGOs and the media was evident even at this stage.

After his appointment as Minister of Finance in 2006, Sharifov continued to distance himself from cooperation with institutions of public participation and oversight. Unlike other high-ranking officials who engaged with civil society to varying degrees, Sharifov was notable for his lack of engagement. His interest in public accountability appeared confined to the Open Budget Index, a tool ostensibly used to measure budget transparency. However, in recent years, this index was reportedly manipulated with the involvement of government-aligned NGOs, further undermining the credibility of public participation in fiscal oversight[2].

Even though many central executive bodies, including the Ministry of Economy, established “Public Councils” after the Law “On Public Participation”[3] came into effect in 2014, no Public Council was established in the Ministry of Finance in accordance with the law during Samir Sharifov’s tenure. Currently, the Ministry of Finance remains one of the few central executive bodies in Azerbaijan that has not established a Public Council, even from a top-down approach. This highlights a broader trend under the former Minister of Finance, who, throughout his 24 years in high-level state roles—from serving as Executive Director of SOFAZ to his tenure as Minister of Finance—adopted a notably conservative stance. Unlike his predecessors, he resisted efforts to transform state finances into a transparent and participatory public finance system. Instead, the institutions he led played a significant role in consolidating state finances to serve the interests of those in power, rather than fostering broader accountability or public oversight.

During Samir Sharifov’s two decades as Minister of Finance, significant shortcomings characterized Azerbaijan’s budget management and transparency. Up to half of the state’s annual budget lacked economic and functional classification, and the limited budget information available online was not presented in machine-readable formats. Additionally, no semi-annual reviews were prepared to assess budget execution, and public participation in budget processes was entirely absent.

Under Sharifov’s leadership, budget documents introduced terms such as "unallocated expenditures" and "blocked expenditures," granting the central executive body exclusive authority over the final designation of budget funds. This undermined the role of the National Assembly, weakening its oversight and reducing budget discussions to increasingly superficial exchanges.

Furthermore, despite the evident need to enhance the effectiveness of parliamentary budget deliberations, no independent research institute, such as a Budget Office, was established. Such an institution could have provided members of the National Assembly with the independent research, analytical studies, and budget-related materials necessary for informed decision-making and robust discussions.

The growing dominance of the central executive body in determining budget expenditures significantly undermined the role of negotiations between the Ministry of Finance and sectoral or line ministries. Effectively, the Ministry of Finance emerged as a monopolistic authority over budget control, reducing the effectiveness of audits conducted by the Chamber of Accounts and weakening the influence of independent budget opinions.

During this period, two major areas of divergence between the Ministry of Finance and the Ministry of Economy became apparent. First, despite the rapid growth in budget investments under Samir Sharifov’s tenure, the GDP growth rate did not rise proportionally, largely due to poor management of state investments. Second, while tax incentives were expected to stimulate higher tax revenues and economic growth, these outcomes failed to materialize, leading to conflicting perspectives between the two ministries.

Samir Sharifov’s tenure as Minister of Finance is also marked by a lack of significant and sustainable growth in the state budget. For instance, in terms of forecasted per capita budget expenditures for 2025, Azerbaijan, with $2,392 per capita, falls behind its regional neighbors Georgia ($2,632) and Armenia ($2,466), despite being ahead in absolute figures within the South Caucasus[4]. Moreover, Azerbaijan's projected 2025 budget of $24.4 billion pales in comparison to those of similarly populated or smaller countries: Hungary ($75 billion for 9.6 million people), Norway ($106 billion for 5.5 million), Israel and the Czech Republic ($140 billion each for 9.3 million and 10.7 million, respectively), Austria ($240 billion for 9.1 million), Switzerland ($277 billion for 8.8 million), and Sweden ($307 billion for 10.5 million).

These comparisons underscore significant gaps in Azerbaijan’s budget formation, the organization of budget processes, and the overall growth of its public finances. Much work remains to ensure transparency, efficiency, and meaningful progress in budgetary practices.

[1] https://e-qanun.az/framework/16199

[2] Ibadoghlu, Gubad, Open Budget Survey-2021: Why Are Azerbaijan’s Results Questionable? (July 28, 2022). Available at SSRN: https://ssrn.com/abstract=4175334 or http://dx.doi.org/10.2139/ssrn.4175334

[3] https://e-qanun.az/framework/26879

[4] Ibadoghlu, Gubad, What Does the 2025 Budget Promise?  (January 10, 2025). Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5091291