The state budget of Azerbaijan has grown by almost a third in 5 years. How are the funds distributed?

On December 5, the Milli Majlis (Parliament) of Azerbaijan approved the draft state budget for 2024 with a deficit of 2.2% of GDP with expected revenues of 34 billion 173 million manats (at an oil price of $60/barrel) and expenditures of 36 billion 763 million manats.

ASTNA's monitoring of state budgets over the past 5 years has shown that the country expects to earn and spend almost 10 billion manats more in real prices in 2024 than in the pre-2019 year, which may be facilitated by higher prices for hydrocarbons, as well as the rapid development of freight transportation and the construction sector.

The state budget of Azerbaijan continues to focus on oil revenues, but no longer elevates them to the "rank" of cornerstones, since oil extraction is expected to reach 29.5 million tons in 2024 against 37.5 million tons in 2019.

The "fault" for this is a decrease in production at the key block of the country's fields - Azeri-Chirag-Guneshli (ACG), which in 2019 produced 26 million tons of oil, and in 2023 and in 2024 will produce about 8 million tons less (in 2023, Azerbaijan hopes to extract 30.5 million tons oil, of which about 18 million tons are from ACG.) High world oil prices do not save the situation (this year the average price for Azeri Light may be $80-85 per barrel against $67-70 in 2019).

In 2019 the transfer from the State Oil Fund of Azerbaijan (SOFAZ) to the revenue side of the state budget accounted for over 47% (11.4 billion manats); in the state budget for 24 years it was noted that SOFAZ will have to transfer 12.78 billion manats to the treasury, or slightly more than 37% of the total revenue of the state budget.

Over the past 5 years, the tax base of the country's manufactured and imported products has increased, which will help offset the decline in oil revenues.

As for government spending, the more than twofold increase in defense and national security spending is noteworthy — to 6.42 billion manats in 2024 from 3.04 billion manats in 2019.

Despite the victory in the Second Karabakh War in 2020 and the return of almost all Azerbaijani lands captured by Armenia in 80-90, a peace agreement has not yet been signed.

In the expenditure item of the state budget-24, defense expenditures account for 17.7%, and in 2019 they accounted for about 13% of all expenditures.

And if in 2019 defense spending exceeded the allocation of funds by only 400-500 million manats, for example, for education, then in 2024 the gap will amount to almost 2 billion manats (next year 4.5 billion manats are planned to be allocated for education). It is planned to provide 4.5 billion manats for social protection in 2024.

The state budget-24 provides for the financing of reconstruction and construction projects in Karabakh and Eastern Zangezur at the level of 4 billion manats, and these additional costs, which did not exist 5 years ago, of course requires the government to seek additional income. The government prefers to look for income within the country, not wanting to increase the volume of external loans.

An increase in the production and export of gas, petrochemical industry products, agrarian industry, the issuance of various domestic securities, and the collection of dividends from state-owned companies operating in the extractive and transport sectors will be able to help in this.

Moving towards stabilization and diversification of the economy, the government expects to curb inflation from 2024, which by the end of 2023 may be 9.5-10%, whereas in 2019 it was 2.6%. Inflation forecasts for 2024 are slightly more than 5%.

Azerbaijan's optimism about improving the economy is also based on accumulated foreign exchange reserves. Thus, on December 5, in the Milli Majlis, Prime Minister Ali Asadov announced that Azerbaijan's strategic foreign exchange reserves currently amount to $68.3 billion (a record level), whereas at the beginning of the year they were at $59 billion.

Of course, the main part of foreign exchange reserves is formed by the implementation of international oil and gas contracts, and the government expects that in 2024, trade abroad in oil and gas (at a price of $ 60 per barrel) will bring the country over $ 18 billion (the forecast is prepared according to the methodology of the balance of payments), while exports of products from other sectors can give about $3.75 billion

However, the share of the non-oil sector in GDP is steadily growing from year to year, and in 2024, in projected real figures, it is planned to reach 84 billion manats out of a total GDP of 118 billion manats.

As for the revenue item of the state budget-24, in fact, half of them are expected from the oil and gas sector, half - from other sectors.

The deficit of the state budget of Azerbaijan for 2024 is projected at the level of 2 billion 590 million manats or 2.2% of GDP.

The same indicator was predicted approximately when drawing up the state budget-19, but in reality, due to lower revenues, the government reduced both expenditures and the deficit of the state budget-19 was less than 1%. Time will tell how the country's main financial document will be regulated in 2024.