Transparency or Exaggeration in Spending Allocated for Karabakh's Reconstruction?

In a recent report, the Ministry of Finance of Azerbaijan disclosed details on the execution of the state and consolidated budgets for the first nine months of 2024. The report revealed that 64.6%, or 3.1376 billion manats, of the 4.8558 billion manats allocated for the reconstruction and restoration of the liberated territories has already been spent. Additionally, 61.4% of the funds earmarked for capital investments, amounting to 1.7289 billion manats, have been utilized.

With 4 billion manats planned for next year’s reconstruction efforts, as outlined in the 2025 state budget draft law, questions are being raised about the transparency and accuracy of how these funds are being spent. Is the money being used efficiently, or are costs being inflated?

Economist Rovshan Agayev shared his insights with ASTNA, addressing these concerns and discussing the challenges in ensuring transparency in such large-scale spending.

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Question: Rovshan bey, the Ministry of Finance has disclosed the amount spent on the restoration of the liberated territories in the operational data on the execution of the consolidated and state budgets for January-September 2024. In the first nine months of 2024, 64.6% or 3.1376 billion manats of the annually allocated 4.8558 billion manats was spent. Do you think these figures reflect reality?

Answer: If you are asking about the proportionality of the quarterly distribution of expenses in terms of how realistic they are, looking at previous reports on the quarterly and monthly distribution of state budget expenditures, the current distribution seems more balanced.

However, if you are asking whether the amount spent is realistic in terms of the scale of reconstruction and construction work—whether the costs are inflated—it is difficult to give precise answers without a thorough investigation. For such research, first and foremost, data must be open. That is, the amounts for all investment projects should be accessible through public information sources. Most importantly, independent civil society and the media must have the opportunity, when needed, to conduct direct investigations at construction sites, talk to experts and workers there. This is called impartial monitoring. We lack all of these—neither the project amounts are public, nor do we have independent investigative opportunities. Therefore, it is difficult to make a definitive judgment on whether the allocated figures reflect reality. Conclusions are only formed through the occasional public procurement announcements.

Question: In general, is there transparency in the spending of funds allocated for the reconstruction of Karabakh?

Answer: If, after the annual budget is approved, all investment projects from smallest to largest, as well as the implementation report at the end of the year, were made public, and if we had access to a registry to determine the real owners of the companies executing these projects, then we could talk about transparency.

Question: Where do you think this amount of money is going?

Answer: Even though there is no systematic and complete reporting, based on scattered disclosures, it appears that most of the funds spent so far have been related to infrastructure projects, including airports, railways, water, energy, and communication infrastructure, and roads. A relatively smaller portion has likely gone towards building residential areas. Unfortunately, as detailed reports are not available to us, we cannot specify the exact proportion of spending on these two areas.

Question: Can you give examples of cost-saving measures in the reconstruction and construction expenses? Doesn’t the amount of money allocated seem quite large compared to the work done?

Answer: As I mentioned, the lack of data and the complete restriction on research opportunities prevent us from talking with concrete examples. Twenty years ago, there was more room to engage in such work in the country. I remember our budget research group conducted a wide investigation into settlements built for internally displaced persons with funds from the Oil Fund. Journalists were organized for trips to those areas. Can you imagine doing that now?

Question: For the construction of the Shukurbayli village in Jabrayil, which will house 1,042 families, 7.664 million manats have been allocated. Initially, 48 individual houses are planned to be built with this fund. On average, the construction cost of one individual house amounts to 159.6 thousand manats. Isn't 159.6 thousand manats too much for building one house?

Answer: After seeing these figures, I discussed them with a few construction professionals whose expertise I trust, and each of them said this amount is considerably high. They noted that the cost of building similar houses by individuals is lower, and it would be unfair to compare them directly. Individuals don’t pay taxes or social contributions for the wages of workers, nor do they pay VAT on purchased goods and services. However, according to experts, these tax obligations would increase costs by a maximum of 25% compared to houses built by individuals. They believe that even after accounting for this 25%, 160,000 manats for a four-room house is still very expensive and there is clear exaggeration here. Furthermore, they point out that there are factors that should reduce the costs for companies building houses in bulk. For example, construction materials and necessary services are purchased in bulk, which makes them cheaper, and the workforce works at a lower cost due to the larger volume of work. So, some of the additional costs from taxes and social contributions are compensated in this way.

Question: Shouldn’t the government find an optimal way to deliver quality work with less spending? What are your suggestions on this matter?

Answer: Efficient budget spending involves achieving necessary quality at the lowest possible cost. To achieve this, the system must be complex. First and foremost, according to the requirements of the Constitution, we need an independent parliament that genuinely functions as a body overseeing the budget, knowing how every penny is spent after the executive branch. The Audit Chamber created by the Parliament should audit at least all major investment projects every year and make the results public. Independent media and civil society should have access to all information on the implemented investment projects and be able to conduct independent investigations on any project without hindrance. All procurements should be conducted through an electronic portal, and to determine if there are conflicts of interest or personal interests of political figures in these expenses, the registry information about the real owners of the companies winning procurement bids should be publicly accessible.