Challenges of Azerbaijan's Economy

Despite the fact that after a double devaluation, 4 years have passed, the Azerbaijani economy still cannot compensate for the losses from sharp changes in the exchange rate of the manat in February and December 2015. The reduction in the number of banks - the main players in the financial sector, worsening relations with dozens of clients, devaluation processes which led to a decline in confidence in the financial system in general, and in the banking sector, in particular, still play a leading negative role in this sector.

One of the main reasons for the deterioration of the situation in this sector is the fact that the International Bank of Azerbaijan has spent billions of budget funds for the rehabilitation of toxic assets formed as a result of embezzlement of funds owned by the state and customers. So, among the modern difficulties of the Azerbaijani economy, the need to rehabilitate the banking sector and build an adequate financial policy is in the first place.

The second challenge is the increased dependence on oil and gas resources, which is observed in almost all areas. The weakening of this dependence recorded in 2015-2016 began to be replaced by the inverse effect of the increase in crude oil prices on the world market from 2017. Thus, the share of oil revenues in state budget revenues increased from 47.7% in 2017 to 59.5% in 2018 and the share of crude oil, petroleum products and natural gas in exports increased from 88.62% in 2017 to 91.17% in 2018, and finally, the share of the oil and gas industry in GDP increased from 37.17% in 2017 to 42.56% in 2018.

Along with this, a 6-fold difference arose between the average monthly wage in the republic and the average monthly salary in the mining industry. These established negative trends continue in the current year, and more pronouncedly manifest themselves in the formation of budget revenues. Because the trend of reducing transfers from the State Oil Fund of Azerbaijan (SOFAZ) to the state budget in 2014-2018 was replaced by a wave of new growth last year. So if in state budget revenues last year, transfers from SOFAZ totaled 10 billion 995 million manat, this year the volume of transfers was predicted at the level of 11 billion 364 million manat. And this means that in the formation of the budget this year, the share of revenues from transfers from the Oil Fund alone will be about 50%, and the amount of direct oil revenues to the budget due to payments from SOCAR and AIOC will be 13 billion 700 million manat, which is 70% more than 2017. In turn, this gives grounds to assert that this year the share of revenues from the oil sector in total state budget revenues will exceed 60%.

A similar trend is observed in exports. Due to the increase in oil prices on the world market and the growth in gas production in the first 4 months of 2019, the share of crude oil, petroleum products and natural gas in total exports amounted to 91.62%, and the share of the oil sector in GDP was 42.82%. Comparative estimates made based on the official reports of the State Statistics Committee, the Ministry of Finance and the State Customs Committee, show the increasing dependence of the economy of Azerbaijan on natural and non-renewable resources for the last 2 years and 4 months. One of the main factors causing this is the pro-cyclical nature of expenditures in managing oil revenues in Azerbaijan. Thus, the rate of spending of oil revenues depends on the volume of revenues from the export of crude oil, petroleum products and natural gas; with an increase in foreign exchange earnings from the export of raw materials and budget spending it increases, and with a decrease it is reduced.

The third challenge is related to the still relatively low size of social payments in Azerbaijan compared with the neighboring post-Soviet countries. Despite the fact that as of March 1 of the current year, the minimum labor pension was set at 160 manat, and the minimum wage was 180 manat, as well as scholarships and allowances, according to the Statistical Committee of the CIS, as of April 1, o the average nominal wage Azerbaijan could not leave the group of outsiders.

So, if in Azerbaijan the average monthly nominal salary is $ 338, in Armenia this figure is $ 364, in Ukraine - $ 390, in Georgia - $ 398, in Kazakhstan - $ 444, in Belarus - $ 471, and in Russia - $ 695.

In 2005 in Armenia, the average monthly salary ($ 114) was $ 17 less than in Azerbaijan, but according to information as of April 1, the average monthly salary in Armenia ($ 364) was $ 26 more than in Azerbaijan. In addition, today the average monthly salary in Azerbaijan is $ 52 less than in Ukraine, $ 60 less than in Georgia, $ 106 less than in Kazakhstan, $ 133 less than in Belarus and $ 357 less than in Russia.

In addition, in Azerbaijan there are 130 pensioners for every 1,000 people, in Armenia - 154, in Kazakhstan - 157, in Moldova - 200, in Ukraine - 264, in Belarus - 273, and in Russia - 296 pensioners. Note that in Belarus, where there is as much population as in Azerbaijan, almost 2 million 594 thousand citizens, or 26% of the population, receive pensions, while in Azerbaijan 1 million 299.5 thousand people receive pensions (the number of pensioners in the country in 2018 decreased by 20.9 thousand people), which is 13% of the population. However, despite this, the average size of labor pensions in Azerbaijan is 2 times less than in Russia, and 1.5 times less than in Kazakhstan and Belarus.

In conclusion, I would like to note that in January-April 2019, Azerbaijan"s GDP exceeded the level achieved in the first 4 months of 2018 by 2.1%. Last year in Azerbaijan, GDP amounted to $ 46 billion 939 million, which is $ 28 billion 720 million less than in 2014 ($ 75 billion 659 million). This means that if we count from today and take into account the current growth rate, then the GDP volume lost compared to the level achieved in 2014 can be restored in 23.5 years, that is, at the end of 2042.

Therefore, in order to move forward and restore the lost, higher economic growth is needed. And with the current condition of management it is impossible. In Azerbaijan, it is necessary to conduct serious reforms in the sources and spheres of economic growth. This can only be achieved through radical changes in the provision of economic freedoms and decentralization, institutional and structural reforms in all areas. The conducted cosmetic changes cannot lead to significant changes in economic development in general and in particular, in the social situation of the population.