Necessary to Optimize Government Spending and Revenues when Preparing Measures to Promote Business Suffering from COVID-19

By March 25, the Azerbaijani government should prepare a package of proposals with the aim of supporting businesses suffering from the Corona Virus COVID-19.

“Following the discussions on March 17 at a meeting with Prime Minister Ali Asadov, the government was instructed to prepare a package of proposals within one week to minimize business losses due to restrictive measures in the areas of trade, public catering and transport, as well as forms of state support for business," says the message of the Cabinet.

In a conversation with ASTNA, Samir Aliyev, head of the independent center for supporting economic initiatives, cited a number of figures indicating losses in a number of these sectors.

“The daily added value of hotels and restaurants is about 5 million manat, wholesale and retail trade makes 21 million manat per day, and the transport, storage and logistics services are 20 million manat. Due to the quarantine introduced to suppress the spread of COVID-19, these sectors lose most of their revenue,” he said.

In his opinion, the government of Azerbaijan, in preparing proposals for support, should go on to provide tax holidays for catering establishments and suspend tax audits and penalties for violation of the law for 1-2 months in connection with the forthcoming financial statements for the 1st quarter of the year 2020. A temporary rental waiver may also help.

In the field of transport, it would be good to reduce the cost of AI-92 gasoline and diesel fuel for business entities.

In general, small and medium-sized businesses need to be ranked by the amount of tax paid, to provide them with at least one-time financial assistance. Interest rates on loans taken by entrepreneurs in crisis sectors can be canceled somewhere by 2 months. It would also be advisable to create an Anti-Crisis Fund in the amount of about 100 million manat.

Another independent economist, the head of the Movement for Democracy and Prosperity, Gubad Ibadoglu, believes that it is necessary to optimize the state budget expenditures in connection with the Corona Virus and falling oil prices, and this (optimization) will help to identify in the state budget-20 the funds necessary to support the catering and transport suffering from COVID-19.

“For example, this year the state budget for international events provides 221.5 million manat, but all the activities that Azerbaijan outlined for the first half of this year have been postponed. Also postponed were business trips of civil servants. All this can free up millions of manat,” G. Ibadoglu noted in the comments for ASTNA.

At the same time, he called on the authorities not only to increase state support for small and medium-sized businesses, which stopped or limited their activities due to the Corona Virus, but also to expand targeted social assistance, including all types of benefits.

“In the current difficult conditions, there is a need to increase pensions. A system should also be created for online registration of socially vulnerable segments of the population, and monthly financial support should be provided to all registered unemployed,” Ibadoglu said.

It should be noted that both experts called on the Azerbaijani government to familiarize themselves with those economic measures that have been or are being taken by other countries of the world, and draw useful for Azerbaijan.

“In the United States, $ 1.2 trillion is allocated for these purposes, including $ 0.3 billion for entrepreneurs, $ 0.25 billion in cash for citizens (targeted assistance), and $ 0.2 billion for stabilization funds. Tax holidays have been announced, and it is proposed to reduce the tax on salaries,” Ibadoglu said.

Samir Aliyev, in turn, pointed out that "Denmark, for example, freezes the payment of VAT, and the United Kingdom wants to apply the same measures."

“In Australia, China, Italy, tax and credit incentives are applied. An anti-crisis fund is being created in the Russian Federation, there will be tax holidays for business and paid holidays for working citizens who are forced to quarantine. Similar measures are being discussed in Ukraine. I think that based on foreign experience, Azerbaijan can develop measures to support business, and it would be reasonable for them to contribute to the development of the private sector and help the population,” S. Aliyev said.

In an interview with ASTNA, one of the economists close to the authorities noted that “targeted allocation of money is not the right decision, because in a crisis people try not to spend, but to save the money received. So the multiplier effect will be “hindered” by the desire of consumers to save directly received money (Propensity to save). ”

“In this situation, the best option is to spend money on projects that create jobs and involve several related industries at once (as happens with construction, for example), which is guaranteed to activate the multiplier effect, stimulating the economy,” said the expert, who is currently raising his qualifications in one of the western economic universities.

According to him, “in Azerbaijan, you can temporarily reduce taxes, thus freeing a certain part of the money.

“On the one hand, this can intensify business activity, on the other, free up money from consumers. Another question is how will they manage this surplus - will they spend or save? It all depends on what society is more inclined to. Therefore, I personally prefer the option of increasing government spending and certainly not reducing it now. If government spending is reduced now, then the economy can “shrink” even faster, which will immediately affect the level of unemployment and a drop in GDP,” he said.

According to this young expert, “monetary policy can become a powerful tool.”

“You can lower the interest rate or ease the requirements for reserve banks. You can also resort to open market operations in the country. Such operations increase the liquidity of banks and increase the money supply, which ideally stimulates business activity by activating the banking sector and lending,” he said.

However, in the case of simultaneous expansive fiscal and monetary policies, there may be disadvantages.

“The main risk is rising inflation. But, as we know, without inflation, there is no GDP growth, and it is it that is needed at times of economic slowdown. As you know, with rising inflation, unemployment decreases (Phillips curve), and this is also what is needed in times of crisis. But I think that high-class specialists from the Ministry of Finance, the Ministry of Economy and the Central Bank will soon announce the measures of fiscal and monetary policies, with which they intend to stimulate the country's economy, which, it seems to me, runs the risk of slowing down amid falling oil prices and the global recession as a whole,” the economist close to the government noted.

 TOURISM AND HOTEL BUSINESS HARD

 It is clear that tourism and hotel business in Azerbaijan were the worst affected by quarantine measures in connection with COVID-19.

According to the press secretary of the State Tourism Agency (STA) Kenan Guluzadeh (ASTNA), a package of proposals has been prepared for assistance to the sector, "but the decision on the tourism industry will still be made in conjunction with general economic measures of the government."

“We are talking about millions of manat. But this is exactly the help. It does not compensate for all losses of the industry,” he said.

Many experts say that even the summer season (if the Corona Virus can be defeated before it) will not be able to correct the difficult situation with the tourism and hotel business in the country.

According to economist Samir Aliyev, tax holidays must be declared in this sector, in particular, exemption from property tax (real estate) is advisable.

The head of the Board of the Association of Hotels and Restaurants of Azerbaijan, Samir Dubendi believes the tourism sector of Azerbaijan has experience in difficult trials and quick recovery after them.

He also considers it reasonable to apply tax holidays in relation to catering and hotel, as well as tourism businesses.

As for the reduction of personnel in these sectors due to the crisis, Samir Dubendi believes that it is too early to talk about such drastic measures, but if the situation around COVID-19 drags on, then staff reductions will begin in 2-3 months. Note that recently the World Travel and Tourism Council (WTTC) reported that up to 50 million people working in this sector around the world could lose their jobs.

"We are ready to offer our support to the governments of different countries, especially those that will pursue a strong policy for the rapid recovery of the industry," the WTTC said.

We hope that Azerbaijan will become one of these countries.

We will also look forward with optimism to the government’s steps being announced, hoping that the measures it develops will not hit ordinary citizens and socially disadvantaged groups.