Next year's state budget parameters

The next year's state budget was voted on and adopted after "long" discussions in parliament (29.12.2020). The main parameters of both the state budget and the consolidated budget were adopted as follows: [1] Revenues of the state budget are expected to be 25,427.0 million AZN, expenditures -28,543.0 million AZN, and the deficit - 3,116.0 million AZN. This [2] means that the upper limit of the state budget deficit in 2021 is projected at 3116.0 million AZN. In 2021, the ratio of the state budget deficit to GDP will be 4.1 percent, which is 0.6 percentage points less than in 2020. Revenues of the consolidated budget [3] are expected to be 23,828.1 million AZN, expenditures - 31,163.4 million AZN, and the deficit - 7,335.3 million AZN.

Next year, 54% of state budget revenues will come from the oil sector and 46% from the non-oil sector. This reflects the growth rate for the first 9 months of this year. Such that [4] in the first 9 months of 2020, the value-added in the oil and gas sector in the Republic of Azerbaijan amounted to 54.6% of state budget revenues.

In the budget forecasts for oil, the price limit is estimated at $ 40 per barrel.

If we group two points in next year's budget parameters, it will be clear that the main directions will continue to cover the following areas. One of them is related to the sources of income from which budget revenues are formed, and the other is related to the areas in which the expenditure direction of the budget covers.

Sources of budget revenue:

  • Revenues of the state budget for 2021 are projected at 25,427.0 million AZN, which is 33.6 percent of GDP [5]. Compared to the forecast for 2020, it is 1,303.0 million AZN or 5.4 percent more.
  • The dominant share in budget revenues traditionally falls to the share of financial transfers from the Oil Fund. In 2021, the amount of transfers from the State Oil Fund to the state budget will be 12.2 billion AZN.

Source: Ministry of Finance

This means that 88.6 percent or 12,200.0 million AZN of state budget revenues in the oil sector are transfers from the State Oil Fund of the Republic of Azerbaijan, 11.4% or 1,576.0 million AZN are revenues from the oil sector through tax authorities. [6] This suggests that in 2021, 48% of state budget revenues [7] will fall to the share of transfers from the State Oil Fund of the Republic of Azerbaijan.

  • The Ministry of Taxes and the State Customs Committee will still be responsible for the remaining 52% of the state budget revenues. Such that [8] 28.5 percent of budget revenues will be provided through the State Tax Service, 15.3 percent at the expense of funds from the State Customs Committee of the Republic of Azerbaijan.

Expenditure directions of the budget

  • In 2020, which is remembered as the year of the fight against the coronavirus, states are focusing on increasing the share of the social budget in budget expenditures. In the state budget for 2021 [9], social expenditures will amount to 11.1 billion AZN, which is 564 million AZN or 5.3% more than last year.
  • One of the main expenditures of the state budget is related to foreign debt. Such that 7.7 percent or 2,198.8 million AZN will be allocated in the budget [10] for public debt service. Of the 28.5 billion AZN of state budget expenditures, 2.2 billion AZN will be used only to cover the debts we have received from international financial institutions so far.
  • Among the social expenditures, 183.3 million AZN is envisaged for science next year. Again, science expenditures are in the corner of the budget.
  • The most paradoxical direction of expenditures is reflected in the health budget. Such that the funds to be allocated for health in the state budget for 2021 will be 1.4 billion AZN. For comparison, in the absence of coronavirus, health expenditures from the budget amounted to 1.7 billion AZN. This means that [11] the share of health expenditures in 2021 in the state budget expenditures is 4.9 percent. Instead of increasing health expenditures on COVID-19 measures, the government has reduced it even further. The government did not explain the reason for the reduction in the draft budget.
  • Next year's state budget also identifies a direction of expenditures that we have never encountered. Such that [12] to ensure a large-scale return to the liberated territories, it is planned to allocate 2.2 billion AZN from the 2021 state budget for the restoration and reconstruction of cities and villages, the creation of modern infrastructure in these areas.
  • Fewer funds will be allocated in the direction of expenditures on repair, construction, and infrastructure formation, which has been predominant (33-39%) for many years. Such that for this purpose [13] in the state budget for 2021, 2.8 billion AZN is provided for state capital investment. Naturally, the funds allocated for the reconstruction of the liberated territories (2.2 billion) include the construction of infrastructure for its intended purpose. If it is possible to say so, the construction site activities carried out so far in Baku and the districts will be replaced by the liberated territories of Karabakh.

 

Sources:

[1] http://www.maliyye.gov.az/news/5501/milli-meclis-azerbaycan-respublikasinin-2021-ci-il-dovlet-budcesi-haqqinda-qanunu-qebul-edib

[2] http://www.maliyye.gov.az/news/5499/azerbaycan-respublikasinin-2021-ci-il-dovlet-budceinin-layihesi-milli-meclise-teqdim-olunub

[3] http://www.maliyye.gov.az/news/5501/milli-meclis-azerbaycan-respublikasinin-2021-ci-il-dovlet-budcesi-haqqinda-qanunu-qebul-edib

[4]  file:///C:/Users/HP/Downloads/5fe0996cc4b44%20(2).pdf

[5] http://www.maliyye.gov.az/news/5499/azerbaycan-respublikasinin-2021-ci-il-dovlet-budceinin-layihesi-milli-meclise-teqdim-olunub

[6] file:///C:/Users/HP/Downloads/5fe0996cc4b44%20(2).pdf

[7] file:///C:/Users/HP/Downloads/5fe0996cc4b44%20(2).pdf

[8] file:///C:/Users/HP/Downloads/5fe0996cc4b44%20(2).pdf

[9] http://www.maliyye.gov.az/news/5499/azerbaycan-respublikasinin-2021-ci-il-dovlet-budceinin-layihesi-milli-meclise-teqdim-olunub

[10] http://www.maliyye.gov.az/news/5499/azerbaycan-respublikasinin-2021-ci-il-dovlet-budceinin-layihesi-milli-meclise-teqdim-olunub

[11] file:///C:/Users/HP/Downloads/5fe0996cc4b44%20(2).pdf

[12] file:///C:/Users/HP/Downloads/5fe0996cc4b44%20(2).pdf

[13] file:///C:/Users/HP/Downloads/5fe0996cc4b44%20(2).pdf

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