The Cabinet of Ministers distributed state aid within the framework of corporate interests

The Cabinet of Ministers has announced an Action Plan[1] to prevent the negative effects of the crisis caused by the coronavirus pandemic on the national economy and the social sphere by reflecting the distribution of 1 billion AZN[2] allocated from the 2020 state budget by presidential decree. First of all, I would like to note that the Action Plan includes a set of proposals from 4 working groups (economic, business, banking, and social). Unfortunately, I must also note that the incorrect link between the submitted proposals has put the action plan in an unsystematic and aimless format. It also had a negative impact on the goals and objectives of the document. Therefore, in this article, we comment on the Action Plan and the main activities reflected in it.

It is planned to spend 15 percent of the 1 billion AZN allocated in the Action Plan directly for social purposes, and 85 percent to meet the needs of the business. 35.8% or 305 million AZN of the planned expenditures for the protection of business from the crisis will be paid to hired employees and individual (micro) entrepreneurs to ensure their employment and support their activities. Such that Paragraph 2 of the Action Plan envisages 215 million AZN for the purpose of payment of a part of the salary of 300 thousand hired employees working in the areas affected by the pandemic in order not to reduce workplaces that it will be used in the average salary payments of 716.6 AZN for 1 month or 358.3 AZN per month for 2 months. For information, as of February 1, 2020, the number of hired employees in the country's economy was 1,641.0 thousand people, of whom 911.9 thousand people worked in the public sector of the economy and 729.1 thousand people in the private sector and their average monthly nominal salary was 712.1 AZN in January 2020.[3] As can be seen, state support in this direction will cover only 300,000 of the 729.1 thousand hired employees in the private sector. The remaining 429.1 thousand hired employees are excluded from the support program due to the fact that their areas of work are not affected by the pandemic. This indicates that research in the areas affected by the pandemic has been superficial and the current situation has not been properly assessed. In fact, the national economy is now completely stagnant, the only operating sector is the oil and gas sector and some industries, such as agriculture and communications. The fact that employees in the oil and gas sector are classified as the public sector also shows that many areas have been deliberately excluded when determining the sectoral effects of the pandemic. The main goal here is to reduce the amount of funds allocated from the budget by not providing state support to those working in that sector.

Paragraph 3 of the Action Plan states that 80 million AZN has been allocated to provide financial support to 300,000 individual (micro) entrepreneurs operating in areas affected by the pandemic. This means that one individual (micro) entrepreneur will receive an average of 266.6 AZN. During the implementation of this measure, which will be implemented in order not to reduce workplaces, taxes, compulsory state social insurance, and unemployment insurance payments in 2019 will be taken as the main criteria. I would like to draw attention to two points here. First, the average amount of support to be paid to the entrepreneur is half of the average monthly salary. This cannot be a significant source of funding to cover their losses. Second, even when allocating this small amount, the government distinguishes between individual (micro) entrepreneurs. Such that this support will apply only to those who will pay taxes, compulsory state social insurance, and unemployment insurance in 2019. It is as if the government is lending, not helping, and when deciding as a bank, it grounds on the customer's debt history. Such an approach is unacceptable, especially in the current crisis. As a result of this approach, about 600,000 individual entrepreneurs are excluded from the support program. Such that as of July 1, last year, the number of individual entrepreneurs registered to engage in entrepreneurial activities without establishing a legal entity exceeded 880,000.[4]

One of the key points in the Action Plan is to protect the corporate interests of businesses and banks affiliated with political power. Such that the vital passenger transport sector receives the largest share of the 1 billion AZN allocated from the budget in the Action Plan. According to Paragraph 10 of the Action Plan, 28% or 280 million AZN of the 1 billion AZN allocated for financial support in this area is envisaged. These funds will be distributed among air, rail, road, subway, and water transport. Most likely, AZAL (Silkway and Buta), Azerbaijan Railways, Baku Metro, BakuBus, Alat seaport will benefit more from the planned support during the distribution of funds.

As for banks, Article 19 of the Action Plan states that the fees paid by professional participants of the banking and insurance markets to the financial market supervisory authority have been abolished. I would like to share two notes in this regard. First, only professional participants in the banking and insurance markets do not pay a fee to the financial market supervisory authority.

According to the Rules[5] of regulation of fees paid to the Financial Market Supervision Chamber of the Republic of Azerbaijan by entities supervised in financial markets, non-bank credit organizations (NBCOs), national postal operator, stock exchanges, investment companies, central depository, clearing organizations, investment funds, investment fund managers, investment fund depository, credit bureaus, lottery organizers (excluding incentive lotteries), and sports betting game operators paid fees. The question is why only banks and professional participants of the insurance market are exempted from paying this fee, others are not provided with such benefits.

Second, if the fees paid by banks and professional insurance market participants to the financial market supervisory authority are abolished, why do not the beneficiaries offer any concessions on consumer loans (credit holidays, full or partial exemption from loan payments, etc.)? I would like to note that depending on the capital, banks have to pay from 300,000 to 800,000 a year to the financial market supervisory authority. Why do leading banks due to the coronavirus not offer discounts on consumer loans? I think that the Central Bank together with the Association of Banks of Azerbaijan should submit proposals on discounts on consumer loans as soon as possible.

The weakest link in the Action Plan is social assistance to the population. Such that it is planned to spend only 100 million AZN to reduce the impact of the crisis caused by the pandemic on employment. Of this amount, 70 million AZN will be spent on 200,000 unemployed for two months as 190 AZN per month, and 30 million AZN to provide temporary employment for 50,000 job seekers. In addition, 40 million AZN will be spent on tuition fees for students belonging to families belonging to socially vulnerable groups, 10 million AZN will be directed to increase the limit of preferential electricity for the population by 100 kWh in April-May.

In this regard, I would like to note that as of January 1, this year, the number of officially registered unemployed in the employment centers is 81.5 thousand people, of which only 6.6 percent or 540 people are paid unemployment insurance premiums. In this case, 81,000 old unemployed (before the pandemic) and 119,000 new unemployed (after the pandemic) will most likely benefit from the two-month one-time support for 200,000 unemployed. I think that the number of unemployed after the pandemic is many times more than the 119,000 people included in the support program. This does not mean that all the unemployed will benefit from the support program.

As for the increase in the preferential use of electricity for the population from 300 kWh to 400 kWh, according to Azerishig OJSC[6], currently, 80% of the subscribers consume less than the existing limit of 300 kWh. Only about 20 percent of household subscribers exceed this limit. This means that 80 percent of subscribers will not benefit from this decision. As a result, consumers of the population will be the middle class and the rich, who will benefit from the increase in electricity consumption during the month to the first 400 kWh. For information, I would like to note that according to this change, 1 kWh of electricity up to 400 kWh is calculated at 7 qapiks, and above it at 11 qapiks.

Apparently, the Cabinet of Ministers acted more in the corporate interests of the political authorities in the implementation of the tasks arising from the presidential order to prevent the negative impact of the crisis caused by the coronavirus pandemic on the economy and the social sphere.

Gubad Ibadoglu

[1] https://cabmin.gov.az/az/document/4367/

[2] https://president.az/articles/36228

[3] https://www.stat.gov.az/news/index.php?id=4507

[4] https://vergiler.az/news/economy/3050.html

[5] http://www.huquqiaktlar.gov.az/StatementDetails.aspx?statementId=37534

[6] https://report.az/energetika/tahir-ceferov-biz-calisamliyiq-ki-telebati-qeyri-ehali-qrupu-isteh/?fbclid=IwAR34euBfUyfjesuzNJwhI_5hTHz1DM5wiqYzrWnEiYf5IPWS0KpQ5-qsXw0