The importance of solvent debt

It is clear that a state has a debt. It also acts as an investment in economic development. It is a factor that stimulates economic development. However, the question of whether this applies to all states must be answered.

According to the latest information on public debt of the Ministry of Finance of Azerbaijan (http://www.maliyye.gov.az/scripts/pdfjs/web/viewer.html?file=/uploads/static-pages/files/602fc708a3372.pdf), Azerbaijan's public debt covers January 1, 2021. Within the framework of loan agreements signed with international financial institutions and foreign banks, direct foreign debt is $ 8.1 billion or 19 percent of GDP by 2020, contingent liabilities on government guarantees for foreign debt attracted by state-owned enterprises are $ 721.1 million or 1.7 percent of GDP, and the total external public debt amounted to $ 8.8 billion (14,996.5 million manats or 20.7% of GDP). So, concretely, the total state debt has a debt of $ 8.8 billion or 15 billion manats. This suggests saying that the GDP is about 21 percent.

According to Moody's, which determines the credit rating of the Azerbaijani government, the country's foreign debt is higher than the debt announced by the government. This is a very serious signal. This means that the reliability of the information provided by the Azerbaijani government to international organizations is questionable. This gives the impression that our reputation has been damaged by partner states and international structures. According to the calculations of Moody's, in fact, the real external debt of the Azerbaijani state is 32.9% of GDP ($ 15.808 billion).

Debt levels in oil-rich countries

As a resource-rich country, whether you earn or borrow from a resource, it is simply a double responsibility for governments. On the one hand, you have a free resource income and you spend it. On the other hand, as soon as the resource income decreases, you leave a legacy of debt to the next generation.

When comparing the foreign debts of oil-rich countries, one of the largest debtors in GDP is Russia, and the other is Azerbaijan. The average level of debt per capita in both countries (2019) was $ 1,586. While foreign debt amounted to 32.9% of GDP in Azerbaijan, it was 13% of GDP in Russia, 11.8% - in Kuwait, 19.9% - in Kazakhstan, ​​and 22.8% - in Saudi Arabia.

Meanwhile, Nigeria is among the countries that have failed to use oil revenues. According to the estimates of Moody's (2019), the real external debt of the Azerbaijani state is 32.9% of GDP ($ 15.808 billion). In Nigeria, foreign public debt is 29.2% of GDP. While Nigeria's foreign debt ratio is $ 650 per capita, Azerbaijan's is $ 1,584. In other words, every Azerbaijani born in our country is born with twice as much debt as a Nigerian born in Nigeria.

Along with the amount of debt, its solvency should be taken into account. It is possible that a state has a debt of $ 50 billion, and that state can sink into this debt ratio. It is possible for a state to have trillions of public debts but this does not hurt its spirit. Without paying attention to the volume of GDP of these countries, the structure of exports, the capacity of national production, no attention is paid to the size and smallness of that amount. For example, Germany's public debt is $ 5 trillion. Its ratio to national income is 148%. This amount of debt is not a crushing or threatening factor for the economic development potential of Germany, which is considered the "heart" of Europe.

Let's say that if we look at the fact that brother Turkey has to pay only $ 190 billion of its $ 435 billion debt in the next year, it suggests saying that its solvency is very low.

Let's give a simple example... If you have a debt of 100 manats and your income is 500 manats, then you will easily pay your debt. However, if your income is 100 manats, then you must not only repay your debt but also borrow and live. So, this level of debt is beyond your reach. If the ratio between your debts and income as a subject (state, company, individual) is not extremely large, it means that the debt is not risky. If you enter a danger zone, it will already pose a serious risk to you.

In order to repay foreign debts, both the public and private sector must first create an increase in the income of our national currency, the manat, and then convert it into foreign currency. That is, it does not matter whether it is private or public foreign debt, the main thing is that the loans received by our state companies (AZAL, Baku Metro, AzerSu, and others) are guaranteed by the Azerbaijani state. As the value of the national currency declines, the solvency of debts is seriously questioned.

The economic indicators of 2020 showed that the inflow of foreign investment to our country has decreased significantly in recent years. The decline in investment means that it will be difficult for the country to earn foreign currency. In this case, the source that can ensure the repayment of debts is the cost of servicing foreign debts from the state budget (public funds, citizen taxes, etc.) and confidence in the assets of the Oil Fund.

Anne-Robert-Jacques Turgot did not say in vain that, “give me a good policy and I will give you money.” The intellectual who made this statement was aware that just as a policy without a rational plan can never provide financial security, and a policy without financial security can never be successful. It is the right economic policy that can make you successful when you pursue investment. Azerbaijan should not borrow money and use it for a policy, but borrow in accordance with a policy it developed.

Mammed Talibli