Aliyev: Sharp Drop in Oil Prices Can Create Serious Problems for Economy

Baku / 31.03.20 / Turan: President of Azerbaijan Ilham Aliyev at a meeting on March 31 with the Minister of Economy Mikail Jabbarov admitted that a sharp drop in oil prices could lead to serious problems in the country's economy.

“The pandemic has hit hard global economic development. Leading global financial institutions have already openly stated that the crisis that may arise as a result of a pandemic will be worse than the crisis of 2008-2009. A sharp drop in oil prices on world markets, almost twice, can create serious problems for our economy, and, of course, is fraught with a decline in our income, ”the head of state said, and this was his first statement indicating the expected serious revision of the state budget -20.

He acknowledged that "the oil sector remains a key sector for our economy."

At the same time, the President of Azerbaijan recalled that in recent years "the development of our non-oil economy has been and remains a priority."

“I believe that the production of export-oriented (non-oil) products should be increased, the certification process should continue in business entities, so that our products are competitive in the domestic and foreign markets,” the head of state said.

In his opinion, life shows that "we must work and live as if we live in the post-oil era."

“Now that the price of oil is $ 21-22 per barrel, then this is the period after oil for us. We have prepared for this period, and these preparations are still ongoing. Much depends on entrepreneurs (from non-oil sectors of the economy). We have taken all the necessary decisions, adopted and will make the necessary changes to the legislation. Therefore, now entrepreneurs must act in accordance with our common work, and in this case, we will be able to overcome this crisis with honor,” Ilham Aliyev emphasized.

In his conversation with the head of the Ministry of Economy, the President noted that everything must be done to reduce the shadow economy.

“Our main goal - I set this task for the Ministry of Economy - is to reduce the size of the shadow economy. I think that very serious steps have been taken in this direction. Last year, tax and customs authorities contributed more than 1 billion manat to the treasury. Due to what? Due to the reduction of the shadow economy.

We started this year very well. In two months, revenue amounted to more than 250 million manat. Due to what? Due to the fight against the shadow economy. This process will continue. I would like to appeal again to the representatives of the private sector, and I have already said several times that we are carrying out radical reforms. This means the end of the shadow economy. But we are doing everything in order. We gave time to hundreds, maybe thousands of business entities ... There are entrepreneurs who still think that they will work in the old way. I want to unequivocally tell them that this will not happen, and no one will help them. If someone relies on acquaintances, relatives or friends in the office, he is on the wrong track. He himself will be punished, and his guardian will be punished. There will be no concessions for anyone. Without exception, all enterprises must leave the shadow economy. Thus, I believe that such a “cleaning policy” will give good results,” Aliyev said.

The Minister of Economy informed the head of state that these issues were reflected in the prepared medium-term economic program and strategy.

“We have developed measures with a focus on creating a “white”, competitive and sustainable economy. They are aimed at stimulating domestic production and consumption, expanding the export-oriented nature of our economy ... We intend to pursue a policy aimed at replacing oil and gas revenues,”n Jabbarov said.

Touching upon the “shadow economy,” the Minister noted that an amnesty of capital and property would be effective in combating it. This is requested by the private sector, the banking sector.

“We will present these proposals to the government and your attention in a common package of measures,” the minister said.

According to him, operational statistical information indicates that revenues to the state budget for the 1st quarter (for taxes) will be 200 million manat more than the forecast.

As for the development of the non-oil sector, it is expected that "the expansion of the agricultural processing sector, the construction sector, and the growth of freight traffic" are expected.

Also, a number of projects are being developed in the mining industry that will help increase and expand the export potential of Azerbaijan, as well as create new jobs in the regions.

According to the President of Azerbaijan, such measures should lead to "avoid problems with the implementation of the state budget-20."

“First of all, all social obligations must be fully implemented, and all social infrastructure projects must be implemented. At the same time, it is necessary to look at budget expenditures once again, and non-urgent projects can be postponed without possible damage to employment issues,” the head of state said.

He called the dynamics of economic development at the beginning of the year "positive."

“It is too early to talk about the results of March. The State Statistics Committee usually presents figures about a week after the end of the first quarter. Of course, we will analyze these figures. However, it is not difficult to predict that the Corona Virus pandemic will certainly be the main obstacle to our economic development (at the same pace),” Aliyev said.

He recalled that in order to minimize the economic and social consequences of this pandemic, it was previously a decision to allocate 1 billion manat.

“Of course, we focused primarily on enterprises operating in areas most affected by the Corona Virus. More than 300 thousand people work in these areas. We must support them. I appealed to all Azerbaijani businessmen with an appeal not to dismiss workers. I believe that Azerbaijani entrepreneurs are worthily fulfilling their civic duty. It is important that to date, the Corona Virus Combat Support Fund, created by my Decree, has received more than 100 million manat (of which 20 million was transferred from the President’s Reserve Fund),” Aliyev said.

He also dwelled on the issue of satisfying domestic demand for certain essential goods at the expense of local production.

“As for the coefficient of self-sufficiency, more accurate statistics should be kept in this area. Because I am presented with different numbers from different government agencies. Therefore, I ask you (I turned to the head of the Ministry of Economy) to analyze the figures of all state institutions and tell me the real situation, what is our coefficient of self-sufficiency in basic consumer goods, so that we can more accurately predict our policy. In particular, at the expense of the Entrepreneurship Support Fund, let's allocate funds and loans in those areas that are still dependent on imports. In some areas, we have a large share of foreign raw materials,” said the head of state.

Expert Opinions

According to the expert economist Samir Aliyev, due to low world oil prices, Azerbaijan’s GDP deflator will be significantly reduced, and this actually means the upcoming inflation growth (so far, in January-February, inflation was 2.8%).

“When Azerbaijan received big oil money, the GDP deflator grew and exceeded the consumer price index.

This, for example, was in 2008, 2010-11 and 2016-17. This proves once again that the country really depends on oil,” said the expert.

Recall that the consolidated budget of Azerbaijan for 2020 was 53% dependent on oil. How it will change is not yet clear.

As for the implementation of the government’s package of measures for entrepreneurs and the public (tax holidays, credit benefits), according to Samir Aliyev, this will push the CBA to raise the discount rate, that is, loans can go up in price.

The CBA plans to discuss the issue of a possible change in the discount rate on May 1.

Another expert economist, Parviz Heydarov, believes that there is still no normal financial reporting system in Azerbaijan, which makes it difficult to identify “shadow people” and hinders the proper distribution of state aid.

“The exact package of measures by the government is not yet clear, but, in addition to the information that the Minister of Economy has published, it would be advisable to provide large customs privileges to those legal entities and individuals who import and export. Also, private agricultural producers (small and medium) should be subsidized monthly for at least the second quarter,” Heydarov said.

In general, the government faces a difficult question: how to lure the "shadow workers" - private traders, despite the fact that, apparently, new, increased demands will be made on the private sector in order to compensate for oil losses. —0—