Azerbaijan Can Double Foreign Debt: 'Trend is Dangerous'

Azerbaijan could see its foreign debt increase to $10 billion, a significant rise from the current $5.5 billion. This potential increase was highlighted by Finance Minister Samir Sharifov during a May 23 meeting of the Milli Majlis Committee on Economic Policy, Industry, and Entrepreneurship, where the draft law on the implementation of the state budget for 2023 was discussed.

Sharifov emphasized that Azerbaijan's external public debt is currently at a relatively low level. "We will also have some payments this year. This allows us to carry out conservative borrowing in foreign currency and at the same time implement major infrastructure projects facing our country," he said.

Azerbaijan's financial reserves are estimated at $70 billion. However, with declining oil production, the appropriateness of increasing external borrowing has come into question.

Rufat Guliyev, a member of the Milli Majlis Committee on Economic Policy, Industry, and Entrepreneurship, told Turan that the external debt may increase if loans can be secured at favorable interest rates. "There is such a possibility. If we are able to take out a loan on favorable terms in proportion to the income we receive from our gold and foreign exchange reserves, why not do so? We earn 3.5-4.5 percent of our gold and foreign exchange reserves by investing them in various stocks and other profitable projects. Against this background, if we take a 2 percent loan, it will benefit us."

Guliyev also noted that the state has ambitious plans, particularly related to the development of Karabakh and other projects that must be realized.

Economist Rashad Hasanov, speaking to Turan, criticized linking the increase in external debt to strategic foreign exchange reserves, stating that the use of these reserves is fundamentally different. "The Oil Fund's approach to spending these funds is focused on their preservation and transformation for future generations. These funds can only be directed to the state budget within the framework of annual transfers and, rarely, for various programs," Hasanov said. He emphasized that while attracting external funds for strategic projects is desirable due to better organized control and accountability, relying on internal reserves poses risks of inefficient expenditure.

Economist Natig Jafarli expressed concern over the government's approach, viewing it as an acknowledgment of declining revenues and a lack of viable strategies to boost income. "The decline in oil production and unmet expectations of gas revenues should have pushed the government to revive the economy through other means, such as increasing exports and domestic production. Unfortunately, we did not see it," Jafarli stated Radio Azadlig.

He warned that the country's revenues are likely to continue declining while expenditures are increasing. "It is said that 14.5 billion Manats were invested in the liberated lands this year, and by 2030, an additional 60 billion Manats are needed. They have limited access to these funds."

Jafarli suggested that increasing external borrowing might be the only remaining option for the government. "Azerbaijan's foreign debt is at a fairly comfortable level when compared to European countries. However, the trend itself is dangerous. It suggests that the government has lost hope that Azerbaijan's revenues will increase from domestic resources, production, and exports, shifting its focus to external borrowing. If this continues, there is no guarantee that in the near future they will not decide to double the borrowing again. This means that the population of Azerbaijan will work and pay taxes not to improve its future, but to repay external debt."

As Azerbaijan navigates these financial challenges, the implications of increased foreign debt will be closely monitored by both domestic and international stakeholders.