Azerbaijan's 2024 Budget: Balancing Act Amidst Oil Dependency Shift

An analysis of state budgets conducted by the analytical service of the Turan News Agency (ASTNA) over the past five years has revealed an increase in income and expenses in real terms by about 10 billion manats in 2024 compared to the level before 2019. This boost is attributed to higher hydrocarbon prices, a flourishing freight transportation sector, and construction activities.

On December 5, Azerbaijan's Milli Majlis (Parliament) greenlit the 2024 state budget, projecting a 2.2% GDP deficit. Anticipated revenues stand at 34 billion 173 million manats (calculated at an oil price of $60 per barrel), with expenditures totaling 36 billion 763 million manats.

While Azerbaijan continues to center its budget on oil revenues, it no longer places them at the forefront, considering the expected dip in oil extraction to 29.5 million tons in 2024 from 37.5 million tons in 2019. This decline is linked to reduced production in the key Azeri-Chirag-Guneshli (ACG) fields, impacting the country's reliance on oil revenue.

In 2019, the State Oil Fund of Azerbaijan (SOFAZ) contributed over 47% (11.4 billion manats) to the state budget. In 2024, SOFAZ is expected to transfer 12.78 billion manats, comprising slightly over 37% of the total state budget revenue.

Despite the decline in oil revenues, the country's tax base for manufactured and imported products has increased over the last five years, offsetting the shortfall.

Of particular note in expenditure is a more than twofold increase in defense and national security spending, reaching 6.42 billion manats in 2024 from 3.04 billion manats in 2019. This substantial hike reflects Azerbaijan's ongoing challenges, even after its victory in the Second Karabakh War in 2020.

Defense expenditures constitute 17.7% of the 2024 state budget, up from approximately 13% in 2019. The gap between defense spending and allocations for sectors like education is set to widen, reaching almost 2 billion manats in 2024.

The 2024 budget allocates 4 billion manats for reconstruction and construction projects in Karabakh and Eastern Zangezur, signaling the government's commitment to regional development.

Azerbaijan aims for economic stabilization and diversification through increased production and export of gas, petrochemicals, and agricultural products, as well as the issuance of domestic securities and dividends from state-owned companies. The government seeks to bolster income domestically rather than relying on external loans.

In the pursuit of economic stability, the government aims to curb inflation from 2024, projecting slightly over 5%, down from an expected 9.5-10% by the end of 2023. Optimism is also driven by Azerbaijan's foreign exchange reserves, which stood at a record $68.3 billion on December 5, up from $59 billion at the beginning of the year.

Despite the dominance of oil and gas in foreign exchange reserves, the share of the non-oil sector in GDP is steadily increasing. In 2024, it is projected to constitute 84 billion manats out of a total GDP of 118 billion manats.

In summary, the 2024 state budget outlines a deficit of 2.2% of GDP, projecting optimism grounded in economic diversification, increased non-oil sector contributions, and foreign exchange reserves, though challenges persist in managing defense spending and addressing geopolitical complexities.—0-