Oil is getting more expensive, is the welfare of the population improving?

 Oil prices have continued their upward trajectory, approaching the $100 per barrel mark for the first time this year. Over the past week, the global average price of "Azeri Light" (CIF) crude oil reached $99 per barrel.

However, the economic landscape in Azerbaijan tells a different story. Despite the surge in oil prices, the country's GDP growth for the year stands at a modest 0.8 percent. Surprisingly, many neighboring nations without significant oil resources are experiencing substantially higher GDP growth rates. This stark contrast highlights Azerbaijan's heavy reliance on oil and gas, with approximately 90 percent of its exports stemming from these sectors.

While oil prices surge, production indicators in Azerbaijan are on the decline. This presents a multifaceted challenge for the nation, given that a substantial portion of its state budget relies on oil revenues. According to amendments to the 2023 state budget, 52.5 percent of budget revenues, equivalent to 17.74 billion Manats, are derived from the oil sector.

Azerbaijan's 2023 budget was portrayed as socially oriented, with 45.7 percent of total budget spending allocated for social expenditures. This budget was crafted based on an oil price assumption of $60 per barrel.

The question now arises: will the spike in oil prices translate into improved incomes for the Azerbaijani population?

Economist MP Vugar Bayramov, in an interview with Turan, emphasized that increasing wages and pensions remains a top priority in the country's social policy. He explained that in January of the coming year, all Labor Pensions will be indexed and increased. The growth in other social areas is also a key objective. Bayramov noted that the surge in fiscal revenues offers newfound opportunities to enhance social security.

He further stated that if the trend observed during the first seven months of this year persists, pensions could potentially see an 11 percent increase in January 2024. However, he cautioned that the exact figure would be announced at that time. Regardless, the growth rate in average monthly wages holds significance not only for the country's workforce but also for pensioners.

Economist Natig Jafarli pointed out to Radio Azadlig sharp decline in oil production in Azerbaijan over the past year, with a reduction of approximately 100 thousand barrels. This trend has had a negative impact on GDP indicators. Jafarli noted that the weight of the oil sector in the Azerbaijani economy is so substantial that even with favorable developments, it may not significantly impact overall economic figures.

Nevertheless, the Economist emphasized that the increase in oil prices has generated positive effects on the country's income. As oil becomes more expensive, more foreign currency enters the nation, leading to a continued positive trade balance.

When considering the impact on the population, Jafarli indicated that past years have seen projects aimed at improving the social situation, but they have not yielded substantial or noticeable results. While there have been nominal increases in salaries and pensions, often in the range of 10-15 percent, these gains have been eroded by inflation, which remains in double digits, resulting in stagnant real incomes for the people of Azerbaijan.