Regarding the selection of projects: 'The law of the jungle reigns in this area'

Azerbaijan's foreign debt has decreased, while its domestic debt has increased.

As of July 1, 2024, the foreign debt stood at 5.3613 billion USD. This marks a decrease of 1.0999 billion USD, or 17%, compared to the beginning of the year.

On the other hand, the domestic debt amounted to 16.5719 billion AZN, which represents an increase of 705.5 million AZN compared to the beginning of the year.

The increase in domestic debt was also observed last year.

According to the Ministry of Finance, the main reasons for the rise in domestic debt are the support for the development of the securities market in the country, the gradual reduction of the share of foreign debt in the total state debt, and the placement of government bonds in the domestic market: "7.2807 billion AZN of the domestic debt is related to government securities in circulation, while 9.2912 billion AZN pertains to government-guaranteed obligations undertaken by the government."

Economist Elchin Rashidov also told "Turan" that the increase in domestic debt in Azerbaijan is accompanied by a decrease in foreign debt: "This is in line with the government's debt strategy."

The expert noted that the biggest concern in this area is the borrowing by various companies under state guarantees: "Especially the process of state-owned enterprises accumulating debt. Our state-owned enterprises are not managed transparently. Since financial transparency and good financial management are not applied in state-owned enterprises, borrowing is not transparent there either, and this is reflected in the total state debt."

According to the economist, this portion of state debt mainly arises from various state investment projects implemented by state-owned enterprises: "Neither the projects of state-owned enterprises nor the financial management of the projects implemented by ministries are transparent. There is not even a clear process for how these projects are selected. The law of the jungle reigns in this area. That is, the most efficient project is not implemented; rather, the project backed by the most powerful official goes forward."

In Rashidov's opinion, the lack of regulations manifests itself at both the micro and macro levels: "At the macro level, this means that Azerbaijan or its state-owned enterprises borrow money in the form of bonds or loans. The interest rates on these are significantly lower than the returns generated by the State Oil Fund of Azerbaijan. The economic gap created by this interest rate difference has to be borne by our economy."

Economist Rashad Hasanov also told Azadliq Radio that the government's view is to maintain foreign debt at an optimal level, preferably below 7 billion.

The expert added that higher-than-expected oil prices have helped the government implement this plan, and currently, the situation regarding both domestic and foreign borrowing is quite adequate.

According to him, the state borrows to meet its budgetary obligations: "The problem arises when there is inefficiency in the use of budget funds, or if these funds become a target for corruption in any form, leading to inflated budget expenditures and increased foreign and domestic borrowing. The issue lies in this area. If there were no problems here, there might be no need for borrowing."