State Budget to Be Revised

Falling oil prices, the devaluation of the manat and related social tension will affect the 2016 budget.

The main financial document, referred to as "balanced", will be revised in accordance with the terms and conditions. Such an announcement was made by President Ilham Aliyev during his speech in the village of Zira on December 30.

"At the beginning of the year we should review the budget. It should be carried out to rectify the budget and to reflect issues of social security and investment. It is necessary that in 2016 we should successfully develop."

But how to achieve this after all factors ensuring growth of the budget is limited.

The independent expert Vugar Mustafayev considers that to ensure the budgeted changes in government will increase transfers from the Oil Fund. "But the real action is required to combat monopoly and corruption, so that businesses can breathe freely, and the cost of goods and services fell." He also believes that much will depend on how the dollar will behave. "If the dollar stabilizes, the recovery in the economy is impossible," said Vugar Mustafayev.

"Kill two birds with one stone"

Board Member of the Republican Alternative Movement Rovshan Agayev believes that in the hands of the government the devaluation "weapon" can “kill two birds with one stone”. When the budget was formed, one dollar was 1.05 manat. This means that 7.790 bln. AZN amounted to approximately 7.4 billion dollars. Now, the rate reached 1.6 manat. In other words, the expected revenue from oil at the current rate is about 11.8 bln manat. Due to the second devaluation the government for one night "increased" the budget by 3 billion manats.

 Salary Is Competition of Prices

All analysts are of the opinion that although the collapse of manat caused "inflation" of the state budget, the acceleration of inflation will negatively affect the living standards of the population. In previous years, the social tension largely reduced due to investment projects, but now the social situation is heavy. Moreover, in the budget for 2016 investment costs were reduced by half. In all likelihood, the government understands that it leads to negative processes.

Rovshan Agayev stated to the agency Turan that the government, trying to get away from social unrest, plans to send a certain amount for the increase in pensions, salaries and benefits. Even if in the course of the year AZN becomes cheaper, the government will have the opportunity to earn additional income.

What will happen if the dollar costs 2 AZN? Experts estimate that the additional revenues of $ 2.5 billion manat will be provided by the devaluation.

Rovshan Agayev warned the government that with such a fiscal policy consequences for the monetary system are inevitable. In particular, re-inflating the investment projects will release into circulation additional money supply, which will lead to the melting of foreign exchange reserves. Plus inflation processes in the country will accelerate, which will cause start-up of classic spiral wages - prices.

Planning somehow to pass the year 2016 and hoping that in 2017 the price of oil rises, the government, instead of carrying out reforms to fill the real incomes of the budget at the expense of business and competitive economy, wants to increase the budget at the expense of "inflation tax" and nominal incomes by inflating cheap manat.

The economist Nazim Mammadov anticipated changes in the state budget 2016: there will be a supplement to the salaries of employees of state-budget organizations, several investment projects will be reduced and social protection of the population will be strengthened.

"The statements of President give grounds to assert that the government and administrative expenses will be reduced. I suggest that management optimization should be carried out by merger and elimination of certain ministries and committees."

According to Nazim Mammadov, there are structures that take from the state budget a lot more money than it is paid in taxes and spend these funds on pointless and ineffective projects. "For example, we can name the State Committee for Property Affairs. Its main function is to privatize state property. In 2016, the payments to the state budget will be about 7 million manat, while centralized expenditures will amount to 8 million manat. Plus 25 million manat is projected for expenses for consulting companies under the guise of rehabilitation of several enterprises.

The economist suggesting serious social discontent of dismissed employees of state agencies still believes that the deprivation of several thousand people of their jobs cannot be compared with the need for institutional and structural reforms

 "In times of oil revenues quite a lot of unnecessary structures were created. The transfer of their functions to other entities now does not mean that ordinary specialists will be dismissed. We are talking about something else - to do the work with a smaller number of people with higher salaries and in a non-bureaucratic way."

In the approved state budget of the Azerbaijan Republic for 2016 revenues amount to 14 billion 566 million manat and expenses are 16 billion 264 million manat. Of these, 7 billion 790 million manat are oil revenues. The share of the Oil Fund in these revenues is 6 billion manat.  -0-