Azerbaijan’s State Budget for 2020 Needs to Be Seriously Reviewed - Gubad Ibadoglu

Baku / 25.05.20 / Turan: Doctor of Economics, Chairman of the Center for Economic Research Gubad Ibadoglu in an interview with Turan spoke about the need to amend the state budget of Azerbaijan in 2020, due to lower world oil prices and the crisis caused by the COVID-19 Coronavirus pandemic:

- Gubad Bey, is it necessary to make changes to the state budget of Azerbaijan in 2020? If so, which budget items should be changed?

- A sharp decline in prices on world oil markets will cause changes in the volume of revenues from the oil sector. These reductions, as well as a decrease in budget revenues due to the situation with the Coronavirus pandemic, necessarily lead to changes in the revenue side of the state budget. At the same time, it should be noted that the load on the consumable part is increased by additional consumable elements. At the same time, funding sources for these costs are limited. All this makes it necessary to revise the state budget. I think we should reconsider both the revenue side and the expense side. At the same time, I believe that it is necessary to review not only the state budget, but also the budgets of the State Oil Fund, the State Social Fund, and the Unemployment Insurance Fund. Among all this, I think it would be right to first of all revise the budget of the State Oil Fund, since the current income is not enough to ensure the profitable part of the fund and this will create problems for fulfilling the budget obligations of the fund. I think through the sale of some assets of the State Oil Fund, it is possible to ensure the profitability of the fund. As for the state budget itself, the expenditure part should be seriously reviewed. Current expenses account for 61.5% of the state budget. These are salaries, pensions, social benefits, additions to salaries. According to my estimates, the amount for salaries, pensions and social payments for one month is 1 billion 212 million manats. They should never be cut and they must be paid on time. Their revision will lead to increased discontent in the country. However, there are expenses for the management of government agencies. They should be optimized. I believe that in this segment there are great opportunities for optimization.

It is necessary to optimize costs in fixed assets. It is highly likely that an impressive part of capital expenditures will be cut, and this will mainly concern construction and urban development expenditures, and economic activity. In connection with the costs of combating the pandemic, according to the head of state, there was a need for expenditures in the amount of 3.5 billion manats and the only budget source in my opinion is the state budget. It should be noted that this 3.5 billion manats was not taken into account in the state budget, since there was no pandemic during the development of the state budget for 2020. During discussions on the revision of the state budget, it will be necessary to take into account the expenditures of 3.5 billion manats and some of its articles.

- In your opinion, what other budget expenditures should be cut?

- An analysis of the 2020 state budget shows that one-time expenses are determined in a fairly large amount. In addition, there is an item other expenses, which is not included in the main part of the state budget expenses. There is also an article on retained costs. I believe that in the first place they should be accurately qualified and the articles provided for the reserve should be redirected to finance the suddenly appeared expense items. This year, 903 million manats was allocated for compulsory health insurance, and in general, expenditures on the healthcare sector approached 1.4 billion manats. I think that many changes to the state budget will be in this area. Because compulsory medical insurance is not being introduced throughout Azerbaijan and the phased introduction of the system does not end this year. At best, half of the 903 million manats will be spent this year. Half can be used for other purposes. To date, as part of the fight against Coronavirus, 97 million manats from the Presidential Reserve Fund and 150 million manats from the state budget have already been allocated for the purchase of necessary medical supplies and equipment. In addition, 10 modular hospitals with a total capacity of 2,000 beds were built at the expense of state finances. It should be noted that there are temporary additions to the salary of medical staff. All this makes necessary changes in the article of health care, especially in terms of remuneration. In addition, the state budget provided 221 million manats for international sporting events and other international events. It can be seen that they will not be spent. They can also be added to the list of savings and redirected to other areas.

- With current oil prices, what could be the state budget deficit by the end of the year?

- Estimates show that if in 2020 the average price per barrel of Azerbaijani oil is below $ 53, then the problem of fiscal balance may appear in the country. We can say that the average oil price will be below $ 53, and this problem of fiscal equilibrium can now be predicted. And if the average oil price is below $ 40, then the problem will already be in the country's balance of payments. This, in turn, already affects the expenditure of the country's foreign exchange reserves to maintain the national currency. It can be said that this is a red line for Azerbaijan and therefore the state budget should be seriously reviewed. Starting this year, transfers from the State Oil Fund to the state budget are carried out according to the new fiscal rules and, according to them, the planned 11 billion 350 million manats transfers to the state budget this year are the maximum limit. If during the year there are problems with revenues to the state budget from the non-oil sector, it may be necessary to increase the volume of transfer. And this, in turn, is possible only after changes to the fiscal rules specified in the law on the state budget system. In this case, along with changes in the state budget, there will be a need to change the legislation on the budget system. Naturally, all this will depend on how long the Coronavirus pandemic lasts. If it lasts long or if the second wave of the pandemic comes in the fall, then Azerbaijan will need the funds of the State Oil Fund. –71B-