Budgetary Adjustments from Oil Fund

Baku / 05.08.20 / Turan: Today the Milli Mejlis is considering changes in the state budget and the consolidated budget for 2020.

Although independent experts have repeatedly argued for the need to revise the budget since the beginning of this year, the government's financial bloc denied this.

Independent economists-experts explained the revision of the budget by the fall in oil prices in the world oil market, the growth of social budget spending amid the COVID-19 pandemic.

Thus, one barrel of crude oil, which is the main source of income for Azerbaijan, is estimated at $ 55 in the state budget for 2020, but currently the price on the world market is in the $ 40 range. On this basis, the experts considered it necessary to revise the budget in order to avoid such a phenomenon as a decrease in income, an increase in expenses.

Speaking earlier with a statement in the media, government officials said they did not consider it expedient to revise the budget, but on July 30, the Ministry of Finance presented to the Cabinet of Ministers its proposals for revising the state budget for 2020.

As the main goal of changes to the state and consolidated budget, the Ministry of Finance considers the formation of reserves for the adoption of additional defense and security measures, as well as the satisfaction of additional measures aimed at preventing the negative impact of the COVID-19 pandemic, including in connection with large-scale measures taken in health care to protect the health of the country's population, as well as sectors of economic activity affected by the pandemic.

At an extraordinary meeting of the Milli Majlis, amendments are proposed to the Law of the Republic of Azerbaijan “On the state budget of the Republic of Azerbaijan for 2020”, to the Law of the Republic of Azerbaijan “On the budget of the Unemployment Insurance Fund for 2020”, as well as to the Law of the Republic of Azerbaijan “On the budget of the relevant executive body authorities for 2020”.

Economist Gubad Ibadoglu explained that in accordance with the amendments submitted to the Milli Majlis, it is proposed to revise the indicators of the State Oil Fund (SOFAZ) budget for 2020 and inter-budget transfers on the 2020 budget, temporarily suspend the application of budget rules, consider the macroeconomic situation for six months 2020, the expected trends by the end of the year and take as a basis in the budget for the second half of the average price of 1 barrel $ 35.

According to the scientist, the amendments will be made to both budget revenues and budget expenditures due to a decrease in tax collections in a number of sectors of the economy due to lower prices for crude oil on the world market and the negative impact of the pandemic.

The rationale for the temporary suspension of the application of the budget rules indicates that according to the new budget rule applied in the 2020 budget, the upper limit of transfers to the state budget will not be met for this year.

Thus, the share of oil revenues in the adjusted state budget for 2020 is increasing. Thus, according to the clarification of the draft Law of the Republic of Azerbaijan "On Amendments to the Law of the Republic of Azerbaijan" On the State Budget of the Republic of Azerbaijan for 2020, 52.0% of the adjusted state budget revenues for 2020 or 13,990 million manats are the share of the oil sector, and 42.0% or 10,134.0 million manats are the share of the non-oil sector.

G. Ibadoglu said that in overwhelming cases, tax and levy receipts will be reduced, losses will be compensated at the expense of SOFAZ, and the necessary financial support will be created this year.

President of the Center for Petroleum Research Ilham Shaban says that although Azerbaijani oil is sold on the world market for $ 40-45, the establishment of a price of $ 35 in the state budget is due to the fact that the net profit from oil sales in the first 6 months of 2020 was $ 38.7 per barrel. This is the first reason.

The second reason is related to the fact that it is not known how the oil price will behave in the second half of the year. "Now the oil price is in the $ 40-45 corridor. Since June, oil has not been sold at a price below $ 40. But this does not mean that the oil price cannot fall below $ 40 in the framework of certain events, which is quite possible."

On the other hand, Shaban considers it important to take into account the factor of decreasing oil production in Azerbaijan.

On the other hand, for the first time in Azerbaijan, a budget with such a deficit is being adopted: “Budget revenues are 24.1 billion manats, and expenditures are 3.5 billion manats more. Therefore, the government is taking insurance measures so that due to the rise in oil prices, it could close a certain deficit. ”

It should also be noted that, according to the State Customs Committee, in January-June 2020, the average export price of Azerbaijani oil decreased by 28.2% and amounted to $ 47.03 per barrel. - 0 ---