Is there enough state support to reduce the impact of the pandemic?

In addition to the restrictions imposed on economic activity during the coronavirus pandemic, the Azerbaijani economy, which was affected by the shocks caused by falling oil prices on world markets due to declining consumer demand, is currently facing a number of difficulties. According to the results of 6 months of the current year[1], the 2.7 percent decline in GDP conditioned the reduction of industrial production among the sectors of the national economy, transportation in the transport sector, paid services provided to the population, and retail trade turnover. Although agriculture grew by 2.2 percent and information and communication services by 4.4 percent in the first six months, growth in only two sectors was not enough to prevent the recession due to the small share of both sectors in GDP. 2.7% decrease in fixed capital investments, including a 15.5% decrease in investments in the non-oil and gas sector in 6 months, as well as a 30.1% decrease in foreign trade turnover in January-May 2020 compared to January-May 2019 also had a significant impact on the decline in GDP.

The decrease in trade turnover is due to the breakage of supply chains, as well as changes in the structure of imports and exports. The decline in agricultural growth over the past month from 3.6 percent to 2.2 percent can be explained by the restriction of movement, which was applied under the strict quarantine regime and which prevents the sale of household products to the markets, and productivity problems caused by drought. Problems with the supply of irrigation water in the agricultural sector and the continuation of the strict quarantine regime in July may further accelerate the decline in agricultural production.

The increase in budget funds allocated for measures to fight against pandemic has led to an increase in public spending, which has a dampening effect on the economic downturn. Such that characteristics of a qualitatively new social and economic behavior environment created by the pandemic, the continuation of the provision of state support to vulnerable social groups, state companies, business entities, and small and medium businesses, health sector, and other state needs have increased the level of expenditures from the state budget.

By the Presidential Decree dated March 19, an action plan worth 1 billion 409 million AZN has been prepared to help unemployed people suffering from pandemics, low-income people, businesses of which activities were restricted, to create public jobs, to expand the self-employment program, and to strengthen the health care system. In general, a package of socio-economic assistance to the economy during the pandemic period has been planned in the amount of 3.5 billion AZN at the expense of all sources.

During the first six months of this year, 752 million AZN out of 1 billion 409 million AZN allocated from the state budget for measures to combat the pandemic and reduce its negative impact on the country's economy was provided.[2] From this fund, 149 million AZN out of 250 million AZN allocated for health, 281 million AZN out of 570 million AZN allocated for socio-economic support measures, 244 million AZN out of 309 million AZN allocated for social security support measures, 118 million AZN out of 280 million AZN allocated for financial support to state companies, have already been used.

As can be seen, 752 million AZN or 53.4 percent of the 1 billion 409 million AZN allocated for the reduction of the negative effects of the pandemic was spent in the first six months of this year.

Part of the funds spent on socio-economic support programs was used to pay part of the salaries of employees working in the pandemic-affected areas during April-May and to provide financial support to individual entrepreneurs, including micro-entrepreneurs. Such that as of July 1 of the current year, 95 million AZN was paid to 210,000 hired employees on 24,300 taxpayers within the compensation of employees' salaries. 63 million AZN of the funds spent on socio-economic support programs was paid to 105,600 taxpayers under the financial support package for individual entrepreneurs, including micro-entrepreneurs.

One of the important directions of the socio-economic support program is the provision of state guarantees on new bank loans of 500 million AZN to be provided to businesses operating in areas affected by the pandemic, subsidizing interest on new and existing loans in the amount of 1 billion AZN. At present, both mechanisms are implemented through a digital credit platform created by the Ministry of Economy and implemented for the first time in the country. 820 applications have already been made by entrepreneurs to credit organizations for 318 million AZN in loans. The process of registration of loans in the amount of 3 million AZN has begun.

As for social payments, the targeted social assistance program was expanded during the pandemic. During the first six months of this year, 350,000 members of 84,000 families received targeted social assistance payments. The access of 58,000 members of 14,000 families to the program covered the period of the pandemic. At that time, the average payment to one family was 225 AZN. During the pandemic, the number of paid jobs created on public grounds reached 90,000. Such that although 38,000 public jobs were created at the beginning of the year and an additional 52,000 two-month jobs were created for the unemployed during the pandemic. To date, 95 percent of 38,000 permanent jobs and 50 percent of 52,000 two-month jobs have been fully staffed.[3]

As part of the program to support the unemployed during the pandemic, the self-employment program was also expanded to cover 12,000 families. The World Bank and the United Nations Development Program have also joined the program. According to official data, 1,232 families benefited from the Self-Employment Program in 2017, 7,737 people in 2018, and 8,000 people in 2019. 35 million AZN was allocated for the program in 2018, and more than 30 million AZN in 2019. This year, 12,000 people are expected to be involved in the self-employment program. In the first six months of the year, 3,500 people were involved in the self-employment program. However, during the quarantine period, it was not possible to involve citizens in the trainings and defend their business plans after the trainings. An additional 22,000 unemployed people will be involved in the self-employment program in 2020-2025 under the World Bank's “Employment Support Project in Azerbaijan”[4].

As for the provision of financial support to state companies, 86.9 million AZN out of 118 million AZN used for this purpose was transferred to Azerbaijan Airlines (AZAL) within the financial support of the vital passenger transport sector of the economy, as provided in the action plan. In addition, Baku Metro CJSC, one of the areas of passenger transportation, received initial financial support of 2.6 million AZN from the state budget.[5]

As can be seen, in order to regulate the negative effects of the pandemic, it is planned to spend 1 billion 409 million AZN instead of 3.5 billion AZN, of which 752 million AZN was spent in the first six months of the year. However, the recession has deepened in the economy, unemployment has risen, and poverty has risen.