Corruption risks in the state budget of Azerbaijan and their management

In previous articles, I wrote  about the potential corruption risks in the 2020 state budget. In those articles, I presented not only risks but also suggestions on how to manage and overcome them. The main reasons for the formation of the previous 5 risks and the 6th corruption risk presented in this article are the incompetence of the Parliament and the Chamber of Accounts, the formal nature of their opinions and reports, and the ineffectiveness of their discussions. Because the Parliament formed under the control of the executive power in Azerbaijan cannot demand a report from the executive authorities. Since the facts revealed by the Chamber of Accounts, which is a body of the Milli Majlis, in the field of budget analysis, comments and suggestions put forward by it are not taken into account by the central executive authorities, especially the Ministry of Finance, which monitors the budget execution process, The Chamber of Accounts rewrites the same problems in its opinions every year.

Risk 6: Billions of manats of unallocated funds, which are included in the budget in the name of unforeseen one-time expenditures.

A significant part of the unspecified expenditures is one-time expenditures. An analysis of international experience shows that the approach of forecasting unspecified expenditures as a reserve in certain sections of the state budget is also used by other countries. The main goal here is to ensure the timely implementation of socio-economic measures to prevent the impact that may occur during the year. However, despite its significant share in the state budget, among the main concepts used in the Law of the Republic of Azerbaijan on Budget System, there is no description and explanation of one-time funds. At the same time, the legal norms on the use of one-time funds are not established in the legislation. This is stated only in Article 19.6 of the Law of the Republic of Azerbaijan on Budget System[1]. According to this article, in coordination with the relevant executive authority (Ministry of Finance), in the process of state budget execution, the savings generated during the reporting year on the one-time funds provided for in the relevant sections, sub-sections, paragraphs, articles, and sub-articles of the economic classification may be directed to the state budget reserve fund and used to finance other measures during the year. By the Law[2] on Amendments to the Law of the Republic of Azerbaijan on Budget System dated December 30, 2016, disposal of one-time funds is limited to the reporting year.

In the budget of 2020, 4,858.7 million manats out of 4,968.1 million manats determined as one-time expenditures were executed, which was at the level of 97.8% of the established purpose. In 2020, 257.0 million manats of these funds were directed to the Reserve Fund of the State Budget as savings for one-time expenditures.[3] For comparison, it should be noted that during the changes made in 2019, a total of 371.3 million manats of savings on one-time expenditures were directed to the Reserve Fund of the State Budget.[4]

As can be seen, last year, as in the previous year, part of the budget expenditures was determined without allocation, even in 2020, the share of unforeseen and unallocated one-time expenditures in the state budget increased compared to the previous year; at the same time, due to the lack of restrictions and regulations on its use, these funds have been spent in irrelevant areas.

It is clear from the report on the budget execution of recent years that one-time funds have been spent without reporting and justification in areas that do not belong to the purpose of the functional unit and do not correspond to its name.

As noted in previous opinions[5] of the Chamber of Accounts, the excess of expenditures, of which allocation is carried out during the year, can also lead to uncertainties about transparency and accountability in the process of execution of public funds by raising questions about the adequacy of budget planning.

According to the information provided on the state budget execution for 2020, the share of the health sector in the functional classification of unallocated (one-time) expenditures was 84.2 percent, the share of the defense and national security sector was 42.7 percent, and the share of services not related to the main sections was 42.2 percent.

Although the obligations created by the COVID-19 pandemic, as well as the 44-day war for the liberation of Karabakh last year, to the state budget led to fundamental changes in the health, defense, and national security sectors, the allocation of 4.5 million manats from the one-time funds by the State Agency of Azerbaijan Automobile Roads for the maintenance of the newly built Central Park in Yasamal district of Baku, the allocation of 1.0 million manats for financial support for the activities of the Caucasian Muslims Office, and the allocation of 6.0 million manats for the purchase of carpets by the Ministry of Culture in the direction of one-time expenditures entitled "Reform costs" raise questions.

Furthermore, the allocation of more than 5 billion manats to public legal entities from various areas of the state budget for 2020 and the financing of these funds from pre-determined expenditures, state capital investment, one-time and event expenditures, expenditures on Reserve Funds raise suspicions of corruption.

In conclusion, I would like to note that the analysis of data on the state budget execution for 2020 shows that the central executive authorities have been able to take advantage of the existing legal gaps in the budget in the execution process. They did all this in violation of the requirements of transparency and accountability, without taking into account the comments and suggestions of the Chamber of Accounts in previous years, which were repeated in 2020. This has further increased the corruption risks in the budget execution process.

 


[1] Law of the Republic of Azerbaijan on Budget System, http://www.e-qanun.az/framework/1126

[2] Law on Amendments to the Law of the Republic of Azerbaijan on Budget System, http://e-qanun.az/framework/34618

[3] Opinion of the Chamber of Accounts on the Draft Law of the Republic of Azerbaijan on the Execution of the State Budget of the Republic of Azerbaijan for 2020 and the Annual Report on the Execution of the State Budget for 2020, https://sai.gov.az/files/2020-%C4%B0cra-R%C9%99y%20(3)-188749903.pdf

[4] Opinion of the Chamber of Accounts on the Draft Law of the Republic of Azerbaijan on the Execution of the State Budget of the Republic of Azerbaijan for 2019 and the Annual Report on the Execution of the State Budget, https://sai.gov.az/files/2019-REY_%C4%B0CRA.pdf

[5] Opinions of the Chamber of Accounts, https://sai.gov.az/filter?type=rey

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