The growth of salaries and payments to result in inflationary surge

Baku/18.12.21/Turan: Starting from January 1, 2022, the salaries of teachers, directors and deputy directors of state educational and scientific educational institutions, employees of foundations, commissions and a number of other structures funded from the state budget will increase by an average of 20%. Heads of pre-conscription training of young people will have their official salaries grown by 40%, and physical education - by 30%.

Besides, from January 1, the minimum wage will increase by 20% (from 250 to 300 manats per month). Accordingly, citizens will have to pay more deductions to the mandatory social insurance fund by the same amount.

Submitting the draft state budget-2022 to the deputies, Finance Minister Samir Sharifov promised to raise salaries, labor pensions, social benefits, pensions and other social benefits from January 1, 2022 to improve the welfare of the people and ensure their social protection. He said that the growth of social spending will be up to 46.4% of the budget which is up 13.5% (by 1 billion 650 million manats) from 2021. As a result, a social part of the budget-2022 will reach 13 billion 851 million manats.  60% of this amount is related to wages, and this amounts to 8 billion manats 97 million manats which are supposed to be paid in 2022. The forecast of social security expenses was announced at the level of 3 billion 566 million manats.

According to Deputy Vyugar Bayramov, in 2022 there will be the largest share of social expenditures in budget expenditures over the years of independence. Next year, out of every 100 manats, 46.4 manats will be used for social purposes.

Note that the pro-government median is now painting a picture of the coming general well-being for which the people should be grateful to the "native party and government" (a common phrase from Soviet slogans).

However, opponents believe that even a slight growth in salaries and pensions will eat up another round of price increases and inflation, as it usually happens.

Prices in the country are rising. According to the results of 2021, the average annual inflation in Azerbaijan is expected to reach 6.2-6.5% against 2.8% in 2020, Chairman of the Central Bank of Azerbaijan Elman Rustamov said.  The first, increased salary issued in January might spur inflation to affect the economic results of the next year.

This was the case in 2019. The last time the salary of Azerbaijani teachers was raised by an average of 20% on September 1, 2019. The salary increase affected about 160.000 teachers and allowed raising their average monthly salary to 605 manats (357 US dollars). According to the results of 11 months of 2019, inflation in the country amounted to 2.8% against 2.3% a year earlier. 

Inflation is definitely rising. But its estimates vary. The increase in wages does not have a serious impact on inflationary processes," Elshad Mammadov, a professor at the Azerbaijan State University of Economics, believes. These processes are most influenced by factors related to problems in the balance of payments, the devaluation of the national currency, insufficiently developed production in the real sector, etc. - the expert added. How long the tension will continue in connection with the expectation of a new jump in prices for leading consumer goods and the concern of the population about the next devaluation and inflationary processes depends on the implementation by the government of a set of measures for anti-crisis management of the national economy," the expert wrote.

"First of all, it should include measures related to preventing capital outflow from the country. Next, it is necessary to develop the real sector of the economy. First of all, this concerns the provision of cheap and at the same time long-term loans in national currency to the real sector of the economy," Mammadov said.

Economist Rovshan Agayev in his calculations proceeds from the fact that the official inflation figures in Azerbaijan are calculated incorrectly. He rejects the ideology of the socially-oriented state budget of 2022 which is widespread in the press.

If we objectively calculate the size of inflation and indexation of the consumer basket, everyone will understand that 250 manats of the minimum wage in 2019 could buy more goods than the "minimum wage" of 300 manats in 2022.

He writes that in 2022 the cost of the minimum consumer basket will grow by 7%. Note that 70% of this basket falls on foodstuffs. However, when calculating the cost of the basket, food inflation is not taken into account. Since even the official statistics that does not inspire public confidence reports that in November this year the price of products is up 15% from November last year. That is, what cost 100 manats in November 2021 was sold for 115 manats last month.

Second, the cost of services has increased dramatically as well. As a result of the rise in gas, electricity, water and sewerage prices, the conditional consumer basket of one person has risen in price by 7 manats.

The expert emphasized that the official consumer basket is designed for heating homes with central, cheap steam heating (every 12 sq m for 0.15 manat) while just 10-15% of the population receives such a service. The rest of them heat their houses with gas, and one person cannot spend 21 cubic meters of gas per month, provided for by the official basket.

Agayev also believes that the consumer basket used in Azerbaijani calculations is intended for third-world residents, whereas for 15 years Azerbaijan has been among the group of countries with medium-high incomes in terms of national profit per inhabitant in the World Bank ranking.

Confirming the idea of Rovshan Agayev, economist Rashad Hasanguliyev recalls that there were forecasts of final inflation in 2021 at the level of 9.5-10.5%, and now everyone sees it at market prices. Hasanguliyev emphasizes that the growth of salaries in the public sector, which is slightly more than 60% of the labor force from the 1.6-1.7 million labor market, will necessarily involvel payments in private enterprises. This means that an inflationary round will be inevitable.—0—