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How to fight against corruption?

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Gubad Ibadoglu,

Senior Policy Analyst of the Economic Research Center


After the arrests of a number of district executives on corruption charges, the arrests of Rafig Bayramov, the Deputy Minister of Culture, and Zakir Sultanov, the head of the State Service for the Protection, Development, and Restoration of Cultural Heritage under the Ministry of Culture, on the same charges clarified a number of issues. I would like to share my opinion on this. Such that it became clear from the arrests of 5 district executives and high-ranking officials of the Ministry of Culture that have taken place so far that:

1) Corruption is widespread not only in local executive bodies but also in central executive bodies.

2) Corrupt people are not only old cadres but also new cadres, so corruption covers all age groups, including young and middle-aged.

3) The majority of corrupt people are either members of the ruling party or the neutrals they answer for.

4) Money misappropriated as a result of corruption is funds of the state budget. This is due to the fact that the funds allocated from the budget are spent through non-transparent and non-public tenders at the level of both local and central executive authorities, and those funds are diverted from their address and final destination.

5) Even if the facts of corruption are revealed and the number of arrests increases, the corruption is still going on, and such means of struggle cannot stop them. Corruption is systemic, it is widespread, and systemic and comprehensive reforms are needed to prevent it. These reforms must start from the top and continue with the declaration of income and property and the increase of public participation.

Such that officials who do not declare their income and property, and government agencies which do not take advantage of formal institutions of public participation and accountability, will always be corrupt. There is no effective practice to prevent it with arrests. In fact, a head of the state who really wants to fight against corruption must first declare his income and property. However, this information is not disclosed not only regularly but also from election to election.

In this regard, I would like to draw attention to the following issues.

First, according to Article 5.4 of the Regulations on the State Oil Fund of the Republic of Azerbaijan (SOFAZ) approved by Decree No. 434 dated December 29, 2000, in order to ensure general control over the activities of the Fund, a Supervisory Board consisting of representatives of relevant government agencies and public organizations, as well as other persons is formed. For 20 years, the relevant article of the Regulations on SOFAZ has not been amended or complied with. So far, representatives of public organizations have not been represented on the Fund's Supervisory Board. Even according to the Order of Ilham Aliyev dated December 9, 2019, the Supervisory Board of SOFAZ includes the Prime Minister, Presidential Aides for Economic Affairs, Minister of Finance, Minister of Economy, Chairman of the Central Bank, and Deputy Speaker of the Milli Majlis.

Second, despite the fact that the Law of the Republic of Azerbaijan on Public Participation came into force on January 1, 2014, there are no Public Councils operating in the Ministry of Economy, the Ministry of Finance, or the State Oil Fund.

Third, the activity of the Public Council operating in the Ministry of Labor and Social Protection of the Population (MLSPP) ended on February 25, 2020, and a new one has not yet been formed. In fact, it is necessary to restore the activity of the Public Council in the MLSPP, which outraged the public due to incompetent organizational work in the lump sum payments (190 AZN), and to intervene in such issues.

In conclusion, I would like to note that the loyalty of pro-government NGOs represented in Public Councils already weakens the opportunities to take public opinions and positions into account in the decisions of government bodies. Public Councils under the Ministry of Education and some state universities are working relatively effectively in this direction. However, some central and local government officials do not comply with the Law even formally. Even if some local executive powers nominally establish a Public Council, in recent days, neither Bilasuvar nor Imishli district executive power has had such an organization in recent days. Therefore, calls for public participation are meaningless statements, and the arrest of corrupt officials is a political show. It seems that the coronavirus pandemic will end in Azerbaijan, but there will always be a corruption virus pandemic.


State Oil Fund of Azerbaijan: huge spending and overwhelming poverty

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About the Author: Gubad Ibadoghlu, Senior Policy Analyst for social and economic studies at Azerbaijan’s Economic Research Center, a Baku-based NGO that promotes economic development and good governance.

The economy of Azerbaijan is worsening due to poor management of oil revenues even though the government has spent 100 billion USD.

The State Oil Fund of Azerbaijan is preparing for its 20th anniversary. However, there is nothing to celebrate: despite huge spending, the country’s role as an economic leader in the region is declining and people are suffering from poverty and poor social services. Oil and gas revenues have brought neither improved welfare nor democracy to Azerbaijan.
As of January 1, 2019, the State Oil Fund has received 138 billion 209 million USD from the main oil reservoir Azeri-Chirag-Gunashli (ACG).[1]Currently, the Fund has 38 billion 988 million USD.[2] Taking into consideration that part of the assets of the Fund formed through the governance of oil revenues, a question arises: what have the citizens of the country gained from the 100 billion USD of oil revenue the government has received from the ACG oil reservoir alone?
It appears that in a country, which has spent $100 billion from 2001-2018, citizens suffer from unemployment and poverty, many are forced into labor migration and leave the country in search of work. The overall quality of public healthcare and education is low, it and to receive goodservice in these spheres, one must pay a high price.
Residents of major cities do not have access to quality roads, potable water, or a working sewage system. In remote regions, although the majority of oil revenues were spent there and on infrastructure projects, the situation is even worse.
According to official reports, 95% of the country has access to natural gas. However, in reality some provincial areas are not supplied with gas. Gas provision is of low quality and is often interrupted. There are numerous citizen complaints about this service.
Another problem is carbon dioxide poisoning, which takes dozens of lives every year due to unregulated heating devices and brick stoves, which are used in the absence of regular and central heating provision. According to an Associate Professor at the Azerbaijan Medical University, medical toxicologist Ismail Afandiyev, “In recent years, there has been a tendency for an increase in carbon dioxide and combustion products in Azerbaijan. If in 2007 the number of such hospitalizations in the center of toxicology was 173, in 2017 this figure was 4 times higher.”
Cancer related illnesses are also on the rise in Azerbaijan.[3] Environmental issues are also pressing.
Sixty percent of the 2019 budget comes from oil revenues. Only 4.2 percent is allocated to healthcare, while merely 0.06 percent is allocated to protecting the environment. This year’s budget expenditure allocated 39.9 percent to construction. This has been a priority for years and, since Soviet times, has been a source of corruption.
Two devaluations, which were the result of dropping global oil prices in 2015, continue to impact Azerbaijan’s economy and the quality of life of the Azerbaijani people. Since then thirteen banks have closed, and the number of overdue credits is on the rise. Currently, the overdue debt owed by people to commercial banks is more than 1,7 billion AZN, which comprises 14% of the country’s credit portfolio.
Along with that, average salary in USD has significantly decreased. Azerbaijanis earn US $252 less per month than they did 4 years ago. The average monthly salary last year was US $318.
According to the State Statistics Committee, due to decreased purchasing power in USD, the quality of life has worsened for the past 10 years.
Azerbaijan ranks low among the Commonwealth of Independent States countries in terms of growth rate of Gross Domestic Product and there has been a decrease in GDP per capita since 2014 when GDP per capita was US $7,891 Last year this figure decreased to US $4,586 per capita.
2018 was the last year Azerbaijan led the economies of the South Caucasus. According to the economic growth rate presented in the January 8, 2019 Global Economic Perspectives of the World Bank, Azerbaijan will trail Georgia in GDP per capita this year and Armenia in 2021, making Azerbaijan the poorest country in the Caucasus in 2021, not only in terms of freedoms and democracy, but also economically.
On December 28, 2018, President Aliyev signed a Decree approving budget of the State Oil Fund of the Republic of Azerbaijan for 2019 including 15,450 billion manat (US $9,088 billion) in revenues.[4] Expenditures of the Fund were approved at 11,595,238.4 thousand AZN (US $6,820,726.30 thousand).
In reality, the numbers depend on the oil prices on the global market. Current projections only work if the price of the Azerbaijani oil per barrel is US $60, however, oil prices now are below that. According to the IMF, the average oil price this year will drop to US $55.[5]
Despite this, even if the price is US $60, Azerbaijan will earn US $1 billion less than the previous year due to a decrease in extraction. Even if last year Azerbaijan maintained extraction rates equal to the previous year, this year the country will not be able to do so due to increasing costs of production. Thus, it is expected that, although the oil revenues will drop, the scope of corruption will increase and freedoms will be further restricted.
Therefore, as long as these problems persist, Azerbaijan will fail to realize the dreams its citizens have had since independence. There were times when everyone thought that if we control our own wealth our country would become Switzerland of the Caucasus. Despite 27 years since the restoration of our independence people in Azerbaijan still cannot control our oil wealth. A country with an excess of money is turning into a county of poor.

[1] https://www.oilfund.az/en/fund/press-conference/news-archive/1380
[2] https://www.oilfund.az/en/report-and-statistics/recent-figures
[3] http://deyerler.org/361786-azjrbaycanda-eie-xjstjlikljri-artdr-v-hjkimljrdjn-sos-xjbjrdarlddd.html
[4] https://www.oilfund.az/en/report-and-statistics/budget-information/40
[5] https://oilprice.com/Energy/Oil-Prices/IMF-Predicts-55-Barrel-Through-2018.html
Categories: AzerbaijanTags: ACG, Azerbaijan, Azeri-Chirag-Gunashli, Gubad Ibadoghlu, Shah Deniz, Shah Deniz II, Shah Deniz stage 2, Sofaz, State Oil Fund of Azerbaijan


Azerbaijani cotton harvest: low productivity, high administration, poor profitability

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Gubad Ibadoghlu,

senior analyst of Economic Research Center


According to the State Statistics Committee, as of December 25, in the country have been produced 229, 144 tons of cotton. As compared with the same period of the past year, cotton outputs were up 11,4%. As of January 8, cotton production was 232, 231 tons of cotton. From a year earlier, the figure is up 12,1%.

Under a State Program of July 13, 2017 “On the Development of Cotton-growing in Azerbaijan in 2017-2022”, it was expected to raise the cotton production in the country to 500, 000 tons in 2022.

Official statistics reaffirms that cotton-picking in Azerbaijan continued even in January. Reports from Sabirabad, Imishli, and Hajiqabul say that farmers who failed to implement a January plan were forced to pick remaining cotton from sown areas and thus make up for shortfall through every possible means. It should be remembered that 2/3 of cotton areas in 2018 fell on 7 regions of the country. Note that the most cotton was sown last year in Saatly (15, 815 ha), Imishli (13, 645 ha), Sabirabad (13,055 ha), Bilasuvar (12,000 ha), Agjabedi (10,000 ha), Barda (9, 630 ha), Beylagan (9, 560 ha).

It should be added that cotton areas have essentially expanded and the cotton production intensified through the use of administrative resources. Official statistics say that 35, 000 tons were procured in 2015 per 18, 000 ha; 89, 000 tons per 51, 000 ha in 2016 and 205, 000 tons per 136, 000 ha in 2017.


Productivity far from goals to be sought

It should be stressed that productivity in 2017 failed to reach an appropriate level. Suffice it to say that an average productivity per ha made up 17,4 centers. President Ilham Aliyev specified that average productivity in 2018 was meant to reach 20 centers. Under the latest official reports of the State Statistics Committee, 232, 200 tons of raw cotton was picked up in 2018 from 132, 512 ha. That’s to say that average productivity constituted 17,5 centners per ha.

During a January 29 conference on the results of the implementation of the state program of economic development of the region in 2014-2018 President Ilham Aliyev declared that “we must improve productivity.”

“The productivity is high where the responsibility is serious. For reference, the “MKT” company productivity at cotton fields is 27 centers; “Azərpambıq” - 19 centers. However, productivity is lower in small farms, so the average productivity is low as well. A revision has to be carried out in the area. Appropriate soils have to be identified for effective cotton-growing. Other crops have to be grown on soils with low productivity”, President emphasized.

It must be said that the productivity proved to be comparatively high in 5 regions of the country:

1. Barda - 26 centers

2. Agjabedi – 23 centers

3. Beylagan – 22 centers

4. Bilasuvar – 18 centers

5. Saatly – 19 centers

However, cotton productivity proved to be much lower in 7 regions:

1.   Zardob - 14,9 centers

2.   Salyan - 14,5 centers

3.   Neftchala - 14,3 centers

4.   Imishli - 13,3 centers

5.   Sabirabad - 13 centers

6.   Kurdamir - 12,9 centers

7.   Aqdash - 12 centers


In some regions the cotton productivity per ha did not exceed 10 centers:

1.    Fizuli - 9,8 centers

2.   Hajiqabul - 8,8 centers

3.   Agsu - 7,4 centers

4.   Ujar - 6,6 centers


When adjusted for the fact that underestimates of independent experts the average farmer’s costs for growing and picking of cotton per ha across the Republic account for 1000 manats, it is safe to say that in 2018 most cotton farmers sustained sizable losses.

It has to be kept in mind that the state provides a 10 qapik worth subsidy to farmers per each kilogram of cotton picked. There are the following tariffs for cotton grades: 650 manats per 1 ton of the 1st-grade cotton; 630 manats for the 2nd-grade cotton; 590 manats for the 3rd-grade cotton; 550 manats for the 4th cotton in 2018.


A share of white gold in export

According to the State Statistics Committee, 54,314 tons of cotton fiber, as well as 9,488 tons of cotton yarn was exported from the country in 2018. The cost of exported cotton fiber made up $80 mln 464, 000 and that of cotton yarn – $ 23 mln 667, 000.

To compare, 24,655 tons of cotton fiber worth $ 33mln 753,000, as well as 7028 tons of cotton yarn worth $ 15 mln 922, 000 were exported from Azerbaijan in 2017.

It should be remembered that the cotton is ranked five in agricultural produce with the highest currency:

-   Tomato - $177 mln

-   Persimmon - $114 mln

-   Cotton and products - $108 mln

-   Hazelnut - $100 mln

-   Apple - 38 mln

However, figures say that a greater portion of export falls on raw cotton. In his closing speech on January 29, 2019, at a conference devoted to the results of the implementation of the state program of economic development of the region in 2014-2018 President Ilham Aliyev dealt with cotton consumption as saying: “There is a need in constructing a mill on cotton fiber and ready-made textile production. We have fiber production mills. According to the information available, 50% of procured cotton is processed in Azerbaijan to create an added value thus. However, entrepreneurs must know that the potential is great. Well, that’s good. It should be noted that cotton production tends to grow. So I believe that entrepreneurs must care about the construction of fiber production factories”.

This is a very profitable and useful enterprise for the country. This suggests that the cotton will be a branch of top priority in 2019. The cotton production is likely to grow at the expense of administrative resources and expansion of cotton fields blindly. The above-stated is confirmed by regional news at our web-page.


Economic results of 2018 and 2019 expectations

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Gubad Ibadoghlu, Dr.

Senior Analyst

Economic Research Center

The departing year was notable for a series of economic developments. Let’s look at those worthy of attention.

It should be noted that forecasts of the Government of Azerbaijan about a 2% GDP growth in 2018 failed to come true. Under the latest data of the State Statistics Committee, the GDP grew by 1% over 11 months of the year, including non-oil GDP by 1.3%, while the figure for 2017 stood at 2.4%. In this context, two aspects of the GDP are worthy of attention:
1. This year’s economic growth is expected to be down from the forecast. Thus, GDP growth in Azerbaijan in 2018 was prognosticated by the World Bank and UN at 1.8%; by the International Monetary Fund-at 1.3%; and by Russian sources (Interfax, etc.)- at 2%.

2. Slowing of growth rates of non-oil GDP in 2018, as compared to its level in previous years is a testimony to the fact that problems in this area remain, while the state initiated various measures, including essential investments, etc., to maintain the paces of growth of non-oil GDP.
It was the slowing of non-oil GDP export growth rates that led to the reduction of this sector’s share in the export basket. Thus, according to the State Statistics Committee, in January-October this year as compared to the last the non-oil export rose in comparative prices by 1,7% and in actual prices by 10,9% against 22, 8% and 21, 1%

One of the main reasons of drop in paces of economic growth over the first 11 months of the year is the decrease in the volume of capital investments by 8,8% from a year earlier. It should be added that over the same period the oil production in the extracting sector rose by 0,2%; commodity gas by 4,9%, as well as crude oil prices rose at the world market which, in turn, played a great role in GDP growth.

Thus, essentially contributing to the achievement of positive results in the area proved to be new projects and prolongation of a contract on the development of ACG and “Shahdeniz-2” blocks.

Among successes of 2018 there was reduction in the inflation rates to 2, 3% and ensuring of manat rate stability against dollar. Given the above, assets of the banking sector increased in the departing year first ever since 2015.

At the same time, level of the banking credits and related deposits rose over the past 11 months from a year earlier. In the meanwhile, net banking revenues over January-October dropped by 2,5 times as compared to the first 10 months of the last year. For this reason the banks closed 50 branches in a bid to optimize expenditures.

The departing year was also notable for non-adoption of legal and regulating measures to solve the problem of problem credits. For this reason, as of November 1, 2018, the volume of outstand credits made up 1698, 6 mln manats, or 14% of total credit portfolio. Regretfully, despite proposals of experts to resolve the issue, none of them was backed by the government.

In 2018, discussions around the International Bank of Azerbaijan continued. No progress was attained on this track. Moreover, analysis of budget revenues for 2019 was indicative that the IBA would not be privatized in the year to come.

Among lost opportunities in 2018 there is Milli Majlis’ refusal of the Code of Competition and Cabinet of Ministers’ did not confirmed forms of “Income and property declaration.”

Thus, the departing year marked monopolism tendencies in economy, particularly, a dominating position of “Pasha holding” at the expense of weakening positions of other holdings. Measures to fight corruption failed to attain necessary results due to the refusal from the “Income and property declaration.”

The year 2018 saw the opening of the Complex of Baku International Marine Trade Port; Sumgayit plants on production of polypropylene and building ligature; a factory “Tabaretta” on tobacco production; Baku Non-ferrous and Foundry Company; Masally industrial complex. As a whole, the departing year was successful for the development of non-oil industry. The growth in the area made up 9, 1%. Also, volumes of plant cultivation rose by 6, %.

The year 2018 was also notable for progress in Trade and Wine Houses; “Azerbaijani Trade house” in Riga and Warsaw; “Azerbaijani Wine Houses” in the Chinese cities of Urumchi and Shanghai.

In 2018, the gas pipeline TANAP and oil refinery STAR (SOCAR Turkey Aegean Refinery) were put into operation.

Also, a “Convention on the Status of the Caspian Sea” was finally signed by Russia, Azerbaijan, Kazakhstan, Turkmenistan and Iran.

A high spot of the year was Exxon and Chevron companies’ intent to put up for sale their shares in the ACG deposit and leave Azerbaijan after 25-year long cooperation.

A celebrated case was Azerbaijan’s suspension in the Partnership “Open government” in the end of the year due to its inactive status therein, as well as application of sanctions against companies and banks involved in money laundering of Azerbaijani origin in Great Britain.

Among events to be expected in 2019 are intensification of inflation tendencies, rise in consumer prices, probability of fall in manat rate, growth of real wages of hired labor, amendments in economy and public finance management in terms of fall in oil prices.

Last Updated ( Saturday, 29 December 2018 09:17 )

19 weak points of 2019 budget

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“Debates” over the national budget of Azerbaijan for 2019 were over at Milli Majlis. Budgetary revenues were approved in the volume of 23bln 168mln manats, and expenditures - 25bln 190mln manats. Next year’s average annual inflation is forecast to make up 3,8%; manat rate in respect of USD at 1,7 manats; average sale price of crude oil at world markets at $60,0 per 1barrel.

It transpired, following an analysis of budget risks and macro-fiscal forecasting, including economy’ assessment from dependence on natural resources standpoint, that there are, at least, 19 weak points in the budget-2019. It should be remembered that rise in the number of weak points degrades the quality of budget for the next year; or in other words, it reduces expenditures effectiveness and their contribution to the economic growth. These points may be classified as follows:

1)No budget negotiation are held in Azerbaijan. This year’s budget discussions confirmed once again that organization and discussions of the budget in Azerbaijan is not a matter of the parliament but monopolized by a certain group in the executive power. Suffice it to recall that t

he budgeting process is still under absolute control of the Ministry of Finance and presidential administration while the participation of certain sectoral and linear ministries and other budget-financed government bodies is restricted. In other words, they are practically in no position to take part in budgetary discussions.

2)The role of parliament in the budgetary process is nominal. It must be remembered that this year’s budget discussions at the parliament were not different from similar hearings of the previous years. Instead, the budget was submitted to the parliament later but adopted quicker than the last year. As has been expected, some superficial changes were made in the budget after the parliamentary discussions. National budget revenues for 2019 were approved in the volume that exceeded by 251 mln from preliminary prognosis, or by 1,1% from approved revenues, and expenditures by 410 mln manats from preliminary prognosis, or 1,6% from approved expenditures. As a matter of fact, these indices are enough to make an appraisal of parliamentary’ role in the budgetary process.

3) "No result-oriented budget" has so far been drawn up. Like previous years, the budget-2019 was brought up for discussions without coding by programs, without budget classification. The essential point to remember in Azerbaijan is that no budgetary work based on specific results and their appraisal has so far been organized. For this reason, effectiveness of budgetary expenditures is blunted from year to year, and no monitoring is held for lack of indicators to measure it. This, in turn, makes it no possible to evaluate role and activity of related organizations in direct budgetary spending.

4) A newly adopted financial rule imposes no restrictions on oil revenues spending. Thus, Article 11-1.2 of the Law of the Azerbaijani Republic”Оn introduction of amendments in the Law of the Azerbaijani Republic "On budgetary system" dated July 29, 2018, s

ets an upper limit on consolidated budget expenditures. The limit has been set up in line with summarized forecast on oil, non-oil and other receipts that may be expended in the volume not more than 103% of expenditures of consolidated budget if the current year. For this reason, a balance between non-oil basic deficit of consolidated budget and non-oil GDP remains to be high. Thus, percentage ratio between non-oil budget deficit in 2019 and non-oil GDP is forecast to make up 30,8%. Note that higher deficit is a result of longstanding procyclical policy.

5)A price for oil per barrel included in the budget is too optimistic and unrealistic. Draft budget for 2019 debates were accompanied by drop in oil prices at world markets. According to December 1 reports, 1 barrel of Azerbaijani Brent crude oil at world markets cost $59.46. So, it’d be too optimistic to include a figure of $60Тin the budget. In the meantime, when drawing the national budget it is essential to forecast prices per barrel of crude oil on the basis of several scenarios to thus secure against external shocks and manage risks.

6) The budget is inadequate with financial potential of economy. Thus, despite the growth of a share of non-oil sector in GDP recently (a figure stood at 62, 8% in 2017), it is on the bottom in budgetary revenues which is clearly discernible in comparing this index with similar figures of post-Soviet countries. Thus, next year’s non-oil budget is forecast to make up $5,4 bln which means that non-oil budget of Azerbaijan in 2019 will constitute $551 per capita. In the meanwhile, non-oil budget of Georgia in 2019 is forecast to make up $1000 per capita. Differences between indices of Azerbaijan and former Soviet, rich in oil and gas republics’ are noticeable. Thus, if budgetary revenues of Russia are expected to make up $296 bln, or $2050 per capita in 2019 and revenues of Kazakhstan - - $31,5 bln, or $1711 per capita, budgetary revenues of Azerbaijan will constitute $13,5 bln, or $1377 per capita.

7)Budget dependence upon oil revenues is growing. Main sources of budgetary revenues formation are transfers from the SOFAR. Thus, a share of SOFAR receipts in the structure of predictable national budget revenues in 2019 is 49,1%; a share of the Ministry of Taxes is 31,9%; a share of the State Customs Committee is15,1%; a quota of other sources is 3,9%. In so doing, a share of the Ministry of Taxes in the formation of the budget revenues will drop from 40,7% in 2015 to 31,7% in 2019.

8)Budget revenue collection expenditures are growing from year to year. According to the Court of Auditors, expenditures of the Ministry of Taxes for collection of each 100,000 manats of budgetary revenues (including non-budgetary expenditures) made up 1,800 manats in 2017; 2,100 in 2018; and forecasted 3,100 manats in 2019. Also, expenditures for collection of 100,000 manats of budgetary revenues (including non-budgetary expenditures) in 2017 made up 3,000 manats; in

 2018 - 3,600 manats; and forecasted 3,800 manats in 2019.

9)No coherent policy of transfers from the SOFAR to the budget is pursued. It should be added that this year’s growth of transfers that fell from 2014 to 2018 will continue this tear as well. Thus, this year’s transfers from the SOFAR amount to 10.995 mln manats; next year’s figure will stand at 11.364 mln manats. In other words, in the next year’s budget a share of transfers from the SOFAR will make up about 50%. Besides, at the expense of SOFAR and AMOC payments, the volume of oil revenues in the budget-2019 will make up 13.700 mln manats which constitutes 59,1% of total revenue volume.

10)Regions’ contribution to the formation of budgetary revenues remains to be low. When adjusted for the fact that centralized revenues form 96,8% of total revenues in the national budget for 2019, a share of local revenues will make up 3,2%. As compared with anticipated budget-2018 implementation, the growth is forecast to take place (except for occupied regions) in towns as follows: Sumgait, Gyandja and Shirvan; in regions: Absheron, Neftchala, Salyan, Astara, Agdjabedi, Geychay, Barda and Qazakh. The recession in Baku, as well as regions: Sabirabad Udjar, Geranboy and Geygel.

11)Budget subsidies are growing. Next year’s budget provides for rise in the upper limit of financial aid (subsidies) from centralized expenditures of the national budget to regulate local expenditures. A figure for 2019 is forecast in the volume of 104,046,000 manats which is up 33471,000, or 47,4 % from this year. A specific weight of the amount in the structure of local expenditures is 12,4% which up 2,6 interest points from this year.

12)Non-oil budgetary revenues are reducing. Thus, if in 2015 non-oil receipts made up 5028,5 mln manats, in 2016 - 5405,6 mln manats, in 2017 - 5189,5 mln manats, and expected to make up 5 bln manats in 2018, next year’s receipts are expected to make up 5 bln manats, next year’s receipts to the national budget are forecast to make up 4980 mln manats. In the meantime, a period from 2015 – present was noted for non-oil GDP growth.

13)Growth rates of current budgetary expenditures exceed nominal growth rates of non-oil GDP. According to the budget-2019, growth rates of current expenditures are expected to exceed a nominal rates of growth of non0oil revenues by 4,6 in

terest points. Non-oil revenues from all sources are forecast to make up 9217,2 mln manats in 2019 which constitutes 93,2% of current expenditures. This implies that the budget having been drawn up with no regard for oil revenues is not enough for financing the current expenditures.

14)Debt service budgetary commitments are growing. A predictable amount to be paid by domestic national debt for 2019 is up 67,3% and expenditures to serve an external debt is up 0,2% from 2018. Approx. 10% of next year’s budgetary expenditures will be spent for payment of domestic and external national debts. FYI, 90% of predictable payments on domestic national debt fall on interest charges;72,2% of external national debt fall on principal debt payments.

15)Unfair distribution of budgetary expenditures. Of each 100 budgetary manats for 2019, 6 qapiks will be spent for ecology; 50 qapiks for science, 70 qapiks for subsidized housing and social mortgage, 1 manat 40 qapiks for culture and art; 4 manats 20 qapiks for public health; 5 manats 72 qapiks for management; 6 manats 41 qapiks for judicial power and law-enforcement and procurator’s bodies; 9 manats 20 qapiks for education; 9 manats 40 qapiks for national debt service; 10 manats 30 qapiks for social security; 12 manats 30 qapiks for defense; 39 manats 90 qapiks for construction.

16)Details of nearly half of budgetary expenditures are closed. Thus, in compliance with the next year’s budget, expenditures for industry, construction, mineral resources (a specific weight in the budget-2019 - 27,6%), defense (a share - 12,6%), services unrelated to basic items (a specific weight- 6,3%), economic activity expenditures (a share - 1,2%) are classified neither economically, nor functionally. This means that 47,7% of budgetary expenditures are closed. Neither public, nor MPs are aware of it.

17)Next year’s budget will accelerate inflation. The budget-2019 is described as follows: main sources of income increments in absolute terms will be typical (after SOFAR) for excises (201 mln manats), profit tax (income tax) of legal entities (137,4 mln manats) and receipts from paid services of budgetary organizations. In percentage terms the next year’s budget provides for growth in government fees– by 33,8%; excises – by 27,7%; receipts from paid services of budgetary organizations – by 25,6%. In all likelihood, the budget-2019 envisages that non-oil revenues have been forecasted with due consideration for increase in consumers’ expenses which is attainable due to rise in prices for import commodities. So, next year’s 3,8% inflation is impractical.

18)Closed budget will raise a level of corruption. Corruption risks are repeatedly increased owing to privacy of 47,7% of budget expenditures for 2019, refusal from discussion of their economic and functional classification, lack of transparency and accountability on budgetary spending. Note that the investment budget in the volume of 6,8 bln manats is subject to increased corruption risks because of closed expenditures.

19)Next year’s budget is uninsured against extraneous shocks and secondary risks. Next year’s anticipated fall in oil prices is expected to negatively affect payments into the budget-2019 from SOCAR and АМОC. Along with this, anticipated fall in oil prices may lead to SOFAR budget deficit. As a whole, the budget-2019 may be subjected to negative effects of this sort.

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    In his newsletter, the events ( round tables, seminars, trainings, etc), publications, press releases, including the information on business trips to abroad realized within the framework of projects by the Economic Research Center are covered in both languages 

( Azerbaijan and English).


Program and financial report of  Economic Research Center covering activities in 2012