Oil price in Azerbaijani state budget: adjustments to be made

Baku, Azerbaijan, Jan. 9

By Ilaha Mammadli - Trend:

The government of Azerbaijan is considering the options of the country's state budget in case of world oil prices fall to the level of $20-40 per barrel.

Within the framework of the budget forecast's correction for 2016, calculations are made based on oil prices of $20, $25, $30, $35 and $40 per barrel, a source in the Azerbaijani government told Trend.

The state budget for the current year in Azerbaijan was approved considering the oil price of $50 per barrel, while the price of Azerbaijani oil was $35.79 per barrel on the eve of the New Year.

In the light of price fluctuations on the world oil market, particularly to the downside, many countries are revising their budget forecasts. Hydrocarbon-exporting countries have to pursue economic policies to the new - lower - prices of oil and refuse from unnecessary spendings.

"Given the fact that demand is reduced while maintaining a high offer, a further decline in energy prices is inevitable, despite the fact that consumption is reduced", said the source. "If Saudi Arabia - the largest oil producer and exporter, has reduced the target price in its budget to $29 per barrel, other countries should be prepared for any changes in the oil market".

Azerbaijan's state budget of 2015 was based on the price of Saudi oil of 50 dollars per barrel.

Another major exporter of oil products - Kuwait - has set its oil price for his year at around $30 per barrel.

Budget projections in Azerbaijan for 2016 have been prepared based on three scenarios - pessimistic (based on oil prices of $40 per barrel), base ($50 per barrel), and optimistic ($60 per barrel). The source did not rule out that during the correction of the state budget this principle will be maintained.

Neighboring countries are also working on the possibility of reviewing their budget forecasts. For example, the state budget of Russia for 2016 laid down the average price of Urals oil at $40 per barrel. However, price for a barrel of Brent oil at the London ground was $33.08, which is the lowest level since Apr. 2004. In connection with the general trend of falling oil prices, Russian President Vladimir Putin has admitted that the budget for 2016 will have to be adjusted.

The same policy is shared by Kazakhstan, which is currently considering options for the budget, taking into account the fall in oil prices to the level of $20-30 per barrel. Kazakhstan's budget was prepared taking into account the price of $40 per barrel.

In case of changing budget forecasts, the probability of revision and macroeconomic forecasts are not ruled out. While saving the production of oil and gas in Azerbaijan at the same level (43 million tons of oil and 32 billion cubic meters (bcm) of gas) change of total GDP is inevitable, even in spite of the depreciation of the manat against the US dollar (nearly 98 percent during 2015).

As in manat terms, the volume of oil GDP (is projected at 28.2 percent of GDP) could grow, but given the fact that oil prices have changed and have a tendency to decrease, there may be a reverse process.

Great expectations are associated with the country's oil sector, where major changes in the tax law [aimed at reducing the tax burden of entrepreneurs], in the sphere of licensing [reducing the number of licenses and the amount of duty] have been made this year. Moreover, verifying of business entities was suspended for two years.

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Follow the author on Twitter: @IlahaMammadli

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