BAKU, Azerbaijan, Jan. 21
By Sadraddin Aghjayev – Trend:
The strengthening of financial and fiscal discipline in the private and public sectors of Azerbaijan will continue in 2022, Country Managing Partner of PricewaterhouseCoopers (PwC) Azerbaijan Movlan Pashayev told Trend.
According to him, 2021 has passed under the auspices of strengthening financial and fiscal discipline.
"These processes were being conducted in the context of the private and public sectors. In the private sector, transparency was legalized and improved, a breakthrough was made in reducing the shadow economy. The processes of ensuring transparency were facilitated by tax reforms, strengthening of labor legislation, etc. Furthermore, in the private sector, significant success has been achieved, in particular, high growth in tax receipts has been noted, control over taxpayers has been strengthened, and opportunities having been created for the development of small and medium-sized businesses," Pashayev said.
The PwC Managing Partner outlined that reforms were carried out in the public sector in 2021 to strengthen and control the management in State-owned enterprises.
"In particular, this can include the transformation process of State-owned enterprises, in which the Azerbaijan Investment Holding established by the Decree of the Azerbaijani President in 2020 plays a major role. The holding is also entrusted with managing the transformation process. Azerbaijan Investment Holding has done an outstanding amount of work in less than two years aimed at improving productivity and strategic development of State-owned companies. We have also seen successful steps in the development of the small and medium businesses, which are directed by the Small and Medium Business Development Agency of the Republic of Azerbaijan. I would like to note as well the liquidity that is present in the banks of Azerbaijan. This liquidity became even higher in 2021, despite the fact that lending volumes have not reached the ones that were before the pandemic. I believe that the issue of how to increase business lending at the expense of bank funds will be one of the most urgent questions," Pashayev stated.
Speaking about expectations for 2022, he noted that during this period Azerbaijan expects further diversification of the economy, a continuation of the reforms which began in 2021 in the private and public sectors, additional increase in the transparency of the economy, and strengthening the financial and corporate governance accountability.
"In the field of transport projects, I wish to single out the port of Baku, which is one of the most important transport projects in our country. The role of the chain running China to Europe is crucial. Thus, this year will witness Azerbaijan's integration into world projects. They may differ from digitalization to transport. The year 2021 destroyed the myth that "Azerbaijan is not adequately integrated into the global economy and supply chain". Moreover, 2022 can be called the year of investments in Karabakh. This initiative was launched in 2021, and the active work of the Karabakh Revival Fund will proceed in 2022," Pashayev added.
In addition to all this, the managing partner of PwC Azerbaijan said that transfer pricing is one of the trends in global tax administration and our country is no exception.
"For example, the world practice of transfer pricing is aimed at preventing artificial underestimation or overestimation of company profits. Accordingly, the changes that have been made to the Tax Code are generally in line with global trends. On the other hand, since these regulations and laws are new for our country, their application is not yet clear to everyone, and sometimes the interpretation raises questions by taxpayers. Therefore, I believe that we should still expect the development of new legislative norms in this direction," Pashayev said.
Additionally, he said that one of the topical issues of Azerbaijan’s banking system is the issue of reducing the interest rate on lending to small and medium-sized businesses.
"Unlike other countries, Azerbaijan’s economy has its own structure and specific features. In our country, small and medium-sized businesses, in accordance with the law, are provided with certain privileges and concessional lending. However, SME financing by banks, due to the tight monetary policy of the regulator, interest rates are quite high compared to other countries. Our representative office in Azerbaijan has over 60 clients in the audit area today. The quality of the financial accountability that we audit started to improve, companies began to understand and appreciate financial statements more and more, they commenced understanding that this differs from tax reporting or just statistics. The audit shows the real state of the company and creates the basis for making certain decisions. We conduct audits that are also of a strategic nature, for example, the audit of the State Oil Fund of Azerbaijan. It is planned to start an audit of the Karabakh Revival Fund this year, as well as a number of other public and private companies. I am glad that the quality of financial accountability and attention to audit is improving year by year," Pashayev said.
Speaking about business development, Movlan Pashayev noted that the ability to manage and see the potential and talent of employees should be included in the company's strategy.
Referring to the issue of oil and gas, Pashayev said that, when everyone thought that 2020 and 2021 would be a breakthrough for the transition to "green technologies", as well as to renewable energy sources, we have witnessed that this is not the case and oil and gas prices continue to rise.
“In the short and medium-term, oil and gas will remain one of the important power supplies for the economy. Today it is very difficult to make any forecast of the downward trend in prices for these types of energy resources,” he said.
Pashayev stated that several factors can be noted in this context.
“Firstly, taxation of hydrocarbons is becoming more and more popular in the world and companies engaged in this activity will be subject to excessive taxes. Secondly, the money the state is to receive from oil and gas will be invested in other sectors in order to diversify the economy and fill those budget holes that will arise. The role of oil and gas will continue to remain huge in the world economy, including Azerbaijan. However, over the years, this role will be reduced and replaced by other technologies,” concluded Movlan Pashayev.
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