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Debts at $324.3 per capital

Politics Materials 3 December 2008 10:04 (UTC +04:00)

The presence of certain foreign debt in each country is the ordinary case of contemporary economic life, since the active participation of the government of the country in the process of production and distribution requires the attraction of borrowings for financing its expenditure. Azerbaijan began to draw foreign credits since 1993, when experienced the deficit of finance. Since then, the amount of the foreign debt increased by 41.1 times, comprising more than $2.4bln in 2007.

Dynamic of changes in the foreign debts of Azerbaijan in 1993-2007

For end of year Total amount of foreign debt, in USD Foreign debt per capita, in USD Foreign debt in % to GDP Foreign debt in % to export
1993 59,4 8,0 4,5 8,2
1994 71,6 9,5 4,4 11,0
1995 325,0 46,0 14,6 55,2
1996 416,0 53,9 13,1 65,9
1997 549,7 70,5 13,9 70,4
1998 693,4 91,2 16,9 114,4
1999 998,3 125,0 23,1 107,5
2000 1 162 143,8 23,7 61,2
2001 1 280 157,2 23,1 55,3
2002 1 350 164,6 22,1 62,2
2003 1575 190,5 22,0 60,8
2004 1588 191 18,6 45,2
2005 1612 192 12,6 37,0
2006 1972 232,5 9,9 30,9
2007 2442 283,9 8,2 40,3
Рост за 1993-2007 гг. 41,1 раза 35,5 раза 1,8 раза 4,9 раза

Source: Cabinet of Ministers of Azerbaijan, calculations by Trend

As of 1 October 2008, the external debts of Azerbaijan reached $2798.5mln ($324.3 per capita), which is 6.9% of the GDP. As compared to the beginning of year, the amount of the foreign borrowings increased by 14.6%, but its share in the GDP has a tendency towards reduction. Thus, as a result of the first quarter of 2008, this index was 6.4% of the GDP, as a result of 2007 - 8.2% and as a result of 2006 - 9.9%.

Such indices of the foreign debt of Azerbaijan show that the level of its onerousness in the Public budget and the gold currency resources is within the ranges defined on international standards (range of 40-60%) as acceptable.

The problems with the foreign debt appear also in the case, when the annual amount of payments on the foreign debt of the country is more than the amount of the accumulated currency reserves. The critical value is the ratio of these indices at the level of 100% that reflects the equality of official reserves and amount of urgent payments during the year of the foreign debt. The small value of index indicates the probability that the government and residents of the country will end to serve urgent debts because of the deficit of accessible foreign currency.

This situation with the foreign debt does not present threats for Azerbaijan. According to the data provided by the National Bank of Azerbaijan, today the strategic foreign currency reserves of Azerbaijan total $18.2bln, which twice exceeds the gross foreign debt of the country and testifies absence of problems with the payment capacity.

The foreign debts can be conditionally divided into 2 parts: debt liabilities before the foreign governments, banks and companies and debt liabilities before the international financial institutes. Nearly third of the external liabilities of Azerbaijan fall on debt liabilities before the international financial institutes (IFIs). It is impossible to consider the market which makes the structure of the borrowings non-optimal.

Foreign debts of Azerbaijan as of 1 January and 1 October 2008, mln USD

For end of year Total amount of foreign debt, in USD Foreign debt per capita, in USD Foreign debt in % to GDP Foreign debt in % to export
1993 59,4 8,0 4,5 8,2
1994 71,6 9,5 4,4 11,0
1995 325,0 46,0 14,6 55,2
1996 416,0 53,9 13,1 65,9
1997 549,7 70,5 13,9 70,4
1998 693,4 91,2 16,9 114,4
1999 998,3 125,0 23,1 107,5
2000 1 162 143,8 23,7 61,2
2001 1 280 157,2 23,1 55,3
2002 1 350 164,6 22,1 62,2
2003 1575 190,5 22,0 60,8
2004 1588 191 18,6 45,2
2005 1612 192 12,6 37,0
2006 1972 232,5 9,9 30,9
2007 2442 283,9 8,2 40,3
Рост за 1993-2007 гг. 41,1 раза 35,5 раза 1,8 раза 4,9 раза
Structure of foreign credits attracted in Azerbaijan, in mln USD
  Debts on used credits
As of 1 January 2008 As of 1 October 2008
I. total credits 2441,9   2798,5
In % to GDP 8,2%   5,1%
External debts per capita, $ 283,9 324,3
II. Structure of credits    
1. Credits for economic reforms 372,6 15,3% 350,2 12,5%
Of them: IMF 100,6 4,1 % 81,9 2,9%
World Bank 272,0 11,2 % 268,3 10,8%
2. Credits on investment projects 2069,3 84,7 % 2448,3 87,5%
 Including    
Energy sector 870,6 35,7 % 1105,9 39,5%
Agriculture and melioration 185,4 7,6 % 216,9 7,8%
Construction of roads and transport 467,0 19,1 % 585,3 20,9%
Chemical sphere 36,7 1,5 % 38,3 1,4%
Oil and gas 153,9 6,3 % 161,0 5,8%
Re-construction of territories after liberation from Armenian occupation 54,7 2,2% 58,0 2,1%
Social sector 180,9 7,4 % 192,9 6,9%
Other spheres 120,1 4,9 % 89,4 3,2%
III. Used credits 441,2 477,6
IV. Expenditure on foreign debt 170,5 201,8
Key debt 102,2 157,6
Percentages 68,3 44,2
Including  
From Public budget 61,7 88,2
Re-payment of key debt to IMF 36,5 19,9

Source: Ministry of Finance of Azerbaijan

The basis of the debt (87.5%) is made up of borrowings for investment projects - $2448.3mln, which is 18.3% higher than the results of 2007 ($2069.3mln). Upon State guarantee, Azerbaijan took and takes credits for the investment projects from the EBRD, ADB, IDB, Japanese Bank of International Co-operation, World Bank and directs them towards re-construction of old infrastructure. They are spent mainly on the construction of power stations, highways, which correspond to international standards, irrigation and increase in the fertility of the land, building of new canals, re-construction of infrastructure in the territories after liberation from Armenian occupation and development of other social spheres.

Large part of these credits is directed towards the energy sector - $1105.9mln (39.5%). The construction of roads and transport ($585.3mln) takes the second place in the value of the attracted credits (20.9%). Credits into the sectors of agriculture and melioration ranks the third in the total amount of investment projects - $216.9mln (7.8%).

Other 12.5% of the foreign debt ($350.2mln) falls on the credits, directed towards the economic reforms. Of them, $81.9mln (2.9%) is made up of the borrowings from the IMF (International Monetary Fund), $268.3mln (10.8%) - World Bank. For the comparison: as a result of 2007, the debt before the IMF was $100.6mln (4.1%) and World Bank - $272mln (11.2%). The IMF explains the significant reduction in the debt the fact that since 2006 Azerbaijan has refused obtaining the credits of the IMF and deals only with the payments of the debts, whereas all new projects consist with the World Bank and the credits are already attracted on the commercial rates. Over the last nine months, Azerbaijan used credits totaling $477.6mln, and payments on them amounted to $201.8mln, of which $157.6mln were paid on the basic debt, 44.2mln - percentages.

In 2009 the limit of foreign debts was accepted according to the 2009 Public budget at the level of AZN 2.5bln as compared to AZN 2.4bln this year. In this case, the payments on the debt are limited at AZN 198.92mln, including AZN 108.5mln on percent payments and AZN 90.42mln on the re-payment of basic amount.

Within the 2009 Public budget, the Government of Azerbaijan plans to double the funds for payment of external borrowings under State guarantee. AZN 50mln will be added to AZN 50mln which remained unused in 2008. Besides, this fund it will be enlarged due to finances which was provided for foreign borrowings this year. The mechanism of control, calculation and use of these funds was determined in the regulations approved by the Cabinet of Ministers of the country on 10 April 2008.

Starting from this year, accounts in AZN and other currencies were opened to re-pay credits under State guarantee. The amount of payment by basic borrower into the fund will be determined by the Ministry of Finance, taking into account the rate of risk under State guarantee.

The average annual amount of the funds must not be below 25% of the aggregate financial obligations on the credits provided under State guarantee.

In the case of appearance of problems with repayment of credits by the basic borrower, the external indebtedness on the loans can be re-paid due to these funds. In this case, 30 days prior to the period of liquidation of debt, the borrower must appeal to the Ministry of Finance, indicating the reasons for the non-fulfillment of obligations. In its turn, coordinating with the Cabinet of Ministers, the Ministry of Finance can direct the funds towards the liquidation of debt.

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