New law on state debts dictates international standards
Adopting a new Law on State Debts of Azerbaijan resulted from the demand of the time. The old law was adopted in 1992. However, since them, many changes have taken place in social and economic situation of the Country. After 15 years, Azerbaijan needed a new document corresponding to the international laws and rules of managing State debts and providing guarantees for the external debts.
It is already high time to transfer to the unified management of the financial assets and liabilities, ensure unified account of the operations with the currency and manat debt liabilities and unified statistics of the internal and external debts and financial assets. As known, the information on the external debts of the Country is regularly disclosed, but the statistics of the internal debts of Azerbaijan are not published and the report of the credits which have not been guaranteed by the State is not provided.
In addition, the policy of managing the State debts should be transparent to increase the faith of foreign and local investors, as well as to enable the civil society to fully control this activity of the Government. From this point of view, the new Law on State Debts is the success with regards to the management and service of the state debts.
According to the law, the State debt requires paying liabilities specified in the contracts signed on behalf of Azerbaijan. The structure of the State debt includes credits attracted by the Government of Azerbaijan; securities issued on behalf of the Government; borrowing through State guarantee. The law defines the process of the external borrowing.
For the first time, the law defines tasks on account of the external debts without state liabilities. The Republic of Azerbaijan does not take responsibility for the liabilities of residents and non-residents of the Country who borrow funds in foreign currency without State guarantee.
In addition, the Government of Azerbaijan will not take responsibility for the debt liabilities of the State enterprises if the funds have been attracted without State guarantee. According to the law, presenting State guarantee is in the disposal of the relevant body of the executive power (it will be defined by the President of Azerbaijan).
Further the Government of Azerbaijan will not take responsibility for borrowings by the non-State enterprises. However, no later than 10th of the month after the quarter, the non-State enterprises should present the National Bank of Azerbaijan information on their external debts. The NBA will include the information in the registry. In addition, the statistic data on the external debts of the non-State enterprises should be placed on Internet once a year.
As previous, the account of the guaranteed credits will be made by the Ministry of Finance and the account of the external debts of the commercial organizations and banks will be trusted on the State Statistics Committee.
According to the information by the Finance Ministry of Azerbaijan, as of 1 July 2007, the external debts of Azerbaijan amounted to $2.089mln, which makes up 7.7% of the GDP. The foreign debts of Azerbaijan increased by 5.9% as compared to the beginning of them year. The external debts of Azerbaijan per capita make up $242.9.
$164.6 credits were used in the first half year. The expenses on the external debts totaled $73.6mln. The key debts amount to $47.9 mln and interest - $25.6mln. Some $22.8mln has been allocated from the State budget to pay off the credits.
According to the order of the President of Azerbaijan, the Cabinet of Ministers of the Country should, within three months, submit proposals for bringing legislative acts with the Law on State Debts. It is clear that the new law will envisage higher norms of responsibility for the credit beneficiaries.
In addition to implementation of the account and management specified in the Law on State Debt, the Ministry of Finance is in charge of devising a project on opening of the secured account (special budget account). This account will be formed at the expense of the funds by the State budget and payments for receiving State guarantee from the main borrower.
Further, the Ministry of Finance should devise and submit the project on rules of implementing register on State debt and State guarantee. The data in the register should be presented no later than 10 days after the registration of the liabilities. Thus the Ministry will receive data from the borrowers regarding the banking account of debt service and re-payment of the attracted funds, define kind, ways of sale, interest rates of the issued securities, as well as expenses on their preparation and will determine the amount, period and other conditions of issuing securities for the external debts. As a result, a source of media will be selected to place the open information on State debt in Internet.
The central and local executive powers are also in charge of implementing the account and include in the State registry the information on formerly undertaken and active debt liabilities and on State guarantee.
The Justice Ministry has been selected to sign legal conclusions on the base of inquire of the interested sides.
The law also stipulates for several regulations on limit of attraction of internal and foreign debts in budget year. Thus, limit of borrowings will be pointed in the public budget for next year in national currency. If a new borrowing is intended for payment of liabilities which were not paid off in time the debt is not included into limit. Limit of public debt can be increased or decreased only in case of an appropriate change is made in the Law on Public Budget of Azerbaijan.
Thus, limit for foreign borrowings of Azerbaijan was fixed at $600mln in the public budget for 2006 and $560mln was borrowed in fact. The limit was not reached for a loan for construction of AzGRES-Imishli electric mains was not allocated by the German Development Bank. The bank plans to allot €30mln for its implantation, but signing of a loan agreement was postponed for a year due to delays in discussion of the terms of the credit. Meanwhile, limit for foreign borrowings was increased to AZN 1.2bln in the public budget for 2007 due to issue of a debit part of Eurobonds. The main object of crediting in the beginning of 90s were trade purchases of grain, foodstuff, medicaments and the items of first necessity, but today foreign borrowings are intended for implementation of investment projects. For instance, essential means were attracted for reconstruction of roads, power engineering, melioration systems, and purchase of airbuses.
However, even in the most tensioned years, when there was an acute need in foreign financing, careful policy was pursued in foreign borrowings. A system of efficient public debts management system was established. Delays in payment of foreign liabilities were unacceptable. The new Law on Public Debt will promote switching of public debts management policy to international standards.