Azerbaijan, Baku, March 19 / Trend N.Ismayilova /
Azerbaijan is set to revise its 2011 budget with global oil prices likely to be higher than the government forecast earlier, Central Bank of Azerbaijan (CBA) Chief Elman Rustamov said in an interview with Reuters.
"We think that by late 2011 prices will be lower (than now) but higher than we were forecasting before the start of the year," Rustamov said.
He said the central bank's foreign exchange reserves, which rose by $159 million in January to $6.57 billion, were likely to hit $8 billion by the end of 2011.
Azerbaijan's budget is based on $60 a barrel, but benchmark Brent crude was trading above $114 a barrel on Thursday.
Rustamov acknowledged food prices are a concern but said the government would try to keep inflation in the single digits.
"Azerbaijan imports a significant portion of its food from abroad and increasing food prices are a significant share of household budgets as in any other emerging market country, so we can expect food prices will be a concern for Azerbaijan," he said.
"The government has put in place inflation measures, so through these measures the government will make efforts to keep inflation targets within single digits," he added.
Rustamov said the 2011 budget would likely be revised to address food security needs arising from higher prices.
Consumer prices and tariffs for services in Azerbaijan rose by 2.2 percent in February 2011 compared to January and 8.9 percent in January-February compared to the same period of 2010.
"I don't believe it will be a significant adjustment as the budget is quite well balanced and we should take into account the concerns of macroeconomic management and sustainability issues," he said. "So, higher oil prices and volatility are external shocks and should not be transferred to the budget.
He said changes to targeted spending was not directly related to the increase in oil prices but rather determined by government plans to upgrade infrastructure.
"It is because the country is in process of improving and upgrading its infrastructure and some of these major projects may need some additional financing and some additional transfers can be made for these purposes," Rustamov said.
Rustamov said he does not expect this will be significant so an adjustment in spending is possible but it's not directly related to an increase in oil prices.
Rustamov said he did not expect changes in the government's policy on managing oil revenues in the light of a higher world oil price.
He said the government had earned $47 billion from oil of which 50 percent had been saved in an oil fund for future generations and the rest was used by the government for spending needs.
"We plan to keep this proportion in the future," he said, adding: "Looking forward, since the revenues from oil are set to increase a more substantial portion of the revenues will be saved for the future," he added.
Budget revenues were approved in the amount of 12.061 million manat (centralized revenues - 11,613,958.2 manat and the local - 447,041.8 manat), expenses - 12.748 million manat (centralized expenses - 11,439,980 manat, the local expenses - 1,308,020 million).
The State Oil Fund of Azerbaijan Republic (SOFAZ) expects revenues at 9,132, 941 million manat, while expenses - 6,886,155 million manat for 2011.
The 2011-draft budget set the oil price at $60 per barrel.
Only $271 million was accumulated at SOFAZ in 2001, but the fund's assets reached $22.8 billion as of Jan.1,2011.
Roughly $2.6 billion was spent for infrastructure and social projects during this period. About $20 billion was transferred to the state budget. The state programs and activities were implemented to promote and stimulate the non-oil sector of the economy due to these funds within the state budget. Thanks to these the real growth rate of non-oil sector amounted to 7.6 percent in 2010.
SOFAZ was established in 1999.