Weekly economic review

Analysis Materials 20 November 2007 13:02 (UTC +04:00)

Last week the Parliament of Azerbaijan continued discussions on the 2008 Public budget. This time, the Accounting Chamber of Azerbaijan (AC) presented conclusions on the program of the 2008 Public budget in accordance with the economic rate and funds to support it. The AC analyzed the innovations in the Public budget, key financial document containing shortages and gave recommendations on their removal.

Let's begin from the positive moments in the AC conclusions. According to the AC conclusions, next year the transparency will increase in distributing the budget funds due to the issue that no more than 2% of the common budget expenses will be distributed according to article 'other expenses'. In addition, the innovations in the Public budget includes that the indirect subsidies to the fuel and energy sector will be ceased from 2008 and it will bring to the growth of incomes. Moreover, the transparency will increase in the management of the oil revenue because the mechanism of oil revenue transfers to the State Oil Fund of Azerbaijan (SOFAZ) will be changed. From 2008, 75% of the oil revenues with the price of more $50 per barrel will be transferred to the SOFAZ.

Amongst the shortages in the project of Public budget, the AC highlighted that whilst forecasting the 2008 Public budget, the Government of Azerbaijan demonstrated more conservative approach and it is explained through the decrease dynamic of the GDP growth rates. As previous years, sustainability, but not stability is observed in forming the forecasts due to the raise in the incomes and necessity to prevent the growth of the inflation.

Due to it, the growth rates of the income and outcome parts of the budget have decreased. However, the specific weight of the revenues is increasing in relevant to the GDP. If up to now, this figure totaled 15-17%, it is forecasted at the level of 23.6% or 23.7% in relevant to GDP. Covering the budget deficit will be implemented mainly at the expense of issuing securities which will also assist in the rate policy. It means that large part of the Country's revenues will be distributed via the budget.

Accounting Chamber's key recommendations regarding the 2008 Public budget are to form the budget expenses on the base of the programs. It means that the forecasts on expenses in certain spheres should be based on the results of the implementation of the State programs over the past years. In addition, the AC considers that the subsidies should be issued on the base of special programs, the incomes from the dividends of the joint-stock companies should be transferred to the Public budget, use of the SOFAZ funds should be specified separately.

Generally the 2008 Public budget is assessed positively from the point of view of transparency of expenditures. For instance, the 2008 Public budget was for the first time suggested to establish an insurance fund of international credits received under State guarantee. Up to now, these finances were specified in separate account in the Public budget. Establishing the Fund will provide an opportunity to use its finances for necessary goals and transfer them to management.