2010 Public budget: cut is grounded

Traditionally mid-autumn is a period of extensive discussions over the draft Public budget for next year. Under the global financial crisis, the budget for 2010 was the most interesting and popular focus of attention in economic circles. After last week's debates on the draft budget, which includes a single package with a bill of the 2010 Public budget, the parliament will consider and vote for the budget updated in accordance with the proposals of the MPs at the meetings of November 24-26.

Based on the preliminary version, it should be noted that the draft 2010 Public budget differs with certain changes, both in qualitative and quantitative traits. Let's start with that unlike budgets of previous years, the revenue and expenditure parts of the budget for next year were reduced. Thus, the Public budget revenues are estimated at 10.015 billion manat, expenses - 11.264 billion manat, the deficit - 1.249 billion manat (3.9 percent of GDP). Compared with the 2009 Public budget, the revenues will be reduced by 17 percent, costs - 8.8 percent.

Researches over 2010 Public budget forecasts by the Accounting Chamber of Azerbaijan showed that the draft budget has been prepared carefully, taking into account all possible risks. Even with the reduction of budget expenditures compared to 2009, it will be possible to implement the basic principles, exactly the implementation of social obligations, diversifying the economy, introducing innovations. According to the conclusions of the Accounting Chamber, on the backdrop of continuing uncertainty in the global financial system, the draft Public budget of Azerbaijan for 2010 adequately responds to the challenges in the global economy.

For example, taking into account the global processes, the variability of conjuncture of world oil prices, forecasts of prices, based on which were formed the forecasts of the Public budget, the oil price in the 2010 budget was reduced from $70 in 2009 to $ 45 per barrel. Thus, the government decided to protect itself because the post-crisis countries usually need time to rise and increase growth rates.

Thus, the reduction in income and expenditure of the main financial instrument was linked to objective reasons, the main of which will be addressed in this article. Thus, the traditional source of revenue of budget - taxes - will be reduced. Forecasted revenues for the Ministry of Taxes for 2010 were envisaged at the level of 3980 million manat, which is lower than forecast approved in 2009 by 1770 million manat or 30.8 percent, but higher than expected revenues by 354 million manat or 9.8 percent. Tax collections from the oil sector next year are planned to total 1530 million manat, and from non-oil sector - 2450 million manat.

In general, the reduction in tax revenue is projected from two sources. Thus, revenues from taxes on profits of legal entities is projected at 1.096 billion manat or 10.9 percent of total budgetary revenues, which is 50.5 percent (1118 million manat) less than the approved forecasts for 2009 and 6.7 percent ( 79 million manat) than those expected in the current year. During preparation of the forecasts were also taken into account the expected loss of 90.2 million manat from the reduction of the profit tax rate from 22 to 20 percent from January 1, 2010. Incomes from taxes on profits from the contractors involved in the PSA agreement on the Azeri-Chirag-Guneshli was determined in amount of 330 million manat that is almost four times less than the forecasts for the current year.

As a result, the incomes of the Public budget from the oil sector in 2010 are projected at 6.445 billion manat, which makes up 64.35 percent of total income. Compared with forecasted indicators for 2009, the income from this line will decrease by 42.9 percent, and in relation to the expected results, increased by 16.8 percent to 1,530 billion manat.

Also, for the first time in the past few years, the State Customs Committee's budgetary payments are expected to be implemented with deficit that is also associated with reduced trade cooperation between the countries on the backdrop of the global financial crisis.

The 2010 Public budget provides 44 million manat for NFED compared to 74 million manat in 2009. However, taking into account the repaid funds from the formerly issued credits, the Fund's budget next year will increase by 20-25 million manat.

Financing social mortgage in Azerbaijan in 2010 will depend on the financial capacity of the Public budget. In the projections of the 2010 Public budget, the government has retained the same amount that had been laid for the current year, $14 million for preferential financing of mortgage loans through the Azerbaijan Mortgage Fund (AMF).

Additional funding to increase the number of the staff to 80-100 people was not taken into account. This year, 52 million manat was provided for 57 diplomatic missions and embassies. In 2010, this figure is planned to be reduced to 51 million manat.

In 2010, the Government of Azerbaijan will reduce the Public budget funds for "Public Broadcasting Company. The Public budget envisages 8 million manat for the company. In accordance with the Law on Public Broadcasting", initially it was envisaged to finance the Company through grants from the Public budget, and from 1 January 2010, it must be financed at the expense of subscription fees. From this point of view, allocated from the Public budget for next year, the funds are intended to ensure uninterrupted broadcasting service and the future development of the company.  For comparison, In 2005, the Public budget and reserve fund of the government provided 4 million manat for the company and 1.1 million for its investment expenses. In 2006 Public budget provided 11 million manat, in 2007 - 7.5 million manat, in 2008 - 10.5 million manat and in 2009 - 13.5 million manat.

Despite cut in public budget expenses, in 2010 the Azerbaijani government plans to increase the defense expenses. The defense expenses will increase by 4.2 times in 2010 as compared to 2005. So, rise in the defense assignments will comprise 10.7 percent in 2010 as compared to 2009 and 0.9 percent as compared to 2008. the 2010 public budgte defense expenses are deigned as 1,120,991 million manat.

Thus, in 2010 the contemporary expenses of the public budget expenditure will comprise 6.792.2 million manat (60.3 of total budget expense), capital expenses - 4.386.3 million manat (38.9 percent), expenses linked with repayment of public debt - 85.5 million manat (0.8 percent). The special weight of social expenses in the budget will comprise 34.4 percent (3.878 million manat), exceeding the last year's figure by 1.8 percent.

Nevertheless, there are enough reserves to cover the deficit in the Azerbaijani 2010 public budget, which stands at 3.9 percent of GDP projected. According to Finance Minister Samir Sharifov, the government approached with caution to determine the base price of oil in the budget, which suggests that revenues of the budget will be higher than projected. If oil prices stand at $55-$60 per barrel in 2010, our additional income will amount to 300 million-400 million manat.

This, he believes, will cut external and domestic debts, which also serve as sources of financing the public budget deficit. On the other hand, savings amount to at least 3-4 percent, which is around 300-400 million manat when fulfilling the budget every year, the minister said.

A limit of the public budget deficit for 2010 is projected at 1.249 billion manat. In the world, it is considered a normal level and at present the Azerbaijani government now has enough opportunities to cover it.

There are four sources to finance the budget deficit: through earnings from privatization of state property, domestic and external borrowings, including funds from the placement of securities abroad, income from paid services provided by budgetary organizations, and the balance on the single treasury account of the public budget as for Jan. 1 2010.

For the first time since 2010, revenue from paid services rendered by budget organizations, which transferred to the public budget and in a proportional amount and were taken into account in the expenses of the public budget, is listed as one of the sources covering the budget deficit.

So, in difference to previous years, cut in 2010 public budget were prepared by taking into the account the findings of the global crisis's adverse effects and expectations of future internal and external factors affecting the socio-economic life.

While preparing the forecasts, the public budget was maximally neutralized from risks linked to the crisis, expected withdrawal of the world economy from a period of stagnation in 2010 and the restoration of energy prices, as well as ensuring further development of the country's economy. Considering different forecast on world economic growth in 2010 made by the IMF at 1.4 percent, the World Bank - 2.9 percent and, in general, continuation of  the uncertainty of the situation on world markets, a conservative approach was chosen while forming the budget projections in order to preserve stable financial support

Moreover, a decrease in the budget expenditures will be accompanied by broadening the tax base at the expense of reducing tax rates, including income tax from 22 to 20 percent and the maximum income tax rate from 35 to 30 percent, and increasing the amount of the annual income for taxation under the simplified system from 90 to 150,000 manat, as well as the pre-school education facilities exempting from VAT.

Growth rate of the public budget was considerable in the previous years, which is explained by increase of the country's financial opportunity. At the same time, it was dealt with impossibility of constant increase of public investments. Public investments will be reduced gradually and it will be almost impossible to speak about two-digit increase of the public budget even after achieving definite stage of development.