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BUDGET SUPPORTS INFLATION

Analysis Materials 28 June 2005 17:40 (UTC +04:00)

Last week the Azerbaijani parliament adopted changes and supplements to 2005 public budget. In accordance with the changes and supplements, he 2005 public budget revenues grew 800bn manats, while expenses вЂ" 1,16trln manats. As a result, the public budget deficit grew 215bn manats.

Sources of additional financing



According to Avaz Alakbarov, the Azerbaijani Finance Minister, the pubic budget revenues will be increased in three directions вЂ" increase of revenues via the Tax Ministry (470bn manats), the State Customs Committee (300bn manats), Azerlotereya JSC (30bn manats in dividends).

Additional income sources of 2005 public budget


Income source

Amount in bn mantas

Special weight, %

Ministry of Taxes

470

58,8

Including

Income tax

94

11,8

Profit tax

356

44,5

State duties

20

2,5

State Customs Committee

300

37,5

Including

VAT

150

18,8

Excise

20

2,5

Duties

130

16,3

Azerlotereya

30

3,8

Total

800

100

Source: Trend, calculations by author

The head of the permanent parliamentary commission on economic policy, Sattar Safarov, noted that the surplus of the public was linked with the rise of incomes, right investment and economic policy of the government, implementation of state programs, as well as well as minimal salary, but not increase of world oil prices. The Finance Ministry decided to transfer the surplus capital (325bn manats), accumulated as a result of high world oil prices to the State Oil Fund. According to Avaz Alakbarov, the Azerbaijani Finance Ministry, their use is linked with inflation results. It comes out that being in the SOFA the funds might bring to the Finance Ministry 2-3% incomes.

However, the reconsideration of the public budget for its increase has been implemented in Azerbaijan for the past two years. Namely in this period the world oil prices demonstrated stable rise and reach the almost at $60 per barrel. The additional revenue from income and profit taxes comprise 56.3% of all additional incomes. These two taxes exactly demonstrate the dynamic of oil prices. It would be more probable to suppose the formation of additional budget revenues is linked with successes of the government’s economic policy on the one hand and favorable situation in the world oil market for Azerbaijan.

Beneficiaries

In difference to last year, in 2005 the government thought over increase of the budget in respect of debts. If 2004 budget was reconsidered in May, the 2005 budget - in June. It is explained with unusually high inflation in the country. Given on that factor, a major term was increase of the budget was prevention of further acceleration of the inflation. The officials urge that the directions for increase of financing will not accelerate the inflation. Thus, additional 1,16trln will be distributed the following direction:

Directions and volume of additional revenues of the 2005 public budget

Direction of expenses

Amount, in bn mantas

Special weight,%

Minimal salary

317

31,2

Defense

278,5

27,3

State investments

190

18,6

Science, health, education

143,3

14,1

Social defense and social security

40,2

4,0

Arts, youth, sports

14,3

1,4

Transport and communications

10

1,0

Service to liabilities

10

1,0

Other

8

0,9

Agriculture

4,7

0,5

Total

1016

100

Source: Trend, calculations by author

So, the government attaches key importance to defense and state investments. These are directions of expenses which take considerable part in the political and socio-economic development of the country and can be regarded as more non-inflation ones. 50% of all additional expenses will be directed at it.

As to inflation danger of social expenses, 35.2% additional facing will be spent in this respect.

At any rate…

Though special weight of additional social expenses of the budget is considerably down the expenses directed at financing defense and investment expenses, the absolute amount of social expenses makes doubt in non-inflation character of adopted directions of expenses. The figure comprises 357.2bn manats. The amount of additional social expenses is fully able to set up inflation in autumn. For instance the presidential decree on increase of minimal salary and pensions, dated August 2003, grasped 206.7bn manats in social expenses of the public budget. In 2004 the cost of the summer packet of social decrees issued by the President summed up 163.4bn manats. Both in the first and second cases social expenses of the public budget was accompanied by intensified inflation. As it seems, the current amount of additional social expenses exceeds the last year figure, which enables to guess that the additional budget expenses would more scarcely drive away inflation and complicate the ant-inflation actions by the government.

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