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WEEKLY ECONOMIC REVIEW

Analysis Materials 18 October 2005 15:02 (UTC +04:00)

The Azerbaijani parliament hosted discussions on the draft 2006 public budget last week. With respect to the forthcoming parliamentary elections draft document was submitted a bit ahead of schedule, which enabled to carry out more detailed discussions. However, the discussions were weak due to involvement of the MPs in the pre-election campaign, while the draft public budget requires deeper analysis.

If to observe the public expenses attentively one can observe that next year the budget will be defined with the development and strengthening of the national security. Like in the previous years, the expenses to economy rise in rapid speed with the accent on public investment expenses. The significant rise of defense expenses will strengthen the logistics of the any, which is important for the country in condition of war.

Major wrangling point in the public expenses is the sharp rise of assignments for maintenance of law-enforcement bodies. Their growth pace exceeds the broth pace of expenses for education, health, and social sector. However, if wages of definite part of the police employees are reduced, it will give rise to corruption as the officials state.

On the other hand, the 2006 public budget contains more inflation potential, caused by high growth pace of the economic development in the country. It is linked with existence of groundless economic rise in revenues, revenues as a result of rise of the cross prices of oil and volume of transfers from the State Oil Fund. It enables to say that the budget went out of common tendencies of the macro-economic dynamic and exceeds. Consequently, it will be very difficult for the government to restrain the inflation forecasted at 9%. The difficulties will also be observed in the monetary policy, the exchange rates where act as the major source of inflation. We can decisively assert that manat will continue getting consolidated in regard to US dollar, which would influence on the real exchange rate. While the consolidation of the least is not desirable from the aspect of the perspective development of the on-oil sector.

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