Last week the 2006 public budget was submitted to the parliament for discussion. The budget is impressive for its parameters and on can hardly meet such considerable rise in budget purse within a year. Thus, the amount of the public budget revenues for next year was defined as 3.4bn denominated manats ($3.06bn, or 23.6% of the GDP). As compared to 2005 forecasts the public budget expenses will increase by 67.8%. The amount of public budget expenses in 2006 will comprise 3.6bn denominated manats ($3.24bn, or 24.7% of GDP). A rise in expenses is expected to reach 62.8%, while the public budget deficit has been defined as 158m denominated manats, or 1.1% of the GDP.
Budget for inflation…
At first approach such amount of deficit might seem inoffensive from the aspect of inflation pressures. However, more detailed analysis of the 2006 public budget will enable to make a conclusion on biggest inflation potential laid on its base.
Thus, next year the growth pace of incomes and expenses of the budget exceeded the growth pace of the GDP 2.2 times, thank to which the special weight of the budget in the GDP grew considerably. The accelerated rise of the budget first of all is linked with the sharp rise in cross prices of oil. Next year the figure will comprise $40 per barrel, whereas in the current public budget it was set as $25. At present the actual world prices of crude oil exceeds the budget figure several times, and the fact makes a rise in cross prices inevitable. The critical milestone in the process is the implementation of an economic calculation for determination of more correct price. For the time being the government has not disclosed a method for calculation of the cross price to make clear why it grew sharply. A rise in the public budget incomes without consideration of tax remittances by the SOCAR, foreign oil companies, transfers from the State Oil Fund comprised 40.2%. The figure was cited by the Finance Minister while acquitting the MPs with the draft budget. It comes out that the rest part of the incomes will be ensured at the expense of the incomes, obtained as a result of increase of cross prices of oil.
Another source for acceleration of the public budget rise is the four-fold rise in the State Oil Fund transfers. If next year the amount of transfers was $150m, in 2006 the figure made up $650m. Such sharp rise in the amount of transfers is not clear completely. If it is made with regard to attract additional incomes, it would be possible to increase the cross prices of oil with such a success. Every additional manat acquired as a result of transfers from the State Oil Fund implicates groundless economic rise in the public budget incomes and respectively, acts as a source of inflation. If to compare the dynamic of the inflation pace in Azerbaijan with the amount of the transfers to public budget, one can observe a positive link between them. The inflation pace grows as the transfers rise.
Thus, with consideration of transfers and additional budget incomes, expected as a result of sharp rise in the cross prices of oil, the general fiscal deficit of the government will be a bit more than the public budget deficit. In accordance with the calculations made on the base of data provided by the government, the deficit of the comparative budget, which more exactly reflects the consolidated operations by the public sector, will comprise 7.7% of the GDP. Such a considerable rise in deficit of the public sector is quite enough to intensify the inflation pressures and considerably complicate the implementation of the anti-inflation measures specified by the President. Taking into consideration all said, it can be concluded that next year the inflation will exceed the forecast inflation ratio of 9% set by the government, while the rates of manats, which acts as the major anti-inflation source of the NBA, will get seriously strengthened.
…for development
A tendency of rise in expenses will be kept in 2006, which will enable to ensure economic development and defense ability. Capital expenses are the key factors causing growth pace. They will increase 2.6% as compared to 2005. The public investment expenses, which are major part of capital expenses will increase 2.5 times.
The financial assistance to army will increase next year, as the expenses for defense will rise 84.9%. Major part of expenses will be spent further consolidation of battle mint of the army and coordination of its logistics base to world standards.
Then follows expenses for maintenance of law-enforcement bodies, prosecutor and legal authorities, which increased 70.&% as compared with this year.
Next year the expenses for education will increase 32.9%. A rise in expenses will be directed at the rise of average monthly salaries of employees involved in the education field, provision of personnel for the rural schools, improvement of the logistics base of schools, construction of new and reconstruction of existing schools, distribution of free text вЂ"books for children.
Expenses for health will increase 28.4%, culture and arts вЂ" 41%. Like in case with the expenses for education, the major part of expenses will be spent on financing the average monthly wage of employees involved in this sector.
The components of the public expenses take the last places for growth pace. If the expenses for maintenance of the legislative authorities and canal bodies of the executive power acted as the locomotive of the rise in the previous year, this year the role is given to science, the expenses to which will increase 22.6%. As to the first direction of the public expenses, next year it will rise 16.8%.
The dynamic of the public budget expenses show that next year it will remain of investment and social character. The capital expenses will increase 2.6 times, while social expenses вЂ" almost 30%. From the aspect of inflation result of the increase of public budget, the capital expenses enjoy a priority that their increase can go on without inflation results, as the major part of budget funds can be used for payment of import. However, 30%-rise in social expenses will be quite enough to make a serious impact on consumer market, inflation and real community incomes. Thus, though the 2006 public budget possesses unseen investment opportunities, it is tense from the aspect of inflation and its negative outcomes for economy.