In compliance with the statement by the Ministry of Finances, Avez Alekperov, by the end of April 2006 it will defined whether to reconsider the 2006 public budget of Azerbaijan, or left I the previous level. More scarcely, in the second half-year the budget will be reconsidered. It will not occur due to insufficiency in funds, which makes the implementation of the budget impossible and more scarcely, vice versa. The government plans to achieve surplus of the budget in the first half-year, not mentioning the concrete amount.
The source of formation of a surplus is well known large-scale oil production from the unexhausted deposits and high world prices for it. While calculating the public budget revenues for this year its average annual price was set as $40 per barrel. As a result of the last week average price of AZERI LT (CIF) oil, which Azerbaijan sells through the Georgian ports Supsa and Batumi, made up $66.86 per barrel. In compliance with the calculations by local economists, rise in oil prices even by $1 a month would mean over $1.5m additional profits for the government.
Rise in prices of some oil products (diesel fuel, light kerosene and home fuel) in the beginning of the year is expected to bring additional 92m AZN to the public budget in 2006. Forecasts on excises were projected in the amount of 129m AZN, while in accordance with production calculations, 21m AZN is also expected to enter the budget. In case revenues from VAT are forecasted to 385m, it is planned to received additional 30m AZN. The revenues from profit tax forecasted at 869.4m AZN will increase 31m AZN in connection with a rise in prices of oil products, though in total budget revenues it constitutes only 2.6%.
Moreover, rise in the income was observed almost in incomes articles of the budget. Thus, according to the State Statistics Committee, over 2 months of 2006 public budget revenues, which increased 71.4% as compared to last year, comprised 420.2m manats, while expenses 405.8m manats. As a result there appeared a surplus in the amount of 14.4m manats, or 0.6% of the GDP. It is necessary to note that the highest pace of revenues was observed in the remittances by the State Committee on State Property Management, as forecast remittances to the public budget from the leasing of state property was executed by 185%. Remittances by different taxpayers made up 666,000 AZN against the forecast of 360,000 AZN. Such growth pace is explained with the re-registration of the state property from 1 January. The revenues did not grow in connection with the current payment of rents, but also by the part of debtors.
In any case deficit in the public budget brings more annoyances, as it is easier to remove the surplus. The parliament sounded any calls on use of the funds for social needs, in particular, for use of the high budget assignments in reconsideration of wages of employees involved in the sphere of health and education.
One of the actual issues while spending the surplus of the public budget is the reconsideration of indirect grants-in-aid for Azerenergy in connection with a rise in prices for imported Russian gas. They were specified for the company at the price of $60, whilst today Azerbaijan pays $100 to Russia for 1,000 cu m of natural gas. Increase of the amount of indirect grants-in-aid by some 400m AZN is not ruled while correction of the public budget. The 2006 public budget allocates 335.4m AZN in this respect. This sum implies for mutual settlements of Azerenergys debts to the oil company and the SOCARs debts to the pubic budget.
The Minister of Finances confirmed that following the surplus the military expenses and pubic budget assignments allocated out of the budget, not excluding the salaries of the budgetary employees will be increased, while the minimal salary ratio will be raised to 50 manats.
The economic practice proves that in case of absence of serious pre-conditions for adequate rise in the commodity supply the law-incomes people will be unable to benefit the budget assistance. As the amount of goods and services actually remain unchanged, rise in demand is balanced trough rise in prices. So, in these conditions macroeconomic stabilization have to be forgotten.
This is what the international financial institutes assert day and night. For instance, the Asian Development Bank (ADB) does not hide its concerns in connection with the 65% rise of expenses of the 2006 public budget, the major part of which is allocated for increase of wages, pensions, defense purposes and rehabilitation of infrastructure. Major concerns are caused in connection with the assimilation of the funds by the economy, Philip Chang, the senior country economist of the bank, says. He also notes the heavy task of the NBA linked with the control over the inflation and stabilization of the exchange rate of the national currency. The ADB suggests increase of the production capacities and improvement of productivity indices with respect to prevent impact of the rise of public expenses on inflation.
In current situation, when inflation remains to be the most sensible problem for Azerbaijan, the government will never go to sharp increase of expenses. At any case the public budget will be reconsidered.
Firstly, due to formation of sufficient additional funds, but no one can doubt in impressive amount of the surplus following favorable situation with the oil and gas prices. In case there is surplus of the pubic budget, the considerable amount of budgetary funds is actually taken out of the normal procedures on budget consideration and control. Frequently, decisions on additional use of budget funds are taken rapidly and many cases, are not well grounded.
Secondly, it is important to preserve a reputation of the state with active economic policy, when it is almost impossible to shape a surplus. The world experience testifies that the biggest surplus of the public budget is peculiar to underdeveloped countries, the economy of which depends on the state of the world market.
If to reconsider a practice of designing the public budget in Azerbaijan over the past few years, we can see that the Finances Ministry which has been designing budgets with deficit for many years. Last year the deficit budget made up 0.7% of the GDP (94,766m AZN), or 0.6% more than the forecast. In compliance with the public budget of Azerbaijan for 2006, the incomes were confirmed in the amount of 3,406bn AZN, expenses 3,594bn AZN, deficit 188m AZN, or 1.3% of the GDP. A principle that he money should work, but not stay inactive is taken as basis. The surplus in the pubic budget appeared as a fact, s a result of high oil prices, as well as definite non-financing of the social sector (for instance, delay in the application of the targeted social assistance and consequently, cessation of distribution of childish allowances).
How strange it might be in current conditions, Azerbaijan even carries out work in the direction of cut in the budget deficit in 2006. The Minister of Finances expects 40-50% rise in the forecast figures in 2007 and guesses that there exist reserves for increase of public budget revenues at the expense of remittances by the Taxes Ministry, the State Customs Committee, as well as privatization. If there evolves deficit in the budget, it will be covered through additional tax remittances. The government annually injects supplements and changes to the Tax Code, the essence of which is to clarify the different tax rates, the order of calculation, presentation of tax privileges. The changes are mostly of technical character and can inconsiderably increase the public budget revenues.
However, the traditional reconsideration of the major parameters of the public budget for increase testifies insufficient forecasting-analytical work carried out by the Ministry of the Economic Development, acting on the base of permanent consultations with the experts. Drop in export prices of local oil and increase of exchange rate of manat enables the government to over-fulfill the public budget revenues and ensure surplus of the budget without any effort.