Traditionally, mid-autumn is a period of wider discussions over the public budget for next year. The 2007 budget is not exclusion in this sense. Gaining an approval at the Cabinet of Ministers, it is pending for plenary discussion at the Milli Majlis [parliament].
Guiding the initial version, one can see that the 2007 public budget differs with definite changes, its quality and quantity parameters. The 2007 public budget incomes will approximately constitute 5,336bn manats, or 39.1% more than 2006. The public budget incomes will increase 6.8 times as compared to 2001 and make up 24% of the Gross Domestic Product (GDP). In its turn, the expenses will increase 42% and comprise 5,715bn manats or 25.7% of the GDP, Respectively, the 2007 public budget deficit will comprise 379m manats or 1.7%. In 2007 the volume of the GDP production 22.2bn manats amid a rise of 22.7% against 18.1bn manats 2006 (32%), while the per capita GDP will comprise 2,621,1 manats.
The 2007 public budget incomes will be formed at the expense of traditional sources, particularly, taxes. The share of taxes in the incomes comprises 74.23% and 3,980m manats (+28.6% against the 2006 forecasts) will enter via this channel With this respect it is planned to minimize the tax privileges starting from next year, increase tax collection in the non-oil sector and increase collection of taxes in the regions, which is first of all linked with their rapid development observed last year. Despite it, the tax collection will be mainly comprised of remittances by the oil sector 60.3%. The oil-related tax remittances will comprise 2,400 manats next year, increasing 54.9% a year, inkling the remittances by the SOCAR 1,000m manats (+15.5% against 2006), profit tax transfer by the Azerbaijan International Operating Company (AIOC) 1,400m manats. Oil prices put in the public budget will be maintained on the level of 2006 - $50 per barrel.
Another source of incomes is the customs and duties. They amounted to 650m manats in 2007 (relative rise was 28.6%) and reached 12.12% of all incomes. 2.8m manats (0.05% of all incomes) will be remitted to the budget from the rent of state property, increase of these incomes (+16.7%) will occur in the pace of like the non-budgetary remittances (+16.2%).
The Finances Ministry included in the public budget incomes from the issue of bonds at the world capital market (Eurobonds). The issue of Eurobonds will impact on the amount of foreign debts, as well as covering a deficit of the public budget at the expense of securities. Thanks to issue of Eurobonds a limitation on foreign debts under state guarantee will increase to $1bn in 2007 against $0.6bn in 2006.
As to public budget expenses in 2007, the country's new budget will of social direction, which peculiar to the fiscal document over the past few years. So, expenses for education will increase 41% as compared to last year, social security - 38% and health 47.1%. Eight health-related projects will be funded at the expense of public budget next year.
A total of 89.8m manats (+26.9%) will be directed at culture sector, 239.2m public utilities agriculture, forestry and fishery (+21.6% as compared to 2006), 173.9m industry, construction, transport, and communications.
For the first time the 2007 public budget assigned funds for the State Agency for Agriculture Credits to finance the agriculture.
In general major part of public budget expenses will be directed at supporting the economic and social reforms, consolidation of power mint, improvement of the welfare and implementation of investment projects.
The Government has defined the schedule for increase of wage in 2007. On 1 January it will be increased to 40 manats, from 1 July - 45 AZN. This, the minimal salary will increased by 28.5%. The criteria of need will rose to 35 or 40 manats.
The part of finances allocated for repayment of community savings left for the Soviet period remained unchanged (60m manats)
For the first times the Finances Ministry included the draft 2007 public budget expenses for payment of bank services to customs and tax payment through plastic cards. Thus, automation of customs payments started in 2005 and gradually covers many and many customs places.
It is planned to put 9m manats in the 2007 public budget for the repayment of membership fees in the public-political (6m manats) and international financial organizations (3m manats), whereas in 2006 the figure was 8.4m manats.
From 1992, when the government started shaping the relationships with the international organizations, until now the country has been holding membership at 50 organizations. Every year definite funds are laid in the public budget for payment of necessary fees.
In 2007 the public budget deficit is expected to reach 379m manats, or 1.7% of the forecast GDP. The Azerbaijani Finances Ministry defined 2 sources for covering the 2007 public budget deficit. Firstly, the deficit will be covered at the expense of revenues from the privatization of the state property 50m manats. The rest 329m manats will be attracted at the expense of sale of T-bill within and out of the county, which is expected to bring 80m manats in revenues, while sale of Azerbaijani euro-bonds in the foreign markets 249m manats.
Obviously, actual deficit will be lower than the sum proposed. However, in any case the budget deficit is a mobilizing factor and makes the government to work actively over the expansion of the public budget incomes.
Dynamic development of the Azerbaijani economy, as well as incomes from oil export to the world markets resulted in considerable increase of the country's public budget. All these factors impact on the public budget revenues and increase its expenses.
Meanwhile, the International Monetary Fund (РњР'Р¤) strongly recommends the Azerbaijani Government to demonstrate extreme prudence while forecasting the expenses of the 2007 public budget.
Increase of incomes should be grounded by short and long-term strategy, which is important for durability and stability of high expenses to be in condition to maintain growth pace in the future periods. We completely agree with the government that the economy and the financial system should be improved. We support such targets, but our key attention is focused on the pace of rise expenses. The speed should be regulated with respect to avoid heating in economy, Kramarenko underlined.
He stressed that it is very important to show the national priorities on investment projects, get determined with the directions of implementation of investments and the efficiency of investing in terms of predictability. Many investments take several years to complete. Therefore, it is necessary to work over a long-term program.
The Government is developing a budget of major indices, while we offer to develop a packet of major projects, as well as the way of development and financing of these projects over 3-5 years. It is necessary to provide the parliament with information not only about the packet of expenses, the way of their implementation, their priorities and their financing for 3-5 years.
Moreover, the IMF insists on cut in indirect grants-in-aid for fuel-energy complex of Azerbaijan, financed out of the public budget. The Government was proposed to increase the amount of grants-in-aid, to liberalize the market and get rid of secret subsidy.
However, beyond IMF's recommendations the government does not plan to restrict rise in the expenses next year. According to the government, in case of growth of the Gross Domestic Product by 30%, rise in the budget expenses is an only process is natural and it has no sense to retain the rise in the budget expenses.
From another hand the government agrees that there should be balance between the expenses and incomes obtained in the non-oil sector of the country.