Our Analytics 24 october — 12:56

Non-oil state budget? No, oil budget again (Our afterword)



It so happened that almost simultaneously the Ministry of Finance reported on the expenditures and revenues of the state budget for the first nine months of this year and the country's budget forecasts for the next year. This circumstance greatly facilitates work on the analysis of these most important economic documents of the country and comparison of individual budget indicators. And here are the conclusions with such an analysis.

The results of nine months of this year show that the economic slump in Azerbaijan began to slow down and amounted to 0.6%. The nominal volume of GDP for this period was 50.673 billion manats. At the same time, the growth of the non-oil GDP of the year was 2.5%, and the decline in oil GDP was 6.5%. That is, today the structure of our economy has completely changed: it is the growing non-oil sector that began to cover the recession caused by the problems of the oil industry, which in fact caused the overall deterioration of economic performance in recent years. But the recession is already approaching the bottom, as the budget figures show.

The revenues of the state budget of Azerbaijan in January-September 2017 amounted to 12 billion 45.1 million manats, which is 19.2% higher than last year's indicator. And the state budget expenditures for 9 months amounted to 12 billion 783.7 million manats, the deficit of the state budget was 783.6 million manats, which is 20.3% more compared to the same period last year. At the same time, the forecast for the state budget revenues has been fulfilled by 100%, and for expenditures - 100.7%. At the same time, revenues of the consolidated budget for 9 months amounted to 17 billion 586.9 million manats, expenditures to 16 billion 972.4 million manats, and surplus was 614.5 million manats.

In the structure of the state budget revenues, it is worth noting the revenues from the Ministry of Taxes (5.225 billion manats) and the State Customs Committee (1.95 billion manats), as well as transfers to the state budget from the State Oil Fund (4.3 billion manats). In the structure of the same expenses, attention is again drawn to this point: no matter how difficult it is, the social problems are at the centre of the government's attention.

Social expenditures amounted to 4 billion 865.1 million manats, or 38.17% of all state budget expenditures for 9 months, which is 7.8% higher than the same period last year. At the same time, state investments in social infrastructure amounted to 514.7 million manats, communal, transport and energy infrastructure - 1 billion 666.1 million manats, to projects in the Nakhchivan Autonomous Republic - 64.9 million manats.

What awaits us next year?

The government forecasts for the coming year an insignificant GDP growth. The nominal volume of GDP in 2018 will be 69.4 billion manats, and the real growth - 1.5%. Moreover, next year the growth of the non-oil sector is projected at 2.9%, the nominal non-oil GDP will make up 47.6 billion manats. The share of the private sector in Azerbaijan's GDP next year will be 83%. The volume of investments in fixed assets is expected at 15.9 billion manats, of which 51.5% will be internal investments, 48.5% - external. The average monthly salary is projected to grow by 0.5% to 549.7 manats.

As for the state budget of the country, the revenue part of it for 2018 is projected at the level of 20.127 billion manats (including centralised incomes - 19.476 billion manats, local - 650.671 million manats), expenses - 20.905 billion manats (including centralised expenses - 20.182 billion manats, local - 724.092 million manats). The maximum limit of the state budget deficit is determined at the rate of 778.7 million manats. It is planned to pay off the state budget deficit at the expense of internal and external borrowings and the balance on a single treasury account as of January 1, 2018 for a total of 749.7 million manats, EU grants - 29 million manats.

In the structure of the state budget revenues, transfers from the State Oil Fund - 9.216 billion manats, prevail next year. Revenues from VAT are projected in the amount of 4.288 billion manats (including 1.705 billion manats on VAT from imported goods), profit tax - 2.320 billion manats, tax on individuals' income - 1.196 billion manats, excise tax - 726 million manats (including 172 million manats from excise taxes on imports of goods), customs duties - 535 million manats, simplified tax - 380 million manats, tax for use of subsoil - 136 million manats, road tax - 91 million manats. Another 490 million manats, according to forecasts, will come from non-budget revenues of budget organisations and other revenues.

In the structure of expenditures in 2018, 2.739 billion manats will be allocated for defence, 2 billion manats for education, 740.661 million for health care, 2.197 billion manats for social protection and social security (including social protection expenses - 2.163 billion manats), state capital investments - 4.924 billion manats, etc.

And in order not to torment the reader for a long time by a heap of figures, we note that for 2017 the revenues of the state budget of Azerbaijan were approved in the amount of 16.766 billion manats, expenses - 17.941 billion manats. As you can see, next year the main parametres of the country's state budget as predicted by the government will grow, although insignificantly. And if we add here the expectations of the Central Bank of the country for a single-digit inflation, then a good picture emerges, which can be summarised as follows: life will become easier.

Here one could finish the analysis, but one thought does not give rest: no matter what, but oil is still at the head of our economy and the country's budget. No matter how much was said about the growth of the non-oil sector and the decline of the oil industry, 'black gold' is the main breadwinner of Azerbaijan. And the growth of budgetary indicators is to a large extent connected not only with the almost 50% growth of transfers from the Oil Fund, but also with the growth of the base oil price set in the budget.

If this year's budget forecasts are formed on the basis of the price of oil at $40 per barrel, then the forecast for the price of oil laid in the state budget-2018 is $45 per barrel. It is no accident that in the drafts of the state and consolidated budgets for 2018 it is shown that the decline in oil prices, the country's main export commodity, has a direct impact on the budget through the profit tax paid by oil companies, i.e. the State Oil Company (SOCAR) and Azerbaijan International Operating Company (AIOC). According to the calculations of the government, the drop in the cost of crude oil on the world market by $5 could reduce the revenues of the Azerbaijani budget by 62.5 million manats.

The change in prices for crude oil also affects the consolidated budget through SOCAR's revenues, which may fall by 794 million manats. And further, there will be a reduction in the trade surplus and a negative impact on the balance of payments. And what the deficit of the balance of payments can lead to, we are well aware: to an increase of the pressure on the exchange rate, to reduction of strategic foreign currency reserves.

This is how much our economy depends on external factors that are beyond our control. And in order to reduce this dependence to a minimum, it is necessary to develop the non-oil sector. Yes, in the fastest pace! Otherwise, every slight fluctuation in the world oil market will greatly hurt our well-being. And from such and even stronger fluctuations, taking into account the events taking place in the world, we can not be guaranteed either today or tomorrow.

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