Our Analytics 12 february — 11:27

Not empty words of Samir Sharifov (Our comment)

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BY ELNUR MAMMADOV, ECONOMY SECTION

Azerbaijani Finance Minister Samir Sharifov does not see the need to revise the parameters of the state budget for 2020 due to lower oil prices in world markets in recent weeks. 'I don't think that against the backdrop of recent events, we should panic, as the budget price of oil is set at a rather cautious level,' the minister said.

Note that the price of oil in the state budget of Azerbaijan is set at $55 per barrel. But recently, in world markets there has been a decline in oil prices, caused by a sharp drop in demand for it in China due to the spread of the new coronavirus. And the possibility of quotes dropping below the budgeted level is alarming for more than one expert, oil dependence is still affecting. But the head of the Ministry of Finance is calm, and there are apparently compelling reasons for that. Let's see how convincing they are in practice.

Last year, the consolidated budget revenues were fulfilled by 33.8 billion manats (9.4% more than in 2018), and expenses by 26.5 billion manats. A surplus of 7.3 billion manats was formed in the consolidated budget, which is 2.9 times higher than the forecast. State budget revenues were fulfilled by 24.2 billion manats, which is 4.5% higher than the approved forecast, and expenses by 24.4 billion manats (97%). As you can see, the state budget deficit amounted to 207 million manats. And this is with the forecast of 2 billion manats. It is hard to imagine that a budget deficit forecast balanced by pharmacy accuracy could be reduced by almost 10 times. But, as we noted earlier, this is due to a significant over-fulfilment of forecasts for customs and tax revenues, as well as budget savings. And this trend, as shown by government actions, will be maintained.

And before Minister Sharifov had time to report on such success, it was already necessary to start preparing a draft state budget for the next year 2021. The Ministry of Finance is already actively working in this direction. An action plan for the preparation of draft state and consolidated budgets for 2021, as well as consolidated indicators for the next three years, has been approved. This plan consists of 39 points. In addition, the work plan of the Financial Monitoring Service under the Ministry was approved. This service has been given specific instructions to strengthen control over the use of budget funds, and approved a work plan for 2020. That is, everything is being done so that our budget for the current year is also executed at a high level.

Sharifov confirms this in another statement. According to him, the Ministry of Finance continues to implement the Strategy of Medium and Long-Term Public Debt Management approved by the head of state. And as a result of the measures taken, public debt denominated in foreign currency is being reduced. Along with this, the volume of government securities is gradually increasing for the development of the domestic securities market. That is, this year it is planned to slightly increase the domestic public debt to partially reduce external debt.

It may seem that the government intends to repay the entire volume of external debt at the expense of internal, but this is not so. According to the results of 2019, the external debt of Azerbaijan amounted to 17.2% of GDP, which in itself is a great success. And this year it is planned to reduce it by another 1%. This year it is planned to direct 1.7 billion manats ($1 billion) to service external debt. That is, this task is within the budget's power. But in accordance with the Medium-term and Long-Term Government Debt Management Strategy, by 2026 the country's external debt should be reduced to 12% of GDP, which at the time of approval of this document (end of 2017) amounted to 22.8% of GDP.

The Ministry of Finance has a difficult task to fulfil the goal. This work is already underway; reduction of external debt is being carried out in stages. And among all other measures this year, a slight increase in the domestic public debt is also planned. In addition, the growth in government securities will lead to the development of the domestic securities market, the current state of which leaves much to be desired. In addition, Azerbaijan pays more debts, due to which the country's external public debt decreased by 5 percentage points in relation to GDP. At the same time, the main work is aimed at reducing external debt and changing the structure of the debt portfolio. But there are such opportunities: today, according to the minister, we can pay off more 'expensive debts' by attracting cheaper loans. But here there may be problems, so the main task is to pay more on external debt and take fewer loans. As a result, a larger balance is formed in the budget, which serves to reduce debt.

As for domestic debt, this is another matter. In short, we can say that the government, and in particular the Ministry of Finance, the Central Bank and the Ministry of Economy are interested in increasing domestic debt, that is, bonds on the country's financial markets. This is required by the market itself. This year, the Ministry of Finance placed 5-year manat bonds: market participants have shown growing interest in these instruments. Recently, 2-year debt securities were placed on the market: the demand for these securities turned out to be so high that the auction was closed at a fairly low rate of 5.6%. This can be considered a very good indicator, since until recently this indicator fluctuated near the 10% mark. But this debt will be reduced. True, according to the minister, in the framework of reducing the general public debt, external debt will be mainly reduced, and then domestic debt.

And these are not empty words. Recently, the head of state decided on the country's participation in increasing the capitalisation of the International Bank for Reconstruction and Development (IBRD), which is part of the World Bank Group. It should be noted that Azerbaijan already owns 2371 shares (0.13%) of the IBRD, which were acquired for $286 million. The nominal value of one share is approximately $120 625. And today, the government is preparing to purchase an additional 505 new shares, which will cost the budget nearly $61 million. This means that the budget is able to cope with the debt problem. And not only external, but also internal. And replacing one of them with another is just a method of solving the highest priority tasks.

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