Our Analytics 17 april — 13:34

Ilham Aliyev is preparing for only minimal losses (Our afterword)

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MAMMAD EFENDIYEV, ECONOMY SECTION

We have already warned of the need to revise budget parameters due to the negative impact of the coronavirus pandemic on the country's economy. This need was also emphasised by President of Azerbaijan Ilham Aliyev in his speech at a recent meeting in the form of a video conference dedicated to the socio-economic results of the first quarter of 2020. The head of state instructed the government to review state expenditures and reduce those that are not priority. And he called for very strict control over the spending of budget funds.

We know firsthand how the execution of certain decisions is sometimes delayed. But today is not the time when bureaucratic obstacles can influence the course of the struggle against evil that has swept the world. And the government's reaction was not slow in responding. According to the Executive Director of the Centre for Analysis of Economic Reforms and Communications, Vusal Gasimli, investments and current expenses of the budget are already being revised. According to him, the global economic crisis, low oil prices and the large-scale pandemic have affected the revenues of the consolidated budget of Azerbaijan.

There may be no reason for special worries: in the first quarter of this year, the state budget revenues amounted to 7 billion 811 million manats, and expenses amounted to 5 billion 255 million manats. As one can see, even a substantial surplus has formed in the budget: 2 billion 556 million manats. In addition, tax and customs authorities increased their forecast for income by 312.2 million manats. But the uncertainty associated with the deepening global recession and pandemic has a negative effect on revenues, forcing many countries to revise budget parameters. And each country goes its own way, based on its capabilities.

Three tasks of Ilham Aliyev: stability, employment and welfare

More than 150 countries have already requested assistance from the International Monetary Fund and the World Bank. This is understandable, many countries are already in debt, while others do not have sufficient reserves. In our region, too, all countries, except Azerbaijan, Russia and Kazakhstan, which have a 'safety cushion,' are trying to balance the state budget for 2020 by increasing external public debt and revising the budget deficit. But the fight against the crisis through raising external debt is an expensive measure. In addition, this would contradict the country's accepted direction to reduce external debt, which is already considered one of the lowest in the world.

And Azerbaijan, unlike other countries, did not attempt external borrowings or devaluation in the fight against coronavirus. The government relies on its own resources. Under the current budget legislation, funds totalling 1.35 billion manats were allocated from the Presidential Reserve Fund and other reserve sources to combat the crisis, in particular, to change and assign a number of expenses by reassessing the priority of budget expenses. But the government does not intend to limit itself to this alone. A further increase in the efficiency of investments and current expenses is expected, as well as a search for new financial sources to ensure the budget to combat the crisis, the financial burden of which today exceeds 2.5 billion manats.

Moreover, in Azerbaijan not only the budget parameters are being revised, but also the macroeconomic framework is changing. So, for amendments to the budget there is a need to revise the fiscal framework and, accordingly, the macroeconomic framework. The correct preparation of macro-parameters determines the forecasting of budget indicators. For this, the accounts of production, primary and secondary distribution and final use should be analysed in the System of National Accounts. It is also necessary to reevaluate the GDP on the basis of an analysis by the expenditure method to match the functional classification (including economic classification) of the state budget. An analysis of GDP by the expenditure method means that in the remainder of the year, expenditures of households and government agencies, as well as net exports, will tend to decrease. On the other hand, due to low oil prices, revenues from the oil sector and the 20 sectors of the non-oil sector that are most affected by the pandemic will decrease.

The head of state identified three main objectives of economic policy this year: economic stability, employment and welfare. In accordance with these goals, the main vectors of fiscal policy will be prioritisation of expenditures, increasing transparency and cost-effectiveness. To ensure fiscal sustainability, such measures as amnesty of capital and property, privatisation, reduction of the budget load by increasing the efficiency of managing state enterprises, transparency and economic efficiency of investment programs, as well as increasing the transparency of public procurement are defined. Moreover, the attraction of private investment will play a decisive role in ensuring stable economic growth.

Yes, the impact of the pandemic on the economic situation is inevitable. But to what extent, depends on a combination of many circumstances, for each country individually. How widely it will spread and how it will affect the health of the population is precisely this issue that is most exciting for the authorities of many countries, including the most advanced. In Azerbaijan, as can be seen from the latest report of the Operational Headquarters under the Cabinet of Ministers, thanks to measures taken by the government, this issue has been resolved effectively, that is, with minimal losses. And soon, quarantine measures are expected to be eased altogether. And the recent reports of the head of state and relevant ministers inspire hope that our economy will come out of this difficult situation with minimal losses, catching up lost opportunities in the near future.

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