Our Analytics 6 september — 13:06

National debt of Azerbaijan amounted to $9 billion 800 million (Latest figures)



It would seem that only recently Azerbaijan approved changes to the state budget for 2020. And now the Ministry of Finance has already published forecasts for the state budget for the next year 2021. And from the very beginning, a deficit of more than 1.5 billion manats -- for a long time unprecedented in the country -- has been included in the budget, which indicates the forthcoming difficulties with its implementation.

The Ministry of Finance forecasts state budget revenues for 2021 at the level of 24 billion 327 million manats. Compared to the recently cut forecast for the current year, budget revenue growth is expected to be 0.8%. At the same time, state budget revenues for the next year are calculated from the oil price of $35 per barrel. The main source of income remained unchanged after it was cut by $20 in a recent budget revision for the current year.

Finance Minister Samir Sharifov is optimistic: Manat will remain unshakeable next year too

And the role of oil in the formation of the budget remains high again. In the structure of revenues, more than half of the proceeds, namely 57.3% or 13 billion 950 million manats, are planned to be provided through revenues from the oil sector, and 42.7% or 10 billion 377 million manats from the non-oil sector. Compared to 2020, the growth of budget revenues from the non-oil sector will be 2.4%. At the same time, transfers to the state budget from the State Oil Fund for 2021 are provided in the amount of 12 billion 200 million manats, which corresponds to the indicator of 2020. The fund will provide 50.2% of all budget revenues.

And the state budget expenditures will decrease by 6% compared to the current year and are projected at 25 billion 847.5 million manats. In the structure of expenditures 18 billion 106.6 million manats or 70.1% are current expenses, 5 billion 389.1 million or 20.8% are capital expenditures, 2 billion 351.8 million manats or 9.1% are management costs, public debt and obligations. For social purposes next year it is planned to direct 42% of all state budget expenditures. Another 4 billion manats are planned to be allocated from the state budget for defence, and 600 million manats to finance measures to combat the COVID-19 pandemic.

Thus, the government predicts the state budget deficit for 2021 at the level of 1 billion 520.5 million manats or 2% of GDP. Considering that the state budget deficit for the current year is projected at 3 billion 368.2 million manats or 4.9% of GDP, then this can be called a significant achievement. But even more than a 2.2-fold decrease in the deficit during the year does not give grounds for satisfaction. Of course, this can be achieved only with great efforts of the government, but more than 1.5 billion budget deficit is not for Azerbaijan.

But not only the budget is expected to be in deficit, but also the current account of the balance of payments, the deficit of which this year will amount to $1 billion 539.6 million or 3.7% of GDP. This important indicator will slightly decrease in 2021 and will amount to $1 billion 377.2 million (3.1% of GDP). At the end of 2022, the deficit will decrease to $518.5 million (1.1% of GDP), and from 2023, according to forecasts, the current account deficit will be replaced by a surplus, which will amount to $724 million (1.4% of GDP). And only in 2024, the surplus will already amount to an impressive amount of $1 billion 193.2 million (2.3% of GDP).

The situation is even worse with the consolidated budget. In general, its revenues in 2021 are projected at the level of 20 billion 619.1 million (a decline of 5.7%), and expenses - at the level of 28 billion 627.2 million manats (a decline of 5.5%). Thus, the deficit of the consolidated budget for 2021 is projected at 8 billion 8.1 million manats. At the same time, the revenues of the State Oil Fund are projected at the level of 5 billion 932.9 million manats, and expenses - at the level of 12 billion 420.5 million manats, of which 12 billion 200 million manats will be transfers to the state budget. Revenues and expenditures of the State Social Protection Fund under the Ministry of Labour for 2021 are projected at 5 billion 146.3 million manats, which is 7.6% more than the forecast for the current year. And the income and expenses of the Unemployment Insurance Fund are projected at 152.4 million manats, which is 0.8% higher than the forecast for this year. The main decline is provided by the Oil Fund.

But the Finance Ministry appears to be optimistic. Taking into account the provision of macroeconomic stability and ongoing economic reforms, a decrease in dollarisation and other factors, the rate of the manat against the dollar for 2021 was adopted at 1.7, that is, it will remain unchanged. The expected slowdown in inflation will also contribute to this.

True, according to forecasts of the Ministry of Economy, the average annual inflation in the country by the end of 2020 will be 3.1% against 2.6% in 2019.

But a stable manat and comfortable inflation alone are not enough to overcome billion-dollar deficits. Since it is impossible to cut costs, we need effective measures to increase the revenue side of the budget.

To this end, the government plans to reduce the cost of servicing the national debt, allocating 2 billion 351.8 million manats for this in 2021. Of these funds, 1 billion 787.3 million manats are planned to be spent on servicing the direct external public debt, 417.4 million manats - to secure liabilities attracted under state guarantees, 147 million manats - to service the internal public debt. The government plans to cut spending on public debt management by 21.3% in 2021-2024. For reference, we note that as of July 1 of this year, the national debt of Azerbaijan amounted to $9 billion 813.3 million (16 billion 682.6 million manats) or 24.5% of GDP, of which $8 billion 960.3 million (15 billion 232, 5 million manats) or 22.4% of GDP - external debt, 1 billion 450.1 million manats or 2.1% of GDP - internal debt.

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