Government prepares 2016 budget in midst of world crisis
By Gulgiz Dadashova
In the current global economic situation, Azerbaijan needs to be careful in its outlook for forming the 2016 state budget and limit expenditures.
Next year’s budget formation process seems as if it will not be easy given decreasing oil prices, the pressure on currencies in partner countries, and the unstable political situation in the world.
Oil and gas exports are simply too important for Azerbaijan, as energy exports account for 95 percent of the country’s exports and more than 60 percent of its revenue. The Azerbaijani government has already reacted to lower energy prices with a currency devaluation in early 2015.
The energy rich nation’s central bank put an end to the dollar peg for the manat in February, which system had held since mid-2011. The manat weakened by 33.5 percent against the dollar, and by 30 percent against the euro then.
While the government is expected to maintain defense and social spending at existing levels in the 2016 budget, infrastructure expenditures and private sector investment may be decreased.
The Ministry of Finance is expected to prepare multiple scenarios and the draft budget will be adjusted depending on the situation.
MP Ali Masimli told local media that the parliament does not yet possess information about core figures, as the draft budget has not yet been submitted.
But the sharp drop in oil prices on the world market will cause inevitable changes to the budget, reducing both revenues and expenditures, Masimli believes.
Although no specific details are yet available, he said, the oil price forecast for next year's budget will surely be decreased from this year’s level of $90 a barrel.
He noted that transfers from the country’s oil fund SOFAZ will likely be cut in next year's budget. "On the other hand, oil prices have fallen sharply at a time when about 65 percent of budget revenues come from oil, of which 53 percent directly comes from the SOFAZ. Thus, making corrections in both revenue and expenses are necessary,” he said.
The 2015 budget anticipates revenues of 19.4 billion manat and spending of 21 billion manat. The current state budget’s deficit is expected to hit 2.8 percent of GDP.
The MP said about half of the state budget is directed to capital expenditures.
“Capital expenditure covers social and infrastructure projects. By increasing the efficiency of the use of budget funds in this area, we can do a lot of work with less funds,” he added.
“The current budget expenditures are for the salaries of state employees, pensions and social benefits, utilities and communication, improvement services, and other necessary expenses, and thus the government will not reduce social expenditures in 2016 with a view of covering its social obligations,” he said, assuring that the Finance Ministry will, on the other hand, work to reduce unnecessary costs.
It appears that SOFAZ’s revenues this year will half of that of 2014, approximately $8 billion. The government is working to increase the share of revenues from the non-oil sector in the budget.
The assets of SOFAZ, an entity that accumulates and manages Azerbaijan's oil and gas revenues, decreased by 3.56 percent earlier in the year from $37.104 billion to an estimated at $35.783 billion as of July 1.
--
Follow the author on Twitter: @GulgizD
Follow us on Twitter @AzerNewsAz