Azernews.Az

By Gulgiz Dadashova

Economic crises as a rule leave behind a large sum of debt that can take decades to pay off. Governments and businessmen in developing countries are sometimes forced to resort to various fundraising measures, including the issuing of bonds, loans from development organizations and developed countries, and borrowing from private financial institutions to stimulate economic growth.

However, loan repayment has not always been on schedule, as in the case of Greece. As a result of financial and currency crises, or in the current case of falling oil prices, countries often face solvency problems and go into default, resulting in a low recovery rate and a deterioration of business performance.

The public debt of Azerbaijan, the South Caucasus's biggest economy and its most populous nation with over 9 million people, has climbed to about $10 billion, economist Ogtay Hagverdiyev said.

The authorities, however, has repeatedly announced that it could repay its debt in one day if needed, but chooses to do so in stages, Hagverdiyev noted.

This year, the government will direct $750 million for these purposes, the finance ministry said earlier.

“The public debt of some European countries, which is comprised of internal and foreign debt, is enormous. But the paradox is that in these countries, the standard of living is high and the government is on the verge of social bankruptcy,” the expert explained.

The authorities of these countries from year to year increase wages and pensions, improving the standard of living, but the economy suffers as a result, he noted.

“The crisis in the payment of wages in budgetary organizations is among various financial delays attributed to the internal debt. It is constantly in motion. Here the debtor is the state,” he said citing Japan as an example, which leads the list of countries with the largest public debt. The bulk of Japan’s public debt, about 90 percent, is internal debt.

Japan's debt will be three times the size of its economy by 2030, unless the government acts now to control spending, the International Monetary Fund has warned.

According to the IMF’s latest World Economic Outlook, Japan's debt is already at about 245% of its annual gross domestic product of 11 trillion. The top ten largest debtor countries also include Italy (133.76%), Jamaica (132.82%), Lebanon (131.82%), Eritrea (129.24%), Portugal (126.35%), Cape Verde (212.08%), Bhutan (115.89%) and Ireland (107.75%).

The situation is the reverse in Azerbaijan, where the country’s foreign debt exceeds its internal debt, Hagverdiyev said.

As of January 1, 2015, Azerbaijan's foreign debt amounted to $6.478 billion, according to the Ministry of Finance. The ratio of external debt to GDP stands at 8.6%. On the foreign exchange, Azerbaijan’s foreign debt in SDRs (Special Drawing Rights) was 9.9%, 64.8% in USD, 21.4% in euros, 2.1% in Japanese yen, 0.7% in Islamic dinars, 0.5% in Emirati dirhams, 0.4% in the Saudi Riyals, and 0.2%. Kuwaiti dinars.

Some 32.5% of credit resources were in terms exceeding 20 years, 60.02% from 10 to 20 years, and 7.3% up to 10 years.

"All the debts emerge from the budget deficit. Let’s revise the current situation in Greece. The country has faced such a hard burden of debt because for many years it completed the year with a deficit. It issued securities and the European Bank redeemed them,” Hagverdiyev explained.

According to the rules of the European Union, member states should not exceed a budget deficit of 3% of the GDP.

“But states violate this provision, including Germany and France. The problem of growth of public debt begins with the budget deficit," he said.

Meanwhile, the Azerbaijani parliament will discuss in its plenary session scheduled for September 30 a proposal to increase the upper limit of Azerbaijan’s external debt in 2015 to 4.5 billion manats ($4.3 billion) in order to finance domestic projects.

The upper limit of the internal state debt and for external debt of Azerbaijan for 2015 was set at $1.5 billion manats ($1.433 billion).

Due to a decline in currency reserves and the falling price of crude, the share of Azerbaijani foreign debt to the GDP has been increased from 8.0% to 8.6%, or about $67 per person in 2015.

During a visit to the Kurdamir and Agsu regions this September, Azerbaijani President Ilham Aliyev referenced the external debt of Azerbaijan.

The head of state said the external debt of many European countries at times exceeds their GDP, while Azerbaijan remains one of the countries with the lowest external debt. "We are able to pay our debt in a day,” President Ilham Aliyev said, while addressing to crowds in these regions.

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