Azernews.Az

By Nigar Orujova

Azerbaijan will increase revenues and expenditures of its state budget for this year, Finance Minister Samir Sharifov said in an interview to ANS TV channel.

The revenues will be increased by 1.9 billion manats ($1.1 billion) to 16.4 billion manats ($10.2 billion), while the expenses will be increased by 1.95 billion manats ($1.2 billion) to 18 billion manats ($11.2 billion), he said.

“The deficit of the state budget is forecast to be at 1.5 billion manats ($0.93 billion),” the minister added. “The main sources of covering the budget deficit are the savings from 2015 in the amount of 1.4 billion manats ($0.87 billion), as well as the manat bonds, which are planned to be released on to the market this year.”

Budget forecasts are prepared taking into account the oil price at $25 per barrel.

The Minister noted that the reason for amending the budget is adjusting the exchange rate of the manat.

“Next cheapening of the manat in December 2015 made a number of changes in the budget forecasts necessary. First, the country’s expenditures denominated in foreign currencies increased. This is the cost of external debt management, financing of our diplomatic missions abroad, payment of membership fees to international organizations and also implementation of our other foreign currency liabilities. All these costs should be reflected in the state budget with consideration of new AZN to USD exchange rate,” he said.

In addition, in connection with the devaluation of the manat inflationary pressures, raising a number of prices observed which made it necessary to increase the number of social benefits, Sharifov noted.

The president has already issued a number of decrees and orders to increase social benefits and salaries, he added. Several orders are expected to be signed soon to increase unemployment benefits, scholarships and for a number of other social measures.

“There must be some funds in the state budget for all these, but they are not among the ones approved last year,” the minister added.

It is planned to allocate more than one billion manats in order to increase social benefits and salaries, he stressed.

The minister went on to add that another reason for a revision of the budget forecasts was decrease in revenues from some sources.

“Deductions for income tax from the oil consortiums operating in Azerbaijan decreased due to lower oil prices. In the budget for 2016, the oil price was taken into account at $50 per barrel, now during the revision, it will be considered at a rate of $25 per barrel, while some predict that in the second half of the year, oil prices will rise.

“Thus, our oil revenues will decrease, but, despite the fact that some of them in USD and we will increase revenues in the manat equivalent because of the devaluation, contributions from the oil consortiums and the Azerbaijan State Oil Company to the state budget may be reduced by 200 million manats ($125 million),” he said.

He also said that revenues also revised by the Taxes Ministry and the State Customs Committee in the updated state budget.

“It is also primarily related to the devaluation of the manat, prices in the manat equivalent for certain categories of products that were being imported to the country have increased. At the same time, the devaluation could create inflation, and, taking this into consideration, we expect an increase in revenues through the Taxes Ministry.

“Also, it should be noted that the size of transfers to the budget from the State Oil Fund in the manat equivalent increased by 1.2 billion manats ($0.75 billion). Thus, we can balance the revenues and expenditures of the state budget,” the minister said.

Inflation forecasted at 10-12 percent in 2016

Azerbaijan is expected to face with some 10-12 percent inflation this year, the minister said. “It is envisaged in the updated concept of socio-economic development, prepared by the Economy Ministry.”

The inflation in the country in 2015 amounted to 4 percent, in 2014 – 1.4 percent, in 2013 – 2.4 percent, in 2012 – 1.1 percent, in 2011 – 7.9 percent, and in 2010 – 5.7 percent.

Food prices grew by 6.1 percent last year, non-food prices increased by 3.8 percent. Tariffs for paid services increased by 1.2 percent.

Interest on mortgage to be adjusted to inflation

The process of changing interest rates on loans issued in Azerbaijan through the Mortgage Fund will be adjusted for inflation, Sharifov added.

“The Mortgage Fund will now operate as a corporation [earlier it was acting under the Central Bank of Azerbaijan]. It will have the Supervisory Board, which will include representatives of not only the Central Bank, but also of a number of government agencies.

“The Supervisory Board will be given the power to determine the interest rates on mortgage loans and regulate them in accordance with market conditions. In case of the inflation growth, it will be taken into consideration in interest rates,” said Sharifov.

The minister added that another change in the Fund’s activities is connected to the fact that the Supervisory Board will also determine the amount of mortgage loans now.

“The current figure does not reflect the realities of today’s conditions, and there is a need to increase the size of loans issued. The documents are ready, and the decision will be made in the next few days,” said Sharifov.

The state budget of Azerbaijan for 2016 has pledged 50 million manats ($31.3 million) to finance the mortgages. Earlier, the minister said 200 million manats ($125 million) are planned to be attracted on the domestic market to expand mortgage lending in the country.

Banks to solve problems with dollar loans themselves

Azerbaijan’s banking sector must independently solve issues with dollar loans, without th egovernment interference, the Finance Minister said.

“Providing benefits to borrowers of USD loans from the government may lead to a certain precedent,” Sharifov said commenting on the possibility of repayment of loans in foreign currency at the rate of 1.05 AZN/USD, set before the second devaluation in December 2015.

The rumors about granting privileges to dollar borrowers of $5,000 or $10,000, have a negative impact on those customers who have the means to repay their debts, he believes.

“Waiting for the decision, they are in no hurry to pay on credit accounts. The validity of such a move raises the question as $5,000 is no small sum, and it does not mean just buying a refrigerator or TV. Earlier, there was talk of granting concessions on loans up to $10,000, and this is the cost of a car.

“When it comes to loans of up to $5,000, it means compensation in the amount of $2,500, while a loan up to $10,000 up to $5,000 should come under benefits. First, it is necessary to consider, if this does not violate the principles of social justice,” he said.

Sharifov said that the State, through exemption dividends on deposits from income tax and full guarantee of deposits of individuals, has already taken appropriate steps to support the banking sector.

Now, the issue of providing benefits on loans should be settled between the bank and its client, as the biggest support to banks by the state is the deposit insurance coverage for three years, undertaken in order to increase public confidence in the banking sector, the minister stressed.

If investors take their money out of banks unless necessary, the latter may be faced with great challenges, he said.

Until now, the payment of the deposit issued by the Azerbaijan Deposit Insurance Fund was not exceeded 30,000 manats ($18,779).

“The government has decided to provide 100 percent coverage for the deposit, and if the fund has no enough money, the Central Bank will provide it with the necessary resources. This, in turn, have a lot of support for the banks, albeit temporarily,” said Sharifov.

Now the banks must address the issue of providing customers with the benefits for dollar loans.

“As you know, in many cases, banks issued loans in foreign currency at the higher rate for consumer loans. The annual interest rate on consumer loans ranged 30-35 percent [currently defined boundaries of 25 and 29 percent for micro- and consumer loans, respectively]. This suggests that banks in lending at a high rate earned more profits. So why banks are reluctant to direct income earned in previous years, to solve the problems,” said Sharifov.

On the one hand, the issue is on the agenda, and on the other – granting privileges on dollar loans is much debated, he summarized.

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Nigar Orujova is AzerNews’ staff journalist. Follow her on Twitter: @o_nigar

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