By Ofeliya Afandiyeva
In the first quarter of 2020, the revenues of the State Oil Fund of the Republic of Azerbaijan (SOFAZ) amounted to $2 billion 219 million, the fund revealed in its official website on April 6.
According to the results of the first quarter of 2020, SOFAZ revenues were estimated at $2 billion 219 million, including from the sale of profitable oil and gas - $1 billion 763 million. The net average oil price for this period amounted to $59 per barrel.
According to the data provided by the Fund, its expenses in January-March 2020 amounted to $2 billion 763 million.
The increase in expenditures in the first quarter of the current year ($544 million) can be explained by the fact that transfers to the state budget were made faster during that period, taking advantage of the fact that the demand in the foreign exchange market was higher than in previous periods.
“However, we would like to note that SOFAZ's budget expenditures for 2020 are projected to be implemented at the level approved in the budget, and in this regard, about $4 billion is expected to be sold through auctions,” the statement said.
When approving SOFAZ's budget for 2020, the price of crude oil was set at $55 per barrel, and accordingly, SOFAZ's revenues totaled to $7 billion 284.8 million and expenditures – $6 billion 817.6 million.
In the structure of the fund's expenditures, transfers to the state budget will equal to $6 billion 676.5 million or 97.9 percent.
“It should be mentioned that SOFAZ's budget forecasts are approved on an annual basis, and the level of execution for the planned budget year varies in certain periods of that year. Thus, during the year, depending on both the requirements of the state budget and changes in demand in the foreign exchange market, it is possible that the obligations will not be fulfilled in the same amount for months.
At the same time, depending on the prices of crude oil on the world market, the dynamics of the Fund's revenues may increase at different rates during different periods of the year. Thus, depending on the oil price factor and the different execution of expenditures in different periods, SOFAZ's assets may either increase or decrease at the end of any period during the year,” the Fund clarified.
Moreover, the report urged that SOFAZ's annual budget commitment cannot exceed the level approved in the state budget, although the execution is different in different months, as the annual upper limit for the Fund's expenditures is set: “In short, with the exception of SOFAZ revenues, the only factor affecting the level of the Fund's assets at the end of each year is the price of oil on world markets.”
“As it is known, every year SOFAZ transfers a certain amount to the state budget, and the Fund, in turn, keeps at least as much short-term assets in the investment portfolio to cover these costs.
At the same time, SOFAZ's funds also play the role of an "airbag" for the country's economy during external shocks and are used to cover the fiscal deficit that may arise in the state budget.
In this context, high-quality liquid instruments that can be used immediately without causing any damage to SOFAZ's assets are an important part. Thus, up to 70 percent of the Fund's assets consist of a portfolio of debt instruments and money market instruments,” the statement underlined.
Furthermore, the Fund stressed that at the end of March, cash income from U.S. dollar-denominated assets alone was approximately $4 billion. At the same time, SOFAZ will receive about $2.4 billion in cash for the repayment of the main amount in the US dollar-denominated security portfolio alone: “We reiterate that there is no need for any untimely and compulsory sale of assets included in the investment portfolio in order to fulfill SOFAZ's obligations.”
Besides it, in the report it was highlighted that of course, what is happening today in the world economy, as well as in international financial markets, does not pass unnoticed to SOFAZ's revenues and investment portfolio. Today, more than 80 percent of SOFAZ's investment portfolio consists of fixed-income securities and gold, which are characterized by high liquidity and less price volatility, and these assets are known to be more reliable instruments in times of crisis.
“We restate that international financial markets are a mirror of the world economy. If people all over the world consume less goods and services today, and companies use less of their production capacity in return, it means that their income decreases and, as a result, it affects the price of their quoted shares.
These shares are also part of the portfolios of almost all institutional investors today. Like other sovereign wealth funds, these fluctuations in SOFAZ's investment portfolio will be reflected as unrealized temporary losses from short-term price fluctuations and will be disclosed publicly in accordance with the Fund's information policy,” the report announced.
Note that SOFAZ submits quarterly income and expense reports.
Note that the Oil Fund of Azerbaijan, established in 1999 accumulates revenues from the implementation of oil and gas contracts, in particular from the sale of profitable oil and gas of the state, transit tariffs for the transportation of oil and gas through the country, from the rental of state property and so on.
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