“The country’s currency reserves have dwindled significantly, and the government’s priority is increasing currency reserves because SOCAR has other important obligations besides transferring funds to the budget,” stated expert economist Natiq Jafarli, commenting on the announcement by executive director of the State Oil Company, Shahmar Movsumov, regarding the fact that next year the State Oil Fund will reduce its contributions to the state budget by 1.5 billion manat, reducing the amount to 3.1 billion manat for 2017.
According to Movsumov, this will serve to stabilize the macroeconomy and conserve the country’s currency reserves.
“SOCAR needs to spend large sums within the Southern Gas Corridor project, besides which it has obligations as part of TAP (the Trans-Adriatic Pipeline), TANAP (the Trans-Anatolian Natural Gas Pipeline), and Shah Deniz 2. As such, they expect to allocate large enough funds to these projects by economizing from the budget,” continued the expert. This will lead to a reduction of funds in the budget: “Because things are not going so well in the oil sector, that taxes can be used to fill the deficit in the budget that will form as a result of the reduction in transfers from the State Oil Fund. I think that the reduction in transfers by 1.5 billion will lead to a reduction in state expenditures. That is to say, from the start of next year there will be a possibility of major cutbacks or stoppages of large projects in the construction sector. As a result, this will lead to weakened economic activity, and a loss of jobs. This is not difficult to foresee, since there is a very primitive economic model in Azerbaijan: a reduction in budget expenditures influences all macroeconomic indicators, including economic activity.
“I think that next year’s budget will be worse than at present,” noted Jafarli.
Economist Nemat Aliyev believes that the reduction in transfers to the budget from the State Oil Fund is linked to reduced oil revenues: “Because the 2016 state budget stipulated a transfer of 7.6 billion manat from the State Oil Fund to the country’s budget. However, after the first six months of the present year, SOCAR’s revenues have totaled only 2.2 billion manat. In order to meet all its obligations to the budget, this sum should have totaled 3.8 billion manat. But the State Oil Fund’s obligations are not just limited to transferring funds to the budget. It has other expenses that exceed 10 billion manat. And this, according to the calculations of SOCAR’s own specialists, means that it is unable to fulfill its obligations.
“If oil prices remain at their current level, there will be difficulties in coming times. From this point of view, the State Oil Company’s reduction of transfers to the budget is totally logical.”
According to the expert, this promises difficult times for the Azerbaijani economy and budget: “In recent years, payments from the State Oil Fund to the state budget were very high. In 2015 these transfers made up 52-53% (10.4 billion manat) of total budget revenue. If we pay attention to the revenues of the country’s oil companies, including SOCAR, during that same time, and the taxes from wages of oil sector workers, the role of the oil sector in the country’s budget consisted about 80-85%, which was the greatest mistake of those in the Azerbaijani government.
“The reduction of transfers to the State budget influences the reduction of state budget revenue, and this has a negative effect on budget expenditures. If, in other branches of the state oil sector, it was possible to obtain increased revenues or achieve sector development, which could increase the contribution from taxes, then maybe losses could be avoided. But based on the results of the last eight months, it is clear that Azerbaijan’s revenues are declining sharply, and this will continue for all of next year,” said Jafarli.
The expert summarized, “The activity of organizations in the oil sector is weakening; the pace of production is decreasing. The amount of local and international investment in the social and economic sectors is decreasing sharply. All this provides grounds to say that we shouldn’t depend on the economic sector. That is to say, oil sector revenues cannot be used to compensate for the State Oil Fund’s reduction of transfers to the state budget.”
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This article was originally published in Russian by
Radio Azadliq.
