The most severe global economic crisis of the 20th century, the lowest oil prices, and the largest pandemic are affecting Azerbaijan’s consolidated budget revenues. Vusal Gasimli, Executive Director of CAERC, stated that in the first quarter of this year, the state budget recorded revenues of AZN 7,811 million and expenditures of AZN 5,255 million, resulting in a surplus of AZN 2,556 million. However, the outlook for the remainder of the year is less favorable:

“Although tax and customs authorities exceeded the revenue forecast by AZN 312.2 million in the first quarter, the deepening global recession and pandemic-related uncertainty negatively affect revenues. As global shocks continue, revenues and expenditures are being reassessed within the framework of fiscal support for the national economy.

Already, Russia adjusted its budget parameters for 2020–2022. Under the influence of global shocks, Kazakhstan’s government has proposed increasing both revenues and expenditures in its 2020 budget. The Ukrainian government hopes to cover the budget deficit by obtaining a $5 billion loan from the IMF under the EFF program, subject to certain concessions. Georgia, expecting to lose $1 billion out of $4.3 billion in revenues due to global shocks, has begun negotiations with international financial institutions for borrowing. Apart from countries like Azerbaijan, Russia, and Kazakhstan that have a ‘safety cushion,’ other regional countries are attempting to balance their 2020 state budgets by increasing foreign debt and adjusting budget deficits. Combating the crisis through external borrowing is costly. Unlike these countries, Azerbaijan did not resort to external borrowing or devaluation in managing the corona-crisis, relying solely on its own reserves.

Within the current budget legislation, the prioritization of budget expenditures has been reassessed, leading to the reduction and reallocation of certain expenses. In addition, AZN 1,350 million has been allocated from the President’s Reserve Fund and other reserve sources to combat the corona-crisis. Furthermore, to cover the total budget for the corona-crisis, which exceeds AZN 2.5 billion, efficiency in investment and current expenditures is expected to increase, along with the identification of new financial sources.

In Azerbaijan, alongside reviewing budget parameters, the macroeconomic framework is also changing. Adjustments to the fiscal framework necessitate corresponding revisions in the macroeconomic framework, as correct macro parameters underpin accurate budget forecasting. For this purpose, accounts in the System of National Accounts (SNA)—including production, primary and secondary distribution, and final use—must be analyzed. We must reassess GDP using the expenditure approach to project budget indicators according to functional classification. Functional classification, in turn, encompasses economic classification. Analysis using the expenditure approach indicates that, for the rest of the year, household and government consumption, as well as net exports, are likely to decline. Moreover, revenues from the oil sector, due to lower prices, and from the 20 non-oil sectors most affected by the pandemic, will decrease.

President Ilham Aliyev has identified three main economic policy objectives for this year: economic stability, employment and welfare, and economic growth. In line with these objectives, the budget policy prioritizes expenditure allocation, enhances transparency, and improves efficiency. Measures to ensure fiscal sustainability include capital and property amnesty, privatization, improving the management efficiency of state enterprises to reduce the ‘budget burden,’ enhancing the transparency and economic efficiency of investment programs, and increasing the transparency of public procurement. Additionally, attracting private investment will be crucial for achieving sustainable economic growth.”