The socio-economic meeting held on 6 August under the leadership of President Ilham Aliyev should be regarded as another step towards further reducing the scope of the shadow economy. Nicat Hacizade, Head of Department at the Economic Reforms Analysis and Communication Center (CAERC), stated that the transition to corporate governance systems and standards in state-owned companies, the liberalization of the economy, and stronger control over public expenditures from various directions are measures aimed at reducing the scale of the shadow economy.

He noted that President Ilham Aliyev has repeatedly emphasized the importance of efficient and flexible management in state-owned enterprises and has issued specific instructions in this regard. Based on these recommendations and directives, an initial legislative framework has been formed for the implementation of corporate governance standards in state companies.

It should be noted that in order to ensure the continuity of economic reforms, accelerate the development of entrepreneurship and the formation of a healthy competitive environment, attract domestic and foreign investments, and build a diversified and competitive national economy, as well as to increase transparency in the management of legal entities in which the state holds a controlling stake, the President of the Republic of Azerbaijan signed a decree on 5 September 2016 titled “On additional measures to improve efficiency in the activities of legal entities with a state controlling stake.” In this context, relevant resolutions of the Cabinet of Ministers approving several regulatory legal acts on improving the efficiency of such entities are also noteworthy.

Nicat Hacizade stated that the implementation of corporate governance standards in joint stock companies and limited liability companies in which the state directly or indirectly holds 51 percent or more of shares will have a direct positive impact in the short and medium term. These impacts include the proper calculation and accounting of wages, increased transparency in tenders and procurement processes, and the introduction of a performance based remuneration system that provides bonus payments to members of governing bodies based on results. In addition, corporate governance standards will support the efficient and result oriented use of borrowed funds. In the long term, such advanced management systems will make privatization of state owned companies possible for domestic or foreign investors. A key requirement for attracting investment is transparency and accountability of existing institutions. With the introduction of corporate governance rules, the role and authority of supervisory and audit committees in these companies will become significantly stronger, improving transparency, ensuring proper accounting, and strengthening accountability in debt management.

The Head of Department also considers President Ilham Aliyev’s call for economic liberalization critically important for the post pandemic period. “During the pandemic, we observed an increase in protectionist policies even in leading global economies, as well as growing restrictions in international trade relations compared to previous periods. From this perspective, liberalization is essential. As a result of liberalization, the privatization of state owned companies is also directly linked to the aforementioned governance system,” he said.

Thus, the reforms outlined by President Ilham Aliyev during the meeting will ultimately reduce the scope of the shadow economy and support economic growth. Previous research and analysis show that increased transparency in accounting and reporting in recent years has already reduced the scale of the shadow economy and contributed to higher budget revenues. The growth in budget revenues will create additional financial resources for expanding social programs in the country.