20.12.2012STATE BUDGET OF AZERBAIJAN
Senior Expert, «Noravank» Foundation; UN National Expert on Energy and Transport in Armenia, Ph.D, Senior Scientific Researcher
(Translated from Armenian)
1. What is it like?
Just as in case with the population size, there is no ready and simple answer to “what is the Azerbaijani budget like?” simple question [1, 2]. Here we need to compare several data sources because the official estimations of the Azerbaijani Republic’s state budget differ markedly from the estimations given by other sources.
Thus, according to the State Statistical Committee of the Republic of Azerbaijan (SSCRA)1 and the Ministry of Finance of the Republic of Azerbaijan2 in 2011 Azerbaijan ran a surplus budget. That means that revenues of the budget exceeded its expenditures at 305 million manats ($386 million)3 which was 0.6% of the GDP of the republic for that year. This estimation is repeated by the CIS Statistic Committee4 and partially repeated by the International Monetary Fund, World Bank and World Economic Forum.
Meanwhile, according to the estimation of the U.S. CIA5, for the same 2011 the AR did not have a surplus budget but quite the opposite it had a deficit budget. And at the same time it ran a budget deficit of no less than $11 billion, i.e. 18.7% of the GDP. The similar estimations are brought by a number of organizations which follow the “classical” economic model and system of values (for example, “economic freedom” fact-books of the U.S. Heritage Foundation, publications of the London School of Economics, etc). Such a contraposition of the estimations is not only restricted to 2011.
2. Why is it like that?
It is known that the classical structure of the state budget supposes the availability of two big parts – revenues and expenditures. The revenues are formed at the expense of various dues and taxes from trade and economic, business and legal and proprietary activities. This all forms the basis of the revenue of the state budget (“tax base”) of a “normal” country and is a generalized result of country’s normal activity.
In case with the Azerbaijani revenue side of the state budget besides common lines of “tax base” (profit tax, excise tax, VAT, etc.) there is one more budget line. In the publications of the state budget by the Ministry of Finance of Azerbaijani Republic it is presented in a generalized form as “non-tax revenues”, and in SSCRA publications simply as “other payments”. It includes assignments of some of the money supply formed at the expense of the income of the State Oil Fund of Azerbaijan (SOFAZ) to the revenue part of the state budget and is the most characteristic element of the clannish and oligarchic mono-economic system of Azerbaijan. Picture 1 presents the structure of the revenue sides of the AR budget for 2005-2011 in compliance with the tax base and SOFAZ contributions [3].
Sources: http://www.azstat.org/publications/azfigures/2012/en/020en.shtml
http://www.oilfund.az/en_US/hesabatlar-ve-statistika/buedce-melumatlari/doevlet-neft-fondunun-2011-ci-il-buedcesine-deyisiklikler-edildi-14-07-2011.asp
It reveals remarkable details. First, in the period of 2005-2011 “other payments” (“non-tax revenues” as it was called in the AR Ministry of Finance variant) gradually become the main source of the formation of the revenue side of the state budget. Since 2008 the share of “other payments” in the revenues of the budget has essentially grown thus becoming equal to the “tax base” and in 2009 it exceeded 50%. In 2011 “other payments” constituted about 60% of the revenues of the Azerbaijani budget.
In 2005-2011 the specific weight of the assignments from the SOFAZ in the “other payments” line essentially grew. Back in 2005, i.e. at the end of the early oil production stage at Azeri-Chirag-Guneshli oil field, the assignments by SOFAZ constituted a little more than a half of the “other payments” of the state budget (50.1%). Since 2006 when the “main oil” stage of the ACG was initiated and Baku-Tbilisi-Ceyhan oil pipeline started operating, the SOFAZ assignments constituted more than 70% of “other payments” line. In the next three years they constituted more than 95% of the “other payments” and reached 99% in 2011 [4, 3].
Thus, under the precise of “other payments” line penetration of the elements of non-state but no less important SOFAZ oil budget into the state budget of the country is taking place. But in accordance with the classical approach and in case with the AR such payments cannot be considered as real revenue of a state budget because being rather tangible they are formed out of the state taxes field, they are only under partial state fiscal control, regulated independently from the legal environment of the AR by the provisions of the “Production Sharing Agreement” and are formed by the personal decisions of the president of the Azerbaijani Republic.
In reality, the availability of “other payments” line in the revenues of the state budget reflects peculiarities of the authoritative and social-economic system formed in the country and brings us to some important conclusions. First, starting of the “main oil” stage of the ACG oil field (2006) laid the foundation of the realities where the state budget of the AR turned into the “secondary” one, thus becoming only a supplement of the SOFAZ budget. And here we do not mean the growing share of the assignments though it is also essential. The so-called structural consequences of this process are of no less importance either.
Indeed, due to the current system in the AR “parallel budget” and “parallel government” were formed. Such a duality is one of the most characteristic features of the economic system of the AR. It is not only a distinctive feature of the top echelons of the power and becomes apparent in the “Ministry of Finance of the AR-SOFAZ” competitive tandem. It is inevitably extrapolated to lower, sectoral administrative levels, thus being expressed in such polar tandems as “Ministry of Energy and Natural Resource of the AR – SOCAR Company” or “Ministry of Defense of the AR – Ministry of Defense Industry of the AR”. In fact it pierces through the whole state up to the public life, thus conditioning the formation of the “gold 80 thousand”, who are involved in the oil industry, in opposition to the rest of the Azerbaijani society.
Besides, planning of the revenue and expenditure sides of the state budget of the AR, in fact, is based on the oil price forecasts and correspondingly depends on their adequacy and accuracy. Thereby, the social and economic development of the AR becomes a hostage of the oil price trend fluctuations. Under the current unstable global and regional geopolitical situation and considerable speculations in oil price formation adequate forecasts are impossible even in the course of a year. These all result in multiple reconsiderations of the both forecasts and main indicators of the state budget, thus loosening the discipline and responsibility for its fulfillment in case of positive or negative changes in the oil market.
Per se, the created financial and budget system alienates the revenues from the hydrocarbon resources of the country from the revenue side of the state budget. The item “non-tax revenues” of the revenue side of the state budget in fact confirms this alienation formally and in reality it fairly presents the real nature of the clannish and oligarchic social-economic system formed in Azerbaijan. Its essence resides in:
1. appropriation of profits, gained from the production of natural resources, and first of all hydrocarbons, and alienation of the society from the mechanisms of the formation of this profits and benefits;
2. isolating the gained profits within the narrow circle of clannish and oligarchic segment of the society, which is in its turn incorporated into the “President of the AR-SOFAZ-SOCAR” governing-economic pyramid;
3.directing of the profits, which have been formed in the non-transparent for the fiscal bodies environment and which are out of the tax and legislative fields of the country, firstly to the survival of the regime formed in Azerbaijan.
And amid the social and economic polarization of the Azerbaijani society, which is rather strained in the forms of its will expression, the goal of preserving of the current regime and consolidation of the society is solved with the help of the AR propaganda machine and by means of the “external enemy” myth. Especially, taking into consideration the fact that the Aliyevs’ clan came to power on the basis of this myth,
And in reality transfers of a part of the profits from the oil production to the state budget implemented within the “non-tax revenues” cause the deformation of the fiscal and tax system of the country, weaken general discipline of preparation of the budget, lower the transparency and control of the formation and spending of the budgetary funds, erode the responsibility of the government for the preparation of the budget, deepen the corruption on all the levels of the state and government and business and administrative pyramid of the AR.
3. What is it spent on?
In order to understand general orientation of the state financial and economic policy of the Azerbaijani Republic, its logic and tendency, it is first necessary to consider the share of separate items of budget in comparison with the general revenue side of the budget for a given year (%). After that it is necessary to follow the alternations of that share over the entire period considered. The picture received is rather eloquent (see Table 1).
Table 1
Structure of the revenue side of the AR budget by its items (% from the general revenues) and changing of the indices in 2009 and 2011 as compared with 2005
Sources: http://www.azstat.org/publications/azfigures/2012/en/020en.shtml and personal calculations
As compared with 2005, in 2009 only correlation of “Economic sphere” budget item grew (twofold). As for other items, the decline from 1.1 (“Education”, “Legal and institutional framework”, “Public health”, “Culture”, “Science”) to 28-fold (“Social security”) can be observed. Decline can be observed even in the “other expenditure” item, which, with some reservations, presents military expenditure of the AR6. Only correlation of “sport” item of the budget, which was of a propagandistic character, remained unchanged.
While comparing 2005 and 2011 budgets the situation even worsened. Besides the “economic sphere” only the growth of the military expenditures was observed. As compared to 200, in 2011 the correlation for the “social protection”, “public health” and “sport” also diminished. The correlation of “education”, “science” and “culture, information, etc.” budget items diminished at least twofold. Correlation of expenditure of “Legislative, executive and state power” diminished at least threefold. And correlation of “social security” has diminished 37 times since 2005.
The represented data conspicuously describe the character and orientation of the social and economic policy of official Baku while implementing the BP/IOC three-stage programme on the development of the ACG oil field [4] and do not need any special comments.
Sources: http://www.azstat.org/publications/azfigures/2012/en/020en.shtml , [5] and personal calculations
4. What is, after all, the budget of the AR?
In the light of all the aforementioned, we suppose it is not a surprise that there are two directly opposite estimations of the state budget of the AR depending on the system of values taken as a basis. In Pic. 2 we summarize the data of the official Baku and the U.S. CIA on surplus/deficit budget of the AR in 2005-2011 [6]. As we can see, according to the CIA the AR has had the deficit budget since 2006. Moreover, the deficit rises alongside with the growth of the SOFAZ transfers to the revenue side of state budget. If in 2006, according to the CIA, it was of less than $1 billion, in 2011 it was of about $11 billion. The estimation of probable official (-$0.6) and real (-$12.5 billion) deficit budget of the AR in 20127 is also brought.
Conclusions
1. In spite of Aliyev’s notorious slogan that “The oil of Azerbaijan is the wealth of the Azerbaijani people!”, the hydrocarbon sphere is a clannish and oligarchic system and the accumulated amenities are alienated from the people of the AR. The arisen means are directed to the preservation and reproduction of the current regime.
2. The financial and budget system formed in the country precisely reflects this circumstance, aggravates corruption and polarization of the society. At the expense of the welfare of the citizens and prospects of the development of the country, the current regime in Azerbaijan directs the wealth appropriated from the people to the dreadful militarization of the country, creation and development of the military and industrial complex.
3.The fiasco of the BP/IOC three-stage programme on the development of the ACG, questionable results of the new stage of the ACG and clouded prospects of the stage 2 of “Shah Deniz” gas field development together with unpredictable behavior of the international prices for hydrocarbons, as well as the absence of “civilized” mechanisms of regime change will increase the internal tension in Azerbaijan and aggravate the regional instability in 2013-2015.
3 Hereafter U.S. dollar/Azerbaijani manat exchange rate is brought at the official annual average exchange rate of the Central Bank of the AR for that year.
5 https://www.cia.gov/library/publications/the-world-factbook/
6 In reality they did not decline in 2009. For more detailed military expenditures see [5].
7 At the moment when the article was writen in 2012 there were no available estimations of the AR state budget by the U.S. CIA and official Baku.
Sources and Literature
- Մարջանյան Ա., Ադրբեջանական Հանրապետություն. «վիրտուալ» ժողովրդագրության առանձնահատկությունները, Երևան, «Նորավանք» ԳԿՀ, 2012, http://noravank.am/upload/pdf/Ara Marjanyan book.pdf
- Մարջանյան Ա., Հարավային Կովկասի ժողովրդագրությունը XXI դարի վերջին, «Նորավանք» ԳԿՀ, «21-րդ ԴԱՐ», թիվ 4 (44), 2012թ., էջ 20-44:
- State Oil Fund of the Republic of Azerbaijan. Annual Reports, 2001-11.
- Մարջանյան Ա., Ադրբեջանի նավթային ոլորտը, «Նորավանք» ԳԿՀ, Գլոբուս, թիվ 5 (26), 2012:
- Մարջանյան Ա., Ադրբեջանի ռազմական ներուժի գնահատման շուրջ, «Նորավանք» ԳԿՀ, «Գլոբուս» վերլուծական հանդես, թիվ 10, (31) 2012, http://www.noravank.am/arm/articles/detail.php?ELEMENT_ID=6678
- US CIA. World FactBooks. 1992 - 2011.
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