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Azeris Face Spending Crunch

Economic experts warn budget cut resulting from falling oil revenues could harm most vulnerable.
By Kenan Guluzade
Azerbaijan faces a spending crunch next year after the government lowered the price it expects the country’s oil to fetch by almost a third.



Receipts, according to the country’s draft budget, will fall by almost 17 per cent, and spending will have to be cut by almost nine per cent. Finance Minister Samir Sharifov blamed the world economic crisis for the bleak outlook, but said the government was still determined to invest in Azerbaijan’s future.



“We have also taken into account a revival next year of world trade, and the restoration of credit. As a whole, the budget for 2010 is aimed at the further strengthening of the defence capability of Azerbaijan, the provision of support to entrepreneurs, the strengthening of energy and production security, the strengthening of monetary policy,” Sharifov told parliament in a debate on the budget.



The predicted oil price, which is the main component of the government’s receipts, was set at 45 US dollars a barrel, down from 70 dollars in this year’s budget – a prediction that proved over-optimistic and led to the budget having to take money from the State Oil Fund.



The fund was set up to hold excessive earnings from the oil industry in an attempt to protect the economy from the inflationary pressures of high foreign exchange earnings.



“The share of transfers from the oil fund as a proportion of the budget rose 8.7 per cent compared to the previous year and came to 49.1 per cent. That means almost half of the state budget is made up of money ‘swiped’ from future generations of Azerbaijan. This is scary,” said Farhad Omarov, an economist.



And economic experts warned that the budget could harm those most vulnerable in society.



“Social spending in the budget will be cut next year by five per cent. Spending on education will fall by 5.6 per cent, on healthcare by 5.9 per cent, on social support by 4.9 per cent, on support for the state television and radio company by 6.6 per cent, on communal services by 5.1 per cent, and on agriculture by 18.2 per cent,” said Zohrab Ismayil, head of the Azerbaijan Public Union for Healthy Evolution, an economic pressure group.



“State investment will be cut in total by 25 per cent. No one has noticed the crisis yet. The decline will continue for Azerbaijan since the economy is not diversified. And the bank sector is distinguished by its weakness. In Azerbaijan, this will be seen in an increase in unemployment, pressure on money supply, an increase in inflation by ten per cent at least, and a further decline in the competitiveness of Azerbaijan’s non-oil production.”



Opposition parties, which have little influence in parliament, savagely criticised the government’s plans.



“Despite the fact that last year prices for metro tickets and gas tripled, and that prices for food are rising sharply, funds for social spending in the budget have been cut. Not only that but there is a rise in spending on the courts, the police and the administration,” Ikram Israfil, a deputy from the Musavat party, said.



The new budget, however, despite its substantial spending cuts, was praised by the government’s allies in parliament.



“The state budget for 2010 gives a real possibility for the growth of the national economy,” Ziyad Samedzade, head of the parliament’s commission for economic policy, said.



Businessmen are likely to be relieved by the tough budget. The failure of the government to predict the oil price correctly this year, and the subsequent shortfall in tax receipts, left businesses complaining they were being aggressively pursued for taxes.



“The average barrel of oil was a lot less than the budgeted price of 70 dollars. This was particularly felt in the summer period, when oil got cheaper every day. The budget could not be fulfilled, so spending started to be met by extorting money from business. It meant the world economic crisis affected the private sector worst, not the state,” Boyukaga Agayev, an independent commentator, said.



The crisis also affected businesses such as car importers and construction, which were directly affected by the decline in spending and the toughening of credit conditions. According to the state tax committee, car imports fell by 39 per cent in the first ten months of 2009 compared to the previous year. That was one of the factors contributing to the budget receiving less than 90 per cent of the forecast tax revenue.



The same demand-led slump has overtaken the property sector. According to the MBA consulting company, prices for newly built flats have fallen by 18.5 per cent, while older flats have got almost 15 per cent cheaper. Prices for houses, which are owned by richer Azeris, have fallen by a quarter.



Experts predicted, however, that the real oil price this year would likely be higher than the government’s 45 dollars a barrel level, meaning it should have surplus funds to play with.



“The budget is really made up of the oil price, therefore there is a real chance that the budget for 2010 will be in surplus,” said Oqtay Hagverdiyev, an economist.



Kenan Guluzade is the editor of the website analitika.az.

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