Exploring Azerbaijan's Budget: Insights And Implications

Azerbaijan's budget system is comprised of the budget of the Nakhchivan Autonomous Republic, the State budget, and local budgets. The country's budget processes are regulated by the budget law and the Constitution of the Republic of Azerbaijan. The budget legislation also includes the Law of the Republic of Azerbaijan On Budget System, laws on the state budget, and other normative-legal acts. The budget balance in relation to Azerbaijan's gross domestic product was forecast to decrease between 2023 and 2028 by a total of 2.9 percentage points. The country's economy is highly dependent on oil and gas exports, with gas and oil accounting for two-thirds of its GDP.

The budget system of Azerbaijan

The budget process is regulated by the budget law and the Constitution of the Republic of Azerbaijan. The Law on the Budget System of the Republic of Azerbaijan, first adopted in 1992, outlines the legal status of budget participants and the process for compiling the state draft budget. The current version of the law came into force on January 1, 2003, with subsequent amendments made over the years.

The preparation of the draft state budget involves the relevant executive authority, which makes economic and social development forecasts for the country. These forecasts, along with state investment programs, are specified by August 1, taking into account the actual results of the first six months of the current year.

The preliminary version of the summary budget for the next year and the final budget for the next three years are submitted to the relevant executive authority and the Chamber of Accounts by September 15. The executive authority then reviews the budget draft and makes any necessary amendments before submitting it to the President of the Republic of Azerbaijan by October 1. The President then submits it to the National Assembly by October 15, as per the Constitution.

The state budget of Azerbaijan finances various expenditures and sources, including ensuring the activities of the National Assembly, the President, the Chamber of Accounts, the Central Election Commission, and the Central Executive Authorities. It also covers the Judicial Power and Prosecutor's Office, international activities, national defense and security, repayment of state debt, elections and referendums, the state investment program, scientific research, environmental protection, emergency situation management, market infrastructure development, mass media organization, and financial assistance to local budgets.

The local budgets are the budgets of municipalities, including administrative districts, cities, settlements, and villages. These budgets are formed through taxes, duties, and other payments, and they reflect the goals and objectives of the municipality. The formation, approval, and execution of local budgets are carried out by local self-governance bodies.

The budget balance in relation to Azerbaijan's gross domestic product (GDP) was forecast to decrease by a total of 2.9 percentage points between 2023 and 2028, with an estimated budget balance of -1.9% in 2028.

Azerbaijan's budget balance in relation to GDP

Azerbaijan's economy is highly dependent on oil and gas exports, with gas and oil accounting for two-thirds of the country's GDP. The country's large oil reserves have contributed significantly to its economic growth, particularly from 1995 to 2014. Azerbaijan's GDP growth has slowed down since 2014, and the country faces challenges in transitioning to a market economy and diversifying its economic sectors.

The country's private sector is weak, with the economy dominated by state-owned enterprises. More than half of the formal labour force works for the government. Azerbaijan's economy is also characterised by corruption and inequality, with the country's oil wealth strengthening the regime of President Ilham Aliyev and enriching the ruling elites.

The national currency is the Azerbaijani manat, which is issued by the Central Bank of Azerbaijan. The country has recently increased its budget revenues and expenditures for 2024, with both revenues and expenditures of the state budget increased by 408 million manats.

The budget law and legislation

The budget system of the Azerbaijan Republic consists of the budget of the Nakhchivan Autonomous Republic, the State budget, and local budgets. The budget law in Azerbaijan is regulated by the Constitution of the Republic of Azerbaijan, the Law of the Republic of Azerbaijan "On Budget System", and laws on the state budget. The first law on the budget system was adopted on 1 December 1992, and was in force until 2002.

The current "Budget System" law came into force on 1 January 2003, with subsequent amendments made over the years. The legal status of budget participants in the Republic of Azerbaijan is regulated by the Law on the Budget System of the Republic of Azerbaijan (2 June 2002), special laws of the Republic of Azerbaijan, and normative acts of local self-governing bodies. The President of the Republic of Azerbaijan also has the authority to issue orders regarding the budget.

The preparation process for the draft state budget starts 11 months before the next budget year and is based on the estimation of forecasts of the country's economic and social development, targeted programs, and the evaluation of the results of financial and economic activity. The process begins with a decision from the relevant executive authority, and medium-term economic and social development forecasts are prepared until the end of February. When determining the expenses of budgetary organisations, their extra-budgetary expenditures are taken into account.

The preliminary version of the summary budget for the next year and the indicators of the final budget for the next three years should be submitted to the relevant executive authority and the Chamber of Accounts of the Republic of Azerbaijan by 15 September of the current year. The preliminary version of the final state budget and indicators of the final budget for the next three years are then submitted to the relevant executive authority by 25 September.

The Government of Azerbaijan submits the draft law on the state budget for the next fiscal year to the President of the Republic of Azerbaijan by 1 October. The President then reviews and submits it to the National Assembly by 15 October, in accordance with the Constitution of the Republic of Azerbaijan. The Central Bank also submits the draft of the main directions of the state monetary policy for the next fiscal year to the National Assembly, the President, and the Government of the Republic of Azerbaijan by 1 October of the current year.

The budget calendar

January

The process of preparing the draft state budget typically begins in the third decade of January, 11 months before the next budget year. This initial phase involves a decision by the relevant executive authority, setting the ball rolling for the upcoming budget cycle.

February

By the end of February, the medium-term economic and social development forecasts for the country are finalised. These forecasts serve as a foundation for the upcoming budget allocations and planning.

August

The relevant executive authorities specify the economic and social development forecasts and the state investment program for the next year and the following three years by August 1st. This process takes into account the actual results of the first six months of the current year, ensuring that the budget is informed by the most up-to-date data.

September

The preliminary version of the summary budget for the next year and the indicators of the final budget for the next three years are due to be submitted to the relevant executive authority and the Chamber of Accounts of the Republic of Azerbaijan by September 15th. This deadline ensures that the budget process stays on track and allows for a thorough review of the preliminary budget proposals.

September

The preliminary version of the final state budget and the indicators of the final budget for the next three years, along with other documents mandated by the Law on the Budget System, must be submitted to the relevant executive authority by September 25th. This submission marks a critical milestone in the budget calendar, as it brings the executive authority one step closer to finalising the budget.

October

After receiving the budget projects from financial bodies, the executive authorities review the draft and make any necessary amendments. The Government of Azerbaijan then submits the draft law on the state budget for the next fiscal year, along with accompanying documents, to the President of the Republic of Azerbaijan by October 1st. The President, in turn, reviews and submits the budget to the National Assembly no later than October 15th, as stipulated by the Constitution of the Republic of Azerbaijan.

October (continued)

The Central Bank of Azerbaijan presents the draft of the main directions of the state monetary policy for the upcoming fiscal year to the National Assembly by October 1st. This draft is also sent to the President and the Government of Azerbaijan for their review and input.

October (continued)

Projects of targeted programs financed by the state budget are reviewed and adopted simultaneously with the draft law on the state budget by the National Assembly. Additionally, the President of Azerbaijan may submit proposals for amendments and additions to the law on the state budget during this period.

May (of the previous year)

Local budgets, which are the budgets of municipalities (administrative districts, cities, settlements, and villages), are formed, approved, and executed by local self-governance bodies. Municipalities that receive subsidies from the state budget are required to submit their local draft budget, along with relevant documents and information, to the relevant executive authority (typically the Ministry of Finance of the Republic of Azerbaijan) by May 1st.

The role of the President of Azerbaijan

The president of the Republic of Azerbaijan is the head of state and the embodiment of executive power. The president is also the commander-in-chief of the Azerbaijani Armed Forces and the "representative of Azerbaijan in home and foreign policies". The president rules through their executive office, the Presidential Administration, which consists of secretaries and departmental ministers. The Presidential Administration is in charge of fulfilling the president's constitutional responsibilities.

The president also has a Cabinet of Ministers regarding economic and social policy and a Security Council regarding foreign, military, and judicial matters. The Security Council is an advisory body that ensures the creation of conditions for the president to exercise their constitutional powers in the field of security. The president is also the chairman of the Security Council.

The president's primary workplace is the presidential building, also known as the presidential apparatus, on Istiglaliyyat Street in Baku.

The president is elected through a popular vote, with each faction in the National Assembly having the right to nominate a candidate. There are no age restrictions for candidates, but they must be Azerbaijani citizens and have lived in Azerbaijan for at least 10 years. Since a 2009 referendum, there are no term limits on the presidency, and the term length was increased to seven years in 2016.

The current president of Azerbaijan is Ilham Aliyev, who was elected in 2003 and has since been re-elected four times. Aliyev is the son of former president Heydar Aliyev and is a member of the New Azerbaijan Party.

The president of Azerbaijan has a significant role in the country's budget process. For example, the draft of the 2024 state budget was discussed and approved at a meeting of the Cabinet of Ministers, and the final resolution was submitted to President Aliyev for review.

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