Azerbaijan should build economic model based on low oil prices

/By AzerNews/

By Aynur Karimova

In today’s world, the reality is that the price of oil has decreased substantially, and Azerbaijan should build its economic model in accordance with this reality.

This remark was made by Azerbaijan's Finance Minister Samir Sharifov on a local TV channel.

"This is about a 60 percent decrease [of oil prices]," he said. "This negatively affects the economies of not only the oil producing, but also oil importing countries."

The minister believes that the decrease in the price of oil is associated with a significant increase in its production.

"This is about the growth of oil production in the U.S.," he noted. "In recent times, oil production in the U.S. increased from 2 million to 3 million barrels per day. And it is expected to increase to 13 million barrels per day by the end of this year."

Sharifov also said that due to the increase in oil production among OPEC countries, supply exceeds the demand, and therefore, prices are dropping.

"The member-states of OPEC have not cut production. On the contrary, a rise is observed there as well," he said. "Their strategy is that the countries and companies involved in traditional production should maintain market share. As a result, supply exceeds demand in the market."

The minister did not exclude political games, contrary to economic logic.

"Probably, the current price of oil will remain at this level for a few years, and then the price will rise," he said.

Recently, the Finance Ministry has revealed the budget forecasts for its 2016 state and consolidated budget drafts.

According to the ministry, next year's budget revenues are projected at 14.566 billion manats ($13.904 billion), while expenditures are expected to reach 16.264 billion manats ($15.525 billion).

Budget revenues are likely to fall 25.1 percent from the expected rate for 2015, and drop by 20.84 percent from the real 2014 figure. Expected state budget expenditures will drop by 22.9 percent from 2015 and by 13.07 percent from 2014.

The budget deficit for 2016 is forecasted at 1.698 billion manats ($1.621 billion) or 2.9 percent of the GDP.

The Finance Ministry also expects the share of the oil sector to comprise 53.5 percent of general budget revenues for 2016, a substantial decrease from the 65.3 percent expected for 2015.

Experts in the Finance Ministry believe that the sharp decline in oil prices in world markets is to blame for the reduction in state budget revenues. As a result, the 2016 budget revenue forecast is formed taking into account an oil price at $50 per barrel and an exchange rate of 1.05 Azerbaijani manat to the U.S. dollar.

The government of Azerbaijan has prepared three separate forecast budget scenarios and the country’s resulting socio-economic development for 2016, taking into account the oil prices in the range of $40 to $60 a barrel: a baseline scenario ($50 per barrel), an optimistic scenario ($60 per barrel) and a pessimistic scenario ($40 per barrel).

Also, transfers from the country's state oil fund SOFAZ to the state budget are expected to reach 6 billion manats ($5.727 billion) in 2016, 42.2 percent less than in 2015.