Elena Sorokina The economy of Azerbaijan is worsening due to poor management of oil revenues even though the government has spent 100 billion USD.
About the Author: Gubad Ibadoghlu, Senior Policy Analyst for social and economic studies at Azerbaijan’s Economic Research Center, a Baku-based NGO that promotes economic development and good governance.
The State Oil Fund of Azerbaijan is preparing for its 20th anniversary. However, there is nothing to celebrate: despite huge spending, the country’s role as an economic leader in the region is declining and people are suffering from poverty and poor social services. Oil and gas revenues have brought neither improved welfare nor democracy to Azerbaijan.
As of January 1, 2019, the State Oil Fund has received 138 billion 209 million USD from the main oil reservoir Azeri-Chirag-Gunashli (ACG).[1] Currently, the Fund has 38 billion 988 million USD.[2] Taking into consideration that part of the assets of the Fund formed through the governance of oil revenues, a question arises: what have the citizens of the country gained from the 100 billion USD of oil revenue the government has received from the ACG oil reservoir alone?
It appears that in a country, which has spent $100 billion from 2001-2018, citizens suffer from unemployment and poverty, many are forced into labor migration and leave the country in search of work. The overall quality of public healthcare and education is low, it and to receive good service in these spheres, one must pay a high price.
Residents of major cities do not have access to quality roads, potable water, or a working sewage system. In remote regions, although the majority of oil revenues were spent there and on infrastructure projects, the situation is even worse.
According to official reports, 95% of the country has access to natural gas. However, in reality some provincial areas are not supplied with gas. Gas provision is of low quality and is often interrupted. There are numerous citizen complaints about this service.
Another problem is carbon dioxide poisoning, which takes dozens of lives every year due to unregulated heating devices and brick stoves, which are used in the absence of regular and central heating provision. According to an Associate Professor at the Azerbaijan Medical University, medical toxicologist Ismail Afandiyev, “In recent years, there has been a tendency for an increase in carbon dioxide and combustion products in Azerbaijan. If in 2007 the number of such hospitalizations in the center of toxicology was 173, in 2017 this figure was 4 times higher.”
Cancer related illnesses are also on the rise in Azerbaijan.[3] Environmental issues are also pressing.
Sixty percent of the 2019 budget comes from oil revenues. Only 4.2 percent is allocated to healthcare, while merely 0.06 percent is allocated to protecting the environment. This year’s budget expenditure allocated 39.9 percent to construction. This has been a priority for years and, since Soviet times, has been a source of corruption.
Two devaluations, which were the result of dropping global oil prices in 2015, continue to impact Azerbaijan’s economy and the quality of life of the Azerbaijani people. Since then thirteen banks have closed, and the number of overdue credits is on the rise. Currently, the overdue debt owed by people to commercial banks is more than 1,7 billion AZN, which comprises 14% of the country’s credit portfolio.
Along with that, average salary in USD has significantly decreased. Azerbaijanis earn US $252 less per month than they did 4 years ago. The average monthly salary last year was US $318.
According to the State Statistics Committee, due to decreased purchasing power in USD, the quality of life has worsened for the past 10 years.
Azerbaijan ranks low among the Commonwealth of Independent States countries in terms of growth rate of Gross Domestic Product and there has been a decrease in GDP per capita since 2014 when GDP per capita was US $7,891 Last year this figure decreased to US $4,586 per capita.
2018 was the last year Azerbaijan led the economies of the South Caucasus. According to the economic growth rate presented in the January 8, 2019 Global Economic Perspectives of the World Bank, Azerbaijan will trail Georgia in GDP per capita this year and Armenia in 2021, making Azerbaijan the poorest country in the Caucasus in 2021, not only in terms of freedoms and democracy, but also economically.
On December 28, 2018, President Aliyev signed a Decree approving budget of the State Oil Fund of the Republic of Azerbaijan for 2019 including 15,450 billion manat (US $9,088 billion) in revenues.[4] Expenditures of the Fund were approved at 11,595,238.4 thousand AZN (US $6,820,726.30 thousand).
In reality, the numbers depend on the oil prices on the global market. Current projections only work if the price of the Azerbaijani oil per barrel is US $60, however, oil prices now are below that. According to the IMF, the average oil price this year will drop to US $55.[5]
Despite this, even if the price is US $60, Azerbaijan will earn US $1 billion less than the previous year due to a decrease in extraction. Even if last year Azerbaijan maintained extraction rates equal to the previous year, this year the country will not be able to do so due to increasing costs of production. Thus, it is expected that, although the oil revenues will drop, the scope of corruption will increase and freedoms will be further restricted.
Therefore, as long as these problems persist, Azerbaijan will fail to realize the dreams its citizens have had since independence. There were times when everyone thought that if we control our own wealth our country would become Switzerland of the Caucasus. Despite 27 years since the restoration of our independence people in Azerbaijan still cannot control our oil wealth. A country with an excess of money is turning into a county of poor.
[1] https://www.oilfund.az/en/fund/press-conference/news-archive/1380
[2] https://www.oilfund.az/en/report-and-statistics/recent-figures
[3] http://deyerler.org/361786-azjrbaycanda-eie-xjstjlikljri-artdr-v-hjkimljrdjn-sos-xjbjrdarlddd.html
[4] https://www.oilfund.az/en/report-and-statistics/budget-information/40
[5] https://oilprice.com/Energy/Oil-Prices/IMF-Predicts-55-Barrel-Through-2018.html