Fueled by the Russian invasion of Ukraine, the price of BRENT crude oil in the first five months of 2022 has averaged 103 USD per barrel. This is substantially above the 50 USD per barrel price which Azerbaijan’s policymakers used when drafting the state budget for 2022. With a sizable surplus in the budget of the State Oil Fund (SOFAZ), Azerbaijan’s fiscal policy faces another challenge.
Contrasting the fiscal challenges of the previous years (such as 2015 and 2020), this one is fundamentally different. While the economic downturns and plunging oil prices resulted in adverse consequences like devaluation and larger-than-intended budget deficits before, those risks do not exist today. Instead, the challenge before us is whether Azerbaijan repeats the same blunders that it made in the 2010 – 2012 period when the oil prices were above 100 USD per barrel. Unfortunately, some Parliamentarians already hinted at the “likelihood” of amending the budget of 2022, which concerns me greatly. Because it was those mistakes that led to the devaluation of 2015 and made the ensuing economic contraction inevitable.
I have written this post for the bne IntelliNews website. To read the full post, please use this link.