BAKU, Azerbaijan, November 4. Below-forecast growth in Azerbaijan’s non-oil and gas GDP could weigh on state budget revenues and the fiscal balance, potentially pushing the non-oil primary deficit-to-GDP ratio above its target.
This risk is outlined in the budget package accompanying the draft state and consolidated budgets for 2027.
The document noted that the impact of possible changes in non-oil and gas GDP growth on fiscal indicators is mainly driven by changes in economic activity and the tax base. These changes affect consolidated budget revenues, the non-oil primary deficit-to-non-oil GDP ratio, as well as the consolidated budget balance-to-GDP ratio.
To account for uncertainties surrounding economic growth, assessments were conducted under alternative scenarios differing from the baseline forecast. In particular, various risk scenarios were developed for 2027-2030 based on positive and negative deviations of 0.5, 1, and 2 percentage points in the non-oil and gas GDP growth rate from the baseline scenario.
According to the assessments, in 2030, under the second and third pessimistic scenarios, the non-oil primary deficit-to-non-oil GDP ratio is expected to exceed the established interim target of 12% by 0.2 and 2.1 percentage points, respectively. In other words, this indicator could rise to 12.2% and 14.1% under these scenarios, respectively.
According to the forecasts presented, the non-oil primary deficit-to-non-oil GDP ratio stood at approximately 22.8% in 2022. This indicator was around 22% in 2023, 20% in 2024, and 18.5% in 2025. After declining to approximately 17.6% in 2026, the indicator is projected to move in different directions from 2027 onward, depending on economic growth scenarios.
The document also assessed the impact of changes in non-oil and gas GDP growth on the fiscal balance of the consolidated budget.
According to the document, the consolidated budget balance-to-GDP ratio stood at approximately 6.7% in 2022, 9% in 2023, 5.1% in 2024, and 4% in 2025. This indicator is projected to decline to 0.8% in 2026, while a deficit of approximately 1.7% is expected in 2027.
In the subsequent years, the dynamics of the fiscal balance will depend on the pace of economic growth. Specifically, if the growth rate of the non-oil-and-gas GDP falls below the baseline scenario, it will negatively impact the consolidated budget balance due to a weakening in economic activity and tax revenues. Conversely, stronger economic growth would facilitate an improvement in the fiscal balance by expanding the tax base and increasing budget revenues.
What measures will be taken to mitigate risks?
The budget package indicates that a series of measures are planned to limit the impact that a potential slowdown in non-oil-and-gas GDP growth might have on budget revenues and the fiscal balance.
In this context, expanding the tax base, further strengthening tax administration, and continuing medium-term fiscal consolidation have been identified as priority areas. These measures will serve to reduce the impact of potential negative deviations in economic growth on budget indicators and help maintain fiscal sustainability over the medium term.
Furthermore, measures are envisaged to enhance the operational efficiency of state-owned enterprises, optimize state subsidies, gradually reduce the role of regulated prices, and improve governance and accountability standards within these enterprises.
The document emphasized that these steps will help alleviate potential burdens on public finances, improve the competitive environment, and support non-oil economic growth.
