BAKU, Azerbaijan, November 14. Rising costs for servicing state debt, the need to refinance domestic debt, and a growth in tax overpayments can pose additional risks to public finances in Azerbaijan in the medium term, according to the opinion of the Chamber of Accounts on the draft law “On the state budget for 2027”.
In addition to the above risks, the Chamber of Accounts has emphasized the importance of providing more comprehensive information in budget documents regarding the financial position of state-owned enterprises and debts incurred under state guarantees.
The chamber remarked that in the explanatory note to the 2027 draft state budget, awareness and the quality of analysis of risks affecting fiscal sustainability have been improved compared with previous years. Specifically, the document provides a more concrete definition of "fiscal risk" for the first time; it conducts an analysis of these risks at the level of public finance, assesses their probability of occurrence and potential impact, and outlines measures for risk mitigation.
According to the Chamber of Accounts, the inclusion of information on fiscal risks within budget documents is significant for managing such risks over the medium term. The chamber recalled that, in its opinion on the 2026 draft state budget, it had already highlighted the measurement of the potential impact and probability of occurrence of risks as a key requirement of international fiscal diagnostic tools.
Unlike in previous years, the explanatory note for the 2027 draft budget places primary focus on macroeconomic risks. The document identifies the volatility of oil and natural gas prices, the growth rate of the non-oil-and-gas GDP, and the dynamics of inflation as the primary fiscal risks for the medium term.
However, according to the chamber, the scope of these risks should be broadened. In particular, there is a need for more comprehensive disclosure within the budget documents regarding the potential impact of state-owned enterprises (SOEs) and debt incurred under state guarantees on public finances.
The opinion states that disclosing information on fiscal transfers to SOEs, including funds allocated to their authorized capital, their capital value, net profit, debt incurred under state guarantees, quasi-fiscal activities, and dividends paid, would enhance the quality of the budget documents. Furthermore, conducting relevant ratio analyses based on these indicators would allow for a more accurate assessment of the financial condition of state-owned enterprises and the risks they may pose to the budget. Going beyond the risks outlined in the budget documents, the Chamber of Accounts has highlighted three additional risks that could impact public finances in the medium term.
The first risk is an increase in benchmark interest rates. According to the Chamber’s assessment, if benchmark interest rates turn out higher than expected, this could drive up debt-servicing costs for external public debt with variable interest rates. As of October 1 of the current year, 48.8% of the external public debt consisted of obligations with variable interest rates. Consequently, should interest rates rise in international financial markets, the likelihood of an increased debt-servicing burden for the state grows.
The second risk relates to the refinancing of public debt. The chamber noted that refinancing maturing debt obligations at higher interest rates could lead to an increase in the costs associated with servicing public debt. As of October 1, 2026, 56% of domestic government securities had been issued with maturities of up to five years. This indicator suggests that a need may arise to repay or refinance a significant portion of the domestic public debt in the medium term.
A third risk is the increase in tax overpayments. The report notes that during the first nine months of the current year, the amount of tax overpayments, tracked via the State Tax Service (STS), increased by 339.9 million manat ($200 million) compared to the beginning of the year, reaching 2.74 billion manat ($1.61 billion).
According to the chamber’s assessment, the offsetting of these overpayments against future tax liabilities could lead to a discrepancy between the calculated tax amounts and the actual receipts into the state budget. This is a factor that must be taken into account when forecasting and executing budget revenues.
According to the Chamber of Accounts, while the efforts made to identify and mitigate fiscal risks are positive, further measures in this area are required. The chamber pointed out the importance of broadening the scope of risks, specifying the actions to be taken should these risks materialize, and justifying the effectiveness of such measures.
The opinion emphasized that improving the quality and comprehensiveness of data on fiscal risks can contribute to strengthening the sustainability of public finances in the medium term, as well as ensuring that budgetary decisions are made on the basis of more complete information.
