1. General characteristics of the changes2. Legal and macro-economic aspects of

changes; procedural issues3. Changes in the “incomes” section of the

budget and their evaluation4. Changes in the “expenses” section of the

budget and their evaluation5. Changes on the budget deficit of the

budget and their evaluation6. Budget forecast7. Recommendations

1 2 3 4 5

2003 2007 2008 2009 2010*

Incomes Growth rate, compared to previous year, %

1220,934,1

6007,355,0

10763,079,2

10325,9-4,1

11505,011,4

Oil revenuesGrowth rate, compared to previous year, %

47035,8

356458

7299,6104,8

6897-5,5

788514,3

Non-oil incomesGrowth rate, compared to previous year, %

75132,9

2443,351

3463,441,8

3429,0-1,0

36205,5

Expenses Growth rate, compared to previous year, %

123532,5

6058,76,0

10680,076,3

10657,0-1,9

12275,315,1

Investment expenses Growth rate, compared to previous year, %

90 19152,2 dəfə

4276,02,1 dəfə

3177,0-25,7

4157,730,8

3

Consequences of the changes:

2010 budget incomes were raised by 1490 million manat (14,9%) and reached 11 505,0 mln. manat

2010 budget expenses were raised by 1 011,3 million manat (9%) and reached 12,275.3 million manat

Expected budget deficit was decreased by 478,7 million manat and determined as 770,3 million manat

As a result, ratio of expected budget deficit in relation to the General Domestic Product (GDP) fell from 3.9% to 2.3%

1 2 3 4 5

It is stated in the Item 7 of the Article 96 of Azerbaijan’s Constitution that law and decree projects must be justified and objectives of their adoption indicated.

The law “on the Budget System” implies that revision of the State Budget is envisaged only in the cases of law implementation of the budget incomes as related to the expected numbers and increase of budget deficit; such changes must be made on the basis of quarterly indicators

1 2 3 4 5

Increase in the GDP level does not significantly differ from the forecasted

Budget incomes had been implemented only 0.5% higher compared to the forecasted level

In January-April, 2010 budget incomes decreased by 1.6% compared to the same time period for the previous year

Expenses were implemented with 15.1% deficit. Deficit covers all sections, including those expected raise, such as state investment, economic activity, health and expenses not related to main sections.

6

1 2 3 4 5

Article 16 of the internal Charter of the Parliament indicates that, as a rule, bills (law projects) should be examined in three readings

Article 8 envisages that bills pending consideration in the sessions of the Parliament must be distributed to the Parliament members at least three days prior to the relevant session

1 2 3 4 5

It is expected that 1,490 million manat (14,9%) increase in the budget incomes will be covered from budget incomes by 490 mln. manat and the transfers from the State Oil Fund by 1 mlrd. Manat

320 million manat of the of budget income will be provided from the profit taxes of the Azerbaijan International Operation Company (AIOC), 120 million manat – from the export taxes of the State Oil Company of the Republic of Azerbaijan (SOCAR) and 50 million manat from the increase in the VAT formed by directing transfers from State Oil Fund to the expenses section.

1 2 3 4 5

1 2 3 4 5

1 2 3 4 5

2003 2004 2005 2006 2007 2008 2009 2010 Total

Million AZN 100 130 150 585 585 3800 4915 5915 16180

Non-oil incomes - 3620 million manat (31,4%)

Oil revenues - 7885 million manat (68,6%)

1 2 3 4 5

non-oil incomes31%

oil revenues69%

Structure of budget incomes

Centralized incomes – 11 079 million manat (96,3%) Local incomes – 425, 68 million manat (3,7%)

1 2 3 4 5

300 million manat of 1011,3 million manat expected increase in the budget expenses are allocated for elimination of damages caused to some regions by overflows of Kur, Araz and other rivers

608,5 mln. manat – for the state capital investment expenses

99,3 mln. manat – for health programs, strengthening of financial and technical support to scientific sphere, activities aimed at improving public utilities system, purchase of buildings for embassies and diplomatic representatives abroad and other activities

1 2 3 4 5

The state capital investments in 2010 budget reached 4157,5 million manat after increase and thus form 33,9% of budget expenses.

400 million manat of the increased amount will be directed to defense and security fields. The justification is based on “provision of improvements in defense capacity and security levels of our country according to the geopolitical conditions in the region it is situated”.

Consequently, since relevant changes that envisage investments in defense industry are included not in the defense expenses, but investment expenses, the share of section on defense expenses in the budget expenses falls from 10.7% to 9.8%

1 2 3 4 5

Budget deficit of 2010 State budget will decrease to 770,3 million manat – 478,7 million manat less than the expected deficit

The actual deficit will be 68,9 million manat after the changes, covering of which is not expected to set any problems.

1 2 3 4 5

Oil price used in calculation of the State Budget and summary Budget was raised from 45 to 60 USD

Significant difference between the forecasts on one side and real oil prices and actual implementation within different income and expense categories, and mid-term income and expense categories of the state and summary budgets reveals problems Government faces in this area

The fact that changes to the State Budget are made in May-June of each year is related partially to these problems, or more precisely – inaccurate forecasting

1 2 3 4 5

There is a serious need for improvement of the normative and legal basis of reconsidering the budget. Current legislation envisages changes to the budget only in cases of deficit in implementation of incomes. Improvements should also include cases of surpluses and regulate this process

It is important that references to the relevant legislation, legal basis and purposes of the changes to the budget are reflected in the corresponding Government Report and opinion of the Chamber of Accounting. Such references can indicate compliance of the changes with the legislation

It is crucial that the long-term balanced and sustainable budget strategy is elaborated by the Government. This strategy can set a base for the next year planning and mid-term budget policy and rely on more real facts

It is necessary to increase efforts of Chamber of Accounting and civil society on the way to financial supervision over the utilization of the funds allocated for the elimination of the damages caused by the flood to the regions

1 2 3 4 5