Azerbaijan to improve welfare of 1.9 million citizens Analysis by Caliber.Az

The economy of Azerbaijan, which has recovered after a pandemic recession, has been demonstrating a steady growth of non-oil production for a year and a half amid the rapid increase in revenues from oil and gas exports. At the same time, the year 2022 was marked by the Russian-Ukrainian confrontation, which brought a lot of problems related to imported inflation, causing the rise in the prices of food, other goods, and services. The decree "On additional measures for improvement of social welfare of the population" recently signed by Azerbaijani President Ilham Aliyev should help to overcome inflationary negative effects. It is expected that the planned set of measures to increase wages, pensions and social benefits will cover more than 700,000 citizens of the republic.

The Russian-Ukrainian war that started in February 2022 has played a catalytic role in exacerbating the energy, raw materials, and food crises. The geopolitical confrontation between East and West added to the disintegration of global transport and logistics links that had already occurred during the pandemic, and these disruptions impacted supply chains, increasing prices for producers of goods and components and stirring up freight, rail, and other transport tariffs. Together, these challenges have led to a rise in consumer prices, unprecedented in the past 40 years, not only in developing countries but also in the world's advanced economies.

This is an extremely important point since it is the external negative that is the main reason for the increase in consumer prices in most post-Soviet states, including in our country. In particular, in January-November 2022 average annual inflation in Azerbaijan was 13.8%. According to the estimates of the government and the Central Bank (CBA), among factors influencing the growth of prices in more than 60% of cases is directly related to global processes affecting the domestic economy through the transmission mechanism of imported inflation.

Higher prices for imported goods, primarily foodstuffs, agricultural raw materials, and components for the processing and food industry, have led to a rise in the price of local products due to rising production costs. Ultimately, this negative impact has affected the welfare of socially vulnerable groups of the population.

"The strengthening of social protection of the country's population is one of the important priorities of the socio-economic policy pursued in Azerbaijan. Serious progress has been made in this direction in recent years, consistent steps have been taken to strengthen the social protection of the population and increase social payments and wages," reads the preamble of the presidential decree of January 5, 2023 "On additional measures to improve the social well-being of the population". In order to overcome the negative trends and strengthen social protection of the population, the decree of the head of state raised the minimum monthly salary by 15% from 300 manats to 345 manats as of January 1, 2023. Monthly official salaries of employees in areas financed from the state budget will also be brought into conformity with this decree within a month, and the increase of the minimum wage provides an increase of wages at all steps of the Unified Wage Scale (UWS).

"Increase of the minimum wage will cover about 440-450,000 people working in the public sector, and about 440 million manats will be allocated from the budget for this purpose," Deputy Minister of Labour & Social Protection Anar Aliyev said at a briefing held on January 8.

In general, an increase in minimum monthly wage and wages on a single tariff table will cover 700,000 people. According to official statistics, an increase of minimum wage by 40.2% will exceed the minimum subsistence level set for 2023 at 246 manats. It is noteworthy that the level of increased minimum wage as a percentage exceeds the loss of average annual inflation growth in the last year. And the effect of the increase will generally remain in the current year because of the expected slowdown in consumer price growth dynamics. In this sense, the Azerbaijani government is quite optimistic, and the budget forecast estimates average annual inflation in 2023 at 6.9%, which is half as much as last year.

By the decree of the head of state, the minimum pension will also be increased to 280 manats, growing by 16.7%, accordingly, payments of pensions and other social benefits will be raised. In total, the increase in the minimum pension will affect up to 100 thousand citizens. In order to speed up the execution of this socially significant document the Cabinet has been assigned to prepare and submit proposals to the President within 10 days. The government has already started preparing proposals to raise salaries, pensions, and social and other benefits. In cooperation with other state bodies, they are studying the possibility of correcting budget revenues in order to complete this work in the shortest possible time.

Azerbaijan has a strong economy and stable financial system for the timely and full implementation of such a large-scale social package. In particular, revenues of the deficit-free budget of the State Social Protection Fund (SSF) for 2023 approved recently by the Head of State exceeded 6.263 billion manats, which is 11.7% more than the planned figure for the previous year.

Most experts are very positive about the multiplier effect of the head of state's new decree, which is an integral part of the overall national strategy aimed at the sustainable development of the welfare of the country's population. "The policy of the head of state is aimed at improving the social welfare of the population, the reforms in this area are of a systemic nature," said MP Azer Badamov. The MP stressed that the country has actively applied packages of social support to minimize the negative impact of the pandemic, and regularly implemented programs to increase wages, pensions, and benefits, and all these steps today contribute to reducing the impact of inflationary pressures.

The new document provides for the launch of the fourth social reform package in the last four years, aimed at reducing poverty and enhancing support for pensioners, persons with disabilities, veterans and Martyrs' families, etc. The government's policy of strengthening the protection of the population, and increasing social benefits and salaries is most clearly reflected in the two social reform packages adopted and implemented in 2019. In 2019-2021 alone, some 900 legal and regulatory acts (decrees, ordinances, laws) aimed at improving the social welfare of citizens were adopted, and the number of recipients of social security benefits increased by 160 thousand people, exceeding 2.4 million. As a result of successive reforms in the social sphere, the minimum wage has been increased 2.7 times, from 130 to 345 manats, and the minimum pension has increased 2.5 times, from 110 to 280 manats since 2019.

According to the official data, the next stage of social reforms started in the new year will increase the pensions and salaries of more than 800 thousand citizens of the country. In general, 750 million manats of additional budgetary funds are envisaged to increase all types of social payments this year, and this process in total will cover 1.9 million citizens of the country.