Boosting pensions, allowances, health insurance amid economic growth Azerbaijan's revised state budget

The favorable external environment, which ensured relatively stable prices in the global energy market, as well as the positive dynamics of development of non-resource industries, ensured good indicators of the domestic economy development in the current year. Additional fiscal revenues forecasted by the government created conditions for revision of the forecast of state budget revenues for 2024. Also, during the Milli Majlis meeting the additions and amendments to the budget of the State Fund for Social Protection for 2024 were discussed, providing for the increase of pensions, allowances, increased expenditures of the Mandatory Health Insurance Fund, etc.

According to the statistics provided by the government, the first third of 2024 was marked by an improvement in the dynamics of economic growth in Azerbaijan: the nominal GDP volume reached AZN 38.182 billion, ensuring real growth of 4.3 per cent. The non-oil sector was the driver of economic development, with growth rates of 7.7 per cent. All this is quite good, especially in comparison with the extremely low indicators of gross domestic product last year (1.1 per cent growth). Moreover, the real GDP figures for January-April of this year are significantly higher than last year's forecasts of the Ministry of Economy of Azerbaijan, which estimated economic growth in 2024 at 2.4 per cent.

Of course, today it is difficult to speculate what the average annual prices for energy raw materials will be, but since the beginning of the year, taking into account geopolitical tensions and military conflicts, most experts believe that prices for Brent oil will be kept in the corridor of $80-90, and it is possible that even higher.

“In the revised draft state budget for 2024, the projected growth of revenues in the non-oil sector turned out to be inadequate to the forecast of Azerbaijan's GDP for the relevant sectors. Actual revenues for the past period of 2024, expected macroeconomic indicators at the end of the year, as well as the expansion of the tax base and strengthening of administration have created favorable conditions for increasing the projected indicators on budget revenues both by tax and customs authorities,” the chairman of the Chamber of Accounts of Azerbaijan Vugar Gulmammadov recently reported during the discussion of amendments to the law ‘On State Budget of Azerbaijan for 2024’ at the meeting of the Milli Majlis Committee for Economic Policy, Industries and Enterprising.

During the parliamentary hearings on budgetary policy, Azerbaijan’s Ministry of Finance presented the data: by the end of the current year, the GDP volume of Azerbaijan is forecasted to surpass AZN 121 billion, which will exceed the indicators at the time of drafting the state budget last year by AZN 3 billion. Thus, the updated macroeconomic forecast and favorable dynamics of world oil prices since the beginning of the current year provide an opportunity to use additional fiscal space in the state budget. In this regard, the baseline scenario of macroeconomic forecasts of the Ministry of Economy has been amended, and the average annual budget price per barrel of oil will be raised from $60 to $75, taking into account actual sales prices and the forecast for the rest of the year at $70 or more. As a result, based on a combination of factors, the revenue forecast of the revised state budget for 2024 will be increased from AZN 34.173 billion to AZN 36.353 billion, respectively, the forecasts for expenditure items will increase from AZN 36.763 billion to more than AZN 39.707 billion.

Among the most important tasks of revising budget expenditures is to provide additional financial support for the implementation of measures envisaged by the state program “Great Return”, to continue measures to strengthen the defenCe capability and national security of the state, as well as the implementation of new infrastructure projects - construction of roads, modernization of irrigation systems, etc.

Positive economic dynamics and expansion of the expenditure part of the state budget had the best impact on the expansion of financing of the social sphere: in particular, as an important component of the consolidated budget, additions and amendments will be made to the law “On the Budget of the State Fund for Social Protection of the Population for 2024”. In particular, the forecast for the average monthly wage for 2024 based on the revised macroeconomic indicators was increased to AZN 990. In general, taking into account the growth of wages in the private sector, and as a result of ongoing transparency measures, subsequent expectations and possible risks, the draft amendments increased the amount of receipts on mandatory state social insurance contributions for the off-budget sector.

As a result, in the budget of the State Social Protection Fund for 2024, the projected amount of receipts on social insurance contributions for the off-budget sector is increased by an additional AZN 190 million, thus reaching AZN 3.577 billion. In turn, these steps contribute to the revision of expenditures and increase the payment of labor pensions under the State Social Protection Fund by an additional AZN 25 million, to AZN 6.525 billion. “When last fall we were preparing the budget of the State Social Protection Fund for the current year, we calculated the growth of pensions corresponding to the average monthly wage at 9.8 per cent, but the result in the end was more positive - the growth was 10.2 per cent,”

Positive developments have also been observed in the field of replenishment of the budget of the Unemployment Insurance Fund for 2024: analysis of the indicators of the Fund's budget revenues in 2023 and for four months of the current year give grounds to expect additional AZN 4.7 million by the end of the current year, increasing the revenues to more than AZN 184.6 million by the end of the year. Such reserve is important, as the transformations of recent years in the unemployment insurance system have formed a flexible financial mechanism to improve social protection of the unemployed and will allow the implementation of new active measures to increase employment. This year, within the framework of planned amendments to the draft law “On Labor Pensions”, changes in the scale of payments from the value of the relevant provision for pension benefits to military personnel with a defined disability (depending on the impairment of body functions) are envisaged.

Another step in expanding the social functions of the state should be an increase in the budget of the Mandatory Health Insurance Fund: due to additional revenues of AZN 38.9 million (1.4 per cent growth), the budget of the Fund will exceed AZN 2.850 billion.

In general, the aforementioned is only a part of the consistent measures taken in the recent period to improve the social welfare of the country’s population. State support for vulnerable groups of the population has been a cornerstone of the political course of Azerbaijani President Ilham Aliyev for many years in a row.

Note that in 2019-2021, Azerbaijan adopted about 900 legal acts aimed at improving the social well-being of the country's four million citizens and allocated an additional AZN 6 billion for these reforms. In January 2023, the fourth social package was adopted, increasing the level of minimum pensions, salaries and other types of social benefits and providing additional social payments for about 1.9 million people.

This socially oriented policy continued this year: in early February, Azerbaijani President Ilham Aliyev signed an Order on the indexation of labor pensions. The document covers indexation of the insurance part of labor pensions, including financial aid and seniority premiums, and is carried out at the level of nominal wage growth in 2023. In addition, the indexation of pension capital takes into account the inflation figures for 2023, the addition to pensions from the beginning of the year will amount to 11.2 per cent, covering about 1.1 million pensioners, and an additional 630 million manats will be allocated for these purposes this year.

According to the Ministry of Labor, at the beginning of the year the average monthly pension in Azerbaijan amounted to AZN 436, and in the process of indexation the average size of retirement pension this year will surpass AZN 519. The positive dynamics of these processes is confirmed by the statistics of January-April 2024: in the reporting period, 2.152 billion was allocated for pension payments, which is 14 per cent more than in the same period last year.