The role of currency devaluation in budget formation of developing countries: a case study of Azerbaijan

Sharifov Ashraf (2020) The role of currency devaluation in budget formation of developing countries: a case study of Azerbaijan. Pénzügyi és Számviteli Kar.

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Absztrakt (kivonat)

In general, the 2015 year cannot be considered as a successful time concerning the economy of Azerbaijan Republic. Declining oil prices in the global sales impacted macroeconomic determinants over the short-run period.Initially, the country was compelled to stop the fixed exchange rate policy. The domestic monetary system of manat dropped its power by 50% throughout the mentioned year. Estimating for 5 billion for the first time after August 2009, the exchange resources of the Central Bank fell by 8.74 billion USD. In other words, the expense expended by the Central Bank during 2015 only comprised the same amount received throughout 5 years.Moreover, a significant reduction was observed in the GDP and GDP per person, declining by 53.6% and 54.2% accordingly. To express it differently, the former one dropped to 34.9 billion dollars, whereas the GDP per person to 3,657 USD. It has to be mentioned that last time the GDP per capita was almost similar to that figure in 2007.The declining incomes in the state budget resulted in decreasing administration expense. Consequently, towards the conclusion of the year, the income of the budget was estimated with a decline of 11.8%, but the expenditure share with 15.7%. Throughout the last ten years, the main operator of economic development became the budget spending.As a result of the devaluation, the study of the state and consolidated budget revealed that the revenues declined significantly. The declining fuel prices influenced adversely not just the funds gained by the immediate trade of oil and oil products including profit taxes, value-added taxes which are associated with the oil sector. Since part of the oil sector is important in GDP general economy got affected negatively. The consistent flow of declining state resources is to reduce expenses also, and this is the Azerbaijani policy government implement. In spite of the fact that the state attempts to improve the revenues by other taxes such as property, road, simplified, it is difficult to attain the equal level of budget funds in the absence of high oil prices in the following years.In respects to the income of the population, 2015 was not thriving either. Hence, the revenue per capita declined by 47.6% in comparison with the former year, amounting 2808 dollars and that was estimated in 2009. Furthermore, the average monthly salaries reduced by 48%, comprising 296 dollars. The economic recession influenced adversely the employment market too. According to the data by the Statistical Committee, the volume of the paid workforce declined by 0.8%. However, the CESD declares that the reduction in the employment market is undervalued in authorized documents, giving reference to the development in the shadow economy. Exportation faced a decrease of 33.4% in the state of deterioration oil prices. Consequently, the trade balance became more detrimental by 5.7 times in comparison with the former year. Consequently, in 2014 a positive trade balance of 12.2 billion dollars dropped to nearly 2.2 billion dollars during 2015.The investment area got also influenced by economic struggle. Thus, throughout 2015 the whole volume of investment inflows decreased by 28.3%, foreign and national investment diminishing by 14.5 per cent and 38.3 per cent accordingly.The decreased resources of the State Oil Fund caused problems in recognising their responsibilities. The devaluation process encouraged to lessen the pressure of the Oil Fund; transfers from the Fund to the state budget comprised 27.7% less. Nevertheless, the decrease of the funds was unavoidable, in 2015 diminishing to 34.7 billion dollars.The banking industry faced severe difficulties owing to the dramatic devaluation process. The loan payment capability of households and companies weakened, causing more significant difficulty credits, banks became more conservative in their loan schemes. As a result, the number of loans decreased by 6.2 billion dollars or by 26% compared to the preceding year. It has to be pointed out that, extending loan portfolios were repaid for the loss of yearly capital to some extension, and this had a constructive impact on the economic movement. Generally, the incompetence of measures applied to reduce resource dependency, an insincere increase based on wide-ranging oil resources, unproductive expenditures, furthermore, the failure in formulating free-market policies during 25 years, in 2015 all ended up in an essential crisis. Throughout the initial 6 months of decreasing oil prices, factors of the crisis began to emerge.Although countries changed to free-floating exchange rate system straightforwardly, for Azerbaijan, this period was remarkably distressing and arduous as most countries were planning to adapt to this regime before by taking strong legislative practices. As an example, undergoing devaluation our neighbour country Kazakhstan secured "tenge" to float freely. The country had to take this verdict collectively with the trade partners and neighbours at the same time and lower level of prices easily without impacting the economic and physiological state of the population. To put it differently, until 2015 CBAR did not need to market its foreign exchange resources in order to hold the value of manat and allow our currency to float freely according to the practices of the liberal market. In this circumstance, reserves would not experience this kind of dramatic and severe drop (down to 5.2mlrd USD) in 2015, and the population would not lose their trust to manat. After September 16, 2016, CBAR and State Oil Fund allocated 300 million USD to auctions and banks bought 78 million dollars after six days (CESD Press). Every week banks had already bought less amount of USD due to psychological factor as in the short time they could prognosticate dynamics of exchange rates. CBAR could not make interventions to the currency with its less quantity of resources in 2016. In every auction, CBAR established specific but less regulation to exchange rate of the dollar, and it maintained in 1.70 azn. Currently, it has more than 40 bln USD resources owing to oil price increases and later but appropriate monetary policy. After a strong monetary policy, CBAR contracted discount rate to 13% so as to improve the real sector by providing advantageous loans and improve profits from non-oil. The government have to start diversification actions in the economy so as to reduce the adverse influence of decreasing oil prices on the state budget. Through expanding the economy, the government is able to recompense for declining oil revenues with taxes also reduce the oil reliance of the general economy. It can be recommended to develop agricultural industry directly to guarantee food security, reduce dependency on food products being imported also reduce the damage created owing to devaluation while Azerbaijan import cereal, wheat, oat and grain from other countries. Agricultural goods hold a large percentage of goods being imported. Consequently, the development of that industry will make a difference regarding attaining a positive trade balance. Since Azerbaijan historically was an agricultural nation. Agriculture consist of 6 per cent of GDP. 40% of household revenue originates from agriculture, which contributes 39% workplaces in the countryside, it would not be hard to develop this area during a short span of time (World Bank, 2015). The circumstances are also productive and proper for agriculture in Azerbaijan. One more power and significance of agriculture is to reduce poverty since it is an area where a lot of people might be engaged.Another suggestion can be to promote and encourage entrepreneurship in Azerbaijan by privileged credits and reformations on customs and taxes. Despite the fact that Azerbaijan has previously started to perform reformations, there does not exist real consequences and activities. The authority over the application of reforms has to be increased. Besides, Azerbaijan has to be a member of the World Trade Organization to stimulate and soothe the business procedures, draw investment toward the country, etc. All those determinants will boost budget revenues by profit and income taxes, VAT, and so on.There is no doubt that Azerbaijan has to resume to save on the state budget and expend less on unimportant competitions like Formula 1, European Games, Islamic Games etc. as the existing condition demands to spend money on economic investments rather the fame of the country.In the following years, the state can obtain manat to regain its power by: 1) Implementation of stimulating monetary policy in order to decrease interest rates on loans;2) liberalisation of imports. This will enable reducing inflationary rates as a consequence of encouraging monetary policy;3) Raising the salaries of budget workers, offering mandatory health insurance and increasing social benefits to decrease social anxiety as a consequence of inflation and depreciation of manat; 4) utilisation of accelerated depreciation to spur investments in the non-oil industry;5) utilisation of tax on currency exchange rates to decrease currency speculations;6) encouraging the agricultural sector and expanding the number of students studying in this field such as suggesting scholarships more than other students; 7) directing profits gained from the oil sector to human capital;8) coordinated actions of Monetary Authority (CBAR) and Fiscal Authority (Financial Minister) against economic problems; 9) rising level of investment to the non-oil industry;10) providing valuable loans and increasing tax-free zones to companies who have an essential role in the exports of non-oil products;These measures will: (1) increase oil revenues to the real sector; and (2) increase domestic production and exports in mid-term and strengthen the manat and diminish inflation.Until wide-ranging economic and fundamental improvements got accomplished, the recession is projected to increase. Hence, the international situation of the country to straggle. The government have to retain measures which strive to save the domestic monetary system, including expansionary strategy. These systems will be a positive impact on economic action and total demand and consequently lead to the future development of the non-oil sector extension, rising employment rate, also reducing the social pressure of the government.

Intézmény

Budapesti Gazdasági Egyetem

Kar

Pénzügyi és Számviteli Kar

Tanszék

Pénzügy Tanszék

Tudományterület/tudományág

NEM RÉSZLETEZETT

Szak

Pénzügy és Számvitel szak angol nyelven

Konzulens(ek)

Konzulens neve

Konzulens típusa

Beosztás, tudományos fokozat, intézmény

Tasi Péter

Belső

Mestertanár, Pénzügy Tanszék, PSZK

tasi.peter@uni-bge.hu

Mű típusa:	diplomadolgozat (NEM RÉSZLETEZETT)
Kulcsszavak:	budget, cummercial statistiks, currency, developing, price of oil
SWORD Depositor:	Archive User
Felhasználói azonosító szám (ID):	Archive User
Rekord készítés dátuma:	2020. Nov. 27. 04:23
Utolsó módosítás:	2021. Már. 29. 09:18

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