AZERBAIJAN APPROVES SUPPLEMENTAL BUDGET INCREASE

C O N F I D E N T I A L BAKU 000737 SIPDIS SIPDIS E.O. 12958: DECL: 06/14/2017 TAGS: ECON EFIN PGOV AJ SUBJECT: AZERBAIJAN APPROVES SUPPLEMENTAL BUDGET INCREASE OF ALMOST USD 700 MILLION REF: (A) 06 BAKU 1800 (B) BAKU 603 Classified By: A/DCM JOAN POLASCHIK PER REASONS 1.4 (B, D). ¶1. (C) SUMMARY: On May 26, Azerbaijan's Parliament approved the final 2007 state budget totaling USD 7.34 billion and including a supplemental budget expenditure increase of USD 697 million, nearly ten percent of the total 2007 budget. The Government of Azerbaijan's large supplement budget proposal was supported by increased tax and customs revenues, including tax revenues from Production Sharing Agreements. The IMF estimates that the combined consolidated budget expenditures will total approximately USD 9.32 billion, an increase of 57 percent over the 2006 consolidated budget. While calling the increase "very worrisome," the IMF notes that this year's budget expenditure increase is smaller that the increase in 2006. The nearly USD 700 million supplementary budget increase nevertheless signals the GOAJ's continued struggle with restraining fiscal spending. END SUMMARY. ¶2. (C) On May 26, the Azerbaijani Parliament approved the final 2007 state budget totaling USD 7.34 billion and including a supplemental budget expenditure increase of USD 697 million, an increase of more than ten percent over the original budget. The Ministry of Taxes and Customs Committee reportedly surpassed revenues targets and the government's profit from Production Sharing Agreements accounted for approximately 42 percent of total tax collections. For 2006, government budget revenues totaled USD 5.65 billion, an increase of 54 percent from 2005. 2006 budget expenditures were USD 5.5 billion, an increase of 68.3 percent. ¶3. (C) The IMF is still studying the government's 2007 consolidated budget (State budget, Oil Fund budget and State Social Protection Fund budget),but estimated that the combined consolidated expenditures will total approximately USD 9.32 billion, an increase of 57 percent over the 2006 consolidated budget. While calling this increase "very worrisome" and noting that it will further complicate the government's plan to implement ambitious monetary targets, the local IMF resident representative also noted that the 2007 increase is 24 percent lower than the increase in the 2006 budget. ¶4. (C) COMMENT: While the USD 700 million supplementary budget increase is not as large as some local economic observers feared, it signals the GOAJ's continued struggle with restraining fiscal spending. Minister Sharifov had earlier told the Ambassador that he planned to hold supplement budget expenditures to USD 200 million to fund ministerial budget shortfalls after the increase in utility prices. The increase in the 2007 supplementary budget will most likely lead to a measurable increase in government expenditures for the 2008 budget. END COMMENT LU