BAKU, Azerbaijan, October 16. Deviations from
Azerbaijan's baseline inflation forecast are expected to have a
limited impact on the non-oil primary deficit as a share of non-oil
GDP and on the consolidated budget balance over the medium
term.


This was reflected in the Medium-Term Expenditure Framework
prepared by the country's Ministry of Finance for the next four
years.


The document identifies persistent global uncertainty, price
trends in major trading partners, and volatility in global
commodity markets as the main external risk factors affecting
inflation.


In particular, continued geopolitical tensions in the Middle
East could trigger additional volatility in energy and other
commodity prices. Meanwhile, a weakening of the nominal effective
exchange rate could accelerate the pass-through of imported
inflation to domestic prices.


Regarding domestic factors, the document assesses the likelihood
of aggregate demand increasing sufficiently to significantly
intensify inflationary pressures as low under the current fiscal
and monetary policy framework.


According to the document, the assessment of the fiscal impact
of inflation risks takes into account the potential effects of
price changes on nominal GDP, budget revenues, and fiscal
indicators expressed as a share of GDP.


Inflation risks were assessed under scenarios in which inflation
deviates from the baseline forecast by 0.4, 0.8, 1.1 and 1.5
percentage points in either direction.







The calculations show that, under the scenarios considered,
inflation is expected to have a limited impact on the non-oil
primary deficit as a share of non-oil GDP and on the consolidated
budget balance in 2027-2030.


In 2027, the non-oil primary deficit as a share of non-oil GDP
is expected to deviate from the baseline scenario by 0.1-0.4
percentage points under different inflation scenarios.


The projected impact of inflation on the consolidated budget
balance is even smaller. Under the different scenarios, the balance
is expected to deviate from the baseline by 0.1-0.3 percentage
points in 2027.


According to the charts, the non-oil primary deficit as a share
of non-oil GDP stood at approximately 22.5% in 2022 and is
projected to reach around 17.5% in 2027. The indicator is expected
to improve from 2028, declining to approximately 10%-11% by
2030.


The consolidated budget balance as a share of GDP stood at
approximately 6% in 2022 and 8% in 2023. It is projected to remain
in deficit in 2026-2027 before gradually improving from 2028.


The Ministry of Finance considers the management of fiscal risks
associated with inflation important for maintaining macroeconomic
stability. According to the document, flexible budget policies and
targeted social protection programs will help minimize the adverse
effects of unexpected price increases.