BAKU, Azerbaijan, November 4. Below-forecast
growth in Azerbaijan’s non-oil and gas GDP could weigh on state
budget revenues and the fiscal balance, potentially pushing the
non-oil primary deficit-to-GDP ratio above its target.


This risk is outlined in the budget package accompanying the
draft state and consolidated budgets for 2027.


The document noted that the impact of possible changes in
non-oil and gas GDP growth on fiscal indicators is mainly driven by
changes in economic activity and the tax base. These changes affect
consolidated budget revenues, the non-oil primary
deficit-to-non-oil GDP ratio, as well as the consolidated budget
balance-to-GDP ratio.


To account for uncertainties surrounding economic growth,
assessments were conducted under alternative scenarios differing
from the baseline forecast. In particular, various risk scenarios
were developed for 2027-2030 based on positive and negative
deviations of 0.5, 1, and 2 percentage points in the non-oil and
gas GDP growth rate from the baseline scenario.


According to the assessments, in 2030, under the second and
third pessimistic scenarios, the non-oil primary deficit-to-non-oil
GDP ratio is expected to exceed the established interim target of
12% by 0.2 and 2.1 percentage points, respectively. In other words,
this indicator could rise to 12.2% and 14.1% under these scenarios,
respectively.


According to the forecasts presented, the non-oil primary
deficit-to-non-oil GDP ratio stood at approximately 22.8% in 2022.
This indicator was around 22% in 2023, 20% in 2024, and 18.5% in
2025. After declining to approximately 17.6% in 2026, the indicator
is projected to move in different directions from 2027 onward,
depending on economic growth scenarios.


The document also assessed the impact of changes in non-oil and
gas GDP growth on the fiscal balance of the consolidated
budget.


According to the document, the consolidated budget
balance-to-GDP ratio stood at approximately 6.7% in 2022, 9% in
2023, 5.1% in 2024, and 4% in 2025. This indicator is projected to
decline to 0.8% in 2026, while a deficit of approximately 1.7% is
expected in 2027.







In the subsequent years, the dynamics of the fiscal balance will
depend on the pace of economic growth. Specifically, if the growth
rate of the non-oil-and-gas GDP falls below the baseline scenario,
it will negatively impact the consolidated budget balance due to a
weakening in economic activity and tax revenues. Conversely,
stronger economic growth would facilitate an improvement in the
fiscal balance by expanding the tax base and increasing budget
revenues.


What measures will be taken to mitigate
risks?


The budget package indicates that a series of measures are
planned to limit the impact that a potential slowdown in
non-oil-and-gas GDP growth might have on budget revenues and the
fiscal balance.


In this context, expanding the tax base, further strengthening
tax administration, and continuing medium-term fiscal consolidation
have been identified as priority areas. These measures will serve
to reduce the impact of potential negative deviations in economic
growth on budget indicators and help maintain fiscal sustainability
over the medium term.


Furthermore, measures are envisaged to enhance the operational
efficiency of state-owned enterprises, optimize state subsidies,
gradually reduce the role of regulated prices, and improve
governance and accountability standards within these
enterprises.


The document emphasized that these steps will help alleviate
potential burdens on public finances, improve the competitive
environment, and support non-oil economic growth.