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Government Assesses Risks Associated with Oil Prices

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The Azerbaijani government notes the existence of a number of internal and external fiscal risks that may have a direct and indirect impact on the budget and macroeconomic stability in the country in 2018.

According to the budget materials for the next year, all possible risks are divided into two groups.

The first group includes the risks associated with the external environment. The main risk in this direction is the decline in oil prices in world markets, which may lead to a reduction in the revenues of the state budget of Azerbaijan and the State Oil Fund (SOFAZ).

According to the estimates of the Ministry of Finance, the decline in world oil prices by $ 5 per barrel will lead to a reduction in the revenues of the state budget of Azerbaijan by 62.5 million manat, and the revenues of SOFAZ by 794 million manat (by $467 million at the current rate).

The same group includes risks associated with a possible sharp increase in interest rates on international financial markets. “Under such circumstances, the growth of costs associated with borrowing in foreign markets will be inevitable, which will entail the growth of public and private sector spending on borrowing, and the reduction of income tax revenues to the state budget of Azerbaijan,” the documents of the Ministry of Finance state.

In addition, a slowdown in economic activity in partner countries may lead to a slowdown in the growth of the Azerbaijani economy and a reduction in non-oil revenues of the state budget.

The second group includes risks related to the internal environment. In this direction, the main risks are related to possible challenges in the financial and banking system, and the growth of expenses for the restructuring of banks. “In general, the risks possible in the financial and banking system can lead to an increase in the state budget expenditures and have a direct impact on the macroeconomic balance,” the budget materials note.

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