Azerbaijan's optimal maneuver scenario for changing oil prices

/AzerNews/

By Gulgiz Dadashova

The global financial institutions are warning about a possible crisis amid the continuous cut in the oil prices and the governments of oil producing countries work to set the budget price of oil correctly.

As the oil factor still accounts for a large share in the Azerbaijani economy, the country’s government has drafted several scenarios on forecasts of the state budget and the socio-economic development for 2015 in case the further decline in world oil prices.

The government reported that in these scenarios the projections are formed based on oil prices at the level of $60- $90 per barrel. However, in the draft budget for 2015 submitted to the Parliament the oil prices calculated at the maximum price - $ 90 per barrel.

The country’s government assures that the budget figures for the next year were formed on most optimal oil price. "Azerbaijan has sufficient reserves, and in the case of sudden changes in the direction of lower oil prices, budget projections may be revised," the source in the government told Trend Agency.

The expected amendments in the tax code, which are still in the process of negotiating with the government, will also provide additional revenues to the state budget in 2015. However, the amendments do not apply to the tax rates that will remain unchanged.

The South Caucasus’s biggest economy and most populous nation of over 9 million people relies on oil for bulk of the state revenue and 92 percent of export earnings.

President of Azerbaijan’s energy giant SOCAR Rovnag Abdullayev earlier said Azerbaijan as an oil producing country sees no problems in the volatility of world oil prices, as the scenario of lower prices is also taken into account when forecasting the volume of revenues.

SOCAR’s total revenues stood at 38.43 billion manats as of 2013, compared to 17.14 billion manats in 2012. SOCAR received 8.95 billion manats of its total volume of revenues from the sale of petroleum products, while 1.85 billion manats fell to the revenues from the sale of petrochemical products.

Last week, the price for Azeri Light fell by $ 4.051, averaging $84.78 per barrel.

The oil prices fall daily and the future direction of the market will depend on the decision of the OPEC on production at the November 27 meeting.

The average spot price of "Brent" in October exceeded $ 87 per barrel compared to more than $97 in September, as well as over $109 per barrel in October 2013. However, OPEC is still optimistic and calls not to panic on one hand, and on the other hands urges oil producers and consumers to take the average price at around $100 per barrel.

Organization of the Petroleum Exporting Countries seems to make efforts to stabilize prices at around $100 per barrel in the very short term. Many are confident that all this will happen, and the cartel, which provides 40 percent of global oil supplies, will reduce production, which will increase the price.

Major banks and consulting firms believe that in 2015 the price of Brent will be $95-$103 per barrel.

Azerbaijan based its 2014 budget on an oil price of $100 a barrel, but the shale revolution in the United States, stagnation in the world economy, which resulted in a reduction of energy consumption in a number of countries, and appearance of new suppliers quickly underbid the prices. Although, the average price on the Azeri oil this year stood at $109, respectively, the state budget has already received more oil funds than expected.

It is quite difficult to forecast how much the price of oil will drop.

President of the Central Bank of Azerbaijan (CBA) Elman Rustamov also assured that the trend of falling oil prices on the world markets will not pose a serious threat to the economy of Azerbaijan.

“The impact of this factor on the economy of the country is minimal due to the fact that the average price was $103-$104 in 2014. Macroeconomic stability in the country, strategic currency reserves in the volume of 74 percent of GDP and the minimum level of public debt create possibilities for maneuvering in such conditions,” he said.

Meanwhile, the structure of the Azerbaijani economy shows that the factors contributing to economic growth changing. For example, the share of oil sector in GDP in 2015 is projected at 34.9 percent compared to 40.4 percent in 2014. GDP on oil sector will decrease by 2.2 percent in 2014.

The Economic Development Ministry reported that the implementation of the state programs scheduled for the next three years will give impetus to the dynamic development of the economy and create favorable conditions for the growth of non-oil sector and its share in GDP from 66 percent in 2015 to 71.3 percent in 2018.

The growth of non-oil sector is expected to reach 8.2 per cent in 2015 and at the level of seven percent annually in the next three years. The growth in non-oil industry is projected at 7.6 percent in 2015, and at 7.8 percent annually in the next three years.

This suggests that the growth of the economy in the future will be supported by the non-oil sector.

The government expects decline in the share of oil sector in general revenues of the economy to 65.3 percent compared to 66 percent expected in 2014, while the figure was 73.1 percent in 2013.

Along with the economic diversification policy pursued by the government, the "Contract of the Century" will continue to bear fruit and the "Southern Gas Corridor" project will contribute to strengthening the economic independence of the country and will bring additional dividends to Azerbaijan.