BAKU, Azerbaijan, October 16.
A decline in oil prices below the projected level can negatively
impact the balance of Azerbaijan’s consolidated budget and the
assets of the State Oil Fund (SOFAZ), but the impact of potential
fluctuations in oil prices on fiscal indicators during the
2027–2030 period is expected to be constrained through a fiscal
rule.


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


According to the document, the significant share of the oil and
gas sector in state budget revenues and national exports amplifies
the impact that fluctuations in crude oil prices and production
volumes have on fiscal and macroeconomic indicators. A decline in
oil prices below projected levels can lead to a reduction in oil
and gas revenues, subsequently weakening the consolidated budget
balance and diminishing the assets of SOFAZ.


In this context, it is of particular importance to assess the
potential impact of price volatility in the global energy market,
production outlooks, and geopolitical developments on public
finances.


To account for uncertainties in the oil market, possible
deviations from the baseline oil price forecast for 2027–2030 were
analyzed under various scenarios. These scenarios envisage oil
prices rising or falling by $5, $10, $15, or $20 per barrel from
the baseline level.


The charts in the document show the baseline forecast as a
central line, while the colored bands represent possible ranges of
oil price fluctuations. This approach makes it possible to assess
how budget indicators and the State Oil Fund's assets could change
if oil prices rise or fall.


According to the charts, under the baseline scenario, the State
Oil Fund's assets are projected to reach $73.9 billion in 2030.
Under various oil price scenarios, the assets are expected to
differ from the baseline figure by approximately $0.9 billion to
$1.8 billion.


Taking into account possible deviations from the baseline oil
price forecast, the consolidated budget balance as a share of GDP
in 2027 is expected to vary by approximately 1.4–2.7 percentage
points across different scenarios, compared with a baseline deficit
of 2% of GDP.


The document states that, despite the volatility of oil prices
in global markets, the likelihood of prices falling below $65 per
barrel in the coming year is considered low, and fiscal risks
stemming from oil price fluctuations are assessed as minimal.







What measures will be taken to mitigate fiscal risks?


According to the Ministry of Finance, the application of a
"fiscal rule" will continue in order to limit the impact of oil and
natural gas price volatility on public finances and to maintain
macro-fiscal stability.


A key aspect of this mechanism is keeping the ratio of the
non-oil primary deficit of the consolidated budget to non-oil GDP
within established targets. This approach serves to gradually
reduce the dependence of public finances on fluctuations in oil and
gas revenues.


Furthermore, defining the transfer from SOFAZ to the state
budget in the national currency (manat) limits the direct impact
that changes in oil prices, production volumes, and exchange rates
might otherwise have on budget revenues. The fact that the transfer
amount is not directly dependent on these factors allows for a more
predictable formation of oil revenues within the state budget.


Under the fiscal rule framework, it is envisaged that the ratio
of the non-oil primary deficit to non-oil GDP, as well as transfers
from SOFAZ to the state budget, will be gradually reduced over the
medium term.


The primary objective of these measures is to reduce fiscal
reliance on oil and gas revenues, maintain discipline in public
finances, and ensure the preservation of the State Oil Fund’s
assets for the long term.


Thus, limiting the impact of potential fluctuations in oil
prices on the state budget and implementing budgetary policy on a
more sustainable foundation are among the key priorities of
Azerbaijan’s medium-term fiscal policy.