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Azerbaijan Republic: Staff Report for the 2001 Article IV Consultation, First Review Under the Poverty Reduction and Growth Facility, and Request for Waiver of Performance Criteria Supplementary Information

International Monetary Fund
Published Date:
March 2002
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This note provides an update on developments in data dissemination and fiscal transparency and reviews the status of recommendations in the November 2000 “Report on the Observance of Standards and Codes - Fiscal Transparency Module”. For a description of the suggested reform measures together with institutions and practices refer to the original report.1 The authorities have accepted to undertake a comprehensive ROSC exercise and a mission led by the Statistics Department will visit Baku in April 2002.

A. Fiscal Transparency

A new budget systems law currently under review by the government addresses shortcomings in transparency and accountability of the budget document and budget preparation process. The new law has been drafted in close collaboration with the Fiscal Affairs department during a technical assistance mission in August 2001.2 Its adoption by parliament is a structural benchmark for March 2002 under the current program.

In November 2001 parliament approved a revised law on the Chamber of Accounts giving it the authority to audit all government bodies including the Oil Fund. Adequate funds have been approved in the budget for 2002 to enable an effective establishment of its operations. A work program for 2002 has been developed in collaboration with experts from the World Bank.

The proposed adoption of a comprehensive energy sector reform plan marks an important step towards a clearer separation between the public and the private sector. The authorities have agreed to publicly acknowledge the quasi-fiscal activities in the energy sector. Planned reforms will reduce large inefficiencies which have been created through a system of non-payments for utility services. Further efforts will however be needed to disentangle public and private activities in other areas, including by completing the process of removing regulatory functions from state-owned enterprises.

B. Data Dissemination and Reporting

In June 2001 the government of Azerbaijan subscribed to the General Data Dissemination Standard (GDDS). The Ministry of Finance continues to produce monthly, quarterly and annual reports of fiscal operations on a GFS-based classification. Extrabudgetary funds such as the Oil Fund funds have also begun to provide regular reports. Beginning 2002 transactions of the social protection fund will be executed through the single treasury account which will further enhance its transparency.

Staff commentary

The imminent adoption of a new budget systems law and the strengthening of the supreme auditing body represent significant reform measures in fiscal transparency. An important remaining weakness in budget transparency is the lack of realistic budget estimates. Reforms would entail the introduction of a systematic revenue forecasting process and improved expenditure management methods. Finally, long term sustainable fiscal policies need to be developed in the context of a medium term expenditure framework.

1The original report “Azerbaijan Republic - Report on Observance of Standards and Codes-Fiscal Transparency Module” was issued in December 2000 as SM/00/278.
2Developing a Budget Systems, October 2001, P. Desai and B.K. Chaturverdi.

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