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ANALYSIS OF THE EFFICIENCY OF OIL REVENUE USE IN AZERBAIJAN
HASANOVA PARI AMIRAHMAD
Baku State University, professor Baku, Azerbaijan
HASANLI HUSEYN ABULFAZ
Baku State University, master student Baku, Azerbaijan
Summary: The article analyzes the efficient distribution of oil revenues of the Republic of Azerbaijan, summarizes the current situation and certain limits of the efficient optimal distribution level. The changes in oil revenues of our country in recent years and their distribution by investment are discussed. The issues of increasing the effectiveness of state policy in the field of increasing oil revenues are touched upon, and the issues of increasing non-oil revenues are discussed, and areas that can provide potential non-oil revenues are investigated. The research mainly uses mathematical calculation methods.
Keywords: oil industry, revenues, expenses, allocation of funds, investment, target allocation
Since the first years of independence, the issue facing the fundamental development of various sectors in our country has been improving the financial situation, so the state has been interested in taking more effective and far-sighted measures in order to increase revenues from different sectors. This situation has been reflected in the effective export policy of the state, especially in areas with rich reserves in the country [2, p.104]. In such a case, certain incentive steps have been taken to attract foreign, international companies to the country and make investments in order to realize fundamental investments in various areas of our country with rich reserves [1, p. 96]. Among such steps, the signing of the Asir Agreement on 20.09.1994, which allowed for the joint exploitation of our largest energy field, the Azeri-Chirag-Guneshli field, and the signing of the same agreement on 04.07.1997, which allowed for the development of the Shah Deniz field, have created a wide opportunity for certain oil revenues to be included in the state budget in this area. In the following years, the conclusion of contracts such as "Lankaran-Deniz" (13.01.1997), "Yalama-D222" (04.07.1997), "Absheron" (01.08.1997), "Zygh-Hovsan" (05.06.2000) gave impetus to the increase in oil revenues in our country compared to each previous year. It should be noted that in a short period of time, due to the requirements of various contracts, significant increases occurred in the revenues of the state budget. When we look at the annual revenues of the State Oil Fund, it is possible to see the changes in the annual volume of these funds. The main goal of the fund, established on December 29, 1999, is to ensure the collection of revenues in a single place, their efficient use and preservation for future generations. According to the information as of April 1, 2024, the value of the fund's total assets was $57.3 billion [4]. In order to see the policy pursued by SOFAZ, the institution responsible for the efficient use of oil revenues in our country, in the field of efficient use of revenues, it is appropriate to first pay attention to the annual revenues of the fund. For this purpose, SOFAZ's revenues for the relevant years are reflected in diagram 1.
Diagram 1
SOFAZ's revenues, in billions of US dollars
Source: https://www.stat.gov.az/source It can be seen that the revenues of the State Oil Fund in 2011 were at their peak compared to other years, amounting to $19.6 billion. In subsequent periods, the decline in oil prices in world energy markets led to a significant decrease in the revenues of the State Oil Fund. Thus, in 20215, the annual volume of revenues from this sector was $7.7 billion, and in 2020, it was $5.5 billion. This situation can be attributed to the decline in the world energy market, especially due to the impact of the pandemic. In subsequent years, the normalization of prices in oil and oil-related sectors led to a certain normalization in the revenues of the State Oil Fund. Thus, in the reporting year, i.e. in 2023, the state budget revenues reached $12.7 billion [3]. In order to direct the revenues of the State Oil Fund to areas that promise active income, the fund has identified various areas. In order to provide awareness and increase the usefulness of the study, the current and target allocation of the State Oil Fund's funds is presented in Table 1.
Table 1
_Current and target allocation of the State Oil Fund's funds, 2023_
Asset Allocation billion USD Current allocation, in percent Target allocation
Fixed Income 32.4 57.7% 50%
Securities
Stocks 13.6 24.3% 25%
Real Estate 3.3 6.0% 10%
Gold 6.8 12.0% 15%
Source: State Oil Fund of the Republic of Azerbaijan
Looking at Table 1, we see that 57.7% or $32.4 billion of the total reserves of the NFZ are held in fixed-income securities. 24.3% or $13.6 billion of the funds are invested in stocks, and the income from these is expected to be transferred from one area to another in accordance with the dynamics of changes over the year. Although $3.3 billion or 6% of the total funds are allocated to the purchase and storage of real estate, 12.0% or $6.8 billion of the total reserves are held as reserves in the form of gold. When we look at the optimal ratio for the NFZ, it is considered most efficient to keep 50% of the funds in fixed-income securities, 25% in stocks, 10% in real estate, and the remaining 15% in gold and precious metals. The fact that the IMF's funds are not kept in a single region due to the risk factor and the distribution of funds across certain continents can be seen in Diagram 2.
Diagram 2
Geographical distribution of investment portfolio (until 2023), in thousand manats
Source: https://www.stat.gov.az/source
When we look at the data in Diagram 2, we see that the investment distribution of the NWF's income was carried out across all continents. Thus, $18.3 billion of the total funds were converted into various valuables in the North American continent, $17.1 billion in Europe, and $8.3 billion in Asia [4]. Here, especially considering the low financial risks in America and Europe, the main point of attention is the retention of the majority of the funds. The results of the analysis show us that the main part of the existing funds of the NWF is either stored in the form of securities, shares, gold and property. As a suggestion, we can note that in the future, we think that carrying out production-oriented activities from the income obtained in this area will allow not only to obtain certain interest income in the country, but also to expand economic employment.
LITERATURE:
1. Ahmadov i. Oil revenues and macroeconomics. Main directions and goals of democratic reforms in Azerbaijan. Baku, 2006 p. 229
2. Huseynov V.A., Appreciation of the manat and economic development: a study of the content and symptoms of the Dutch disease, Baku 2005 p. 157
3. www.stat.gov.az
4. www.oilfund.az
