Azerbaijan, one of the most resource-rich countries in Eurasia, has faced serious, rapidly changing and contradictory development of its economy for the last 10 years. Starting in 2005, the country became the beneficiary of an oil boom that resulted in some USD 125 billion in oil revenues being transferred to state coffers. That influx of cash was accompanied by two currency devaluations and a decade of economic problems outside of the oil sector. The commodity crash in 2014 saw prices for Azeri oil go from over USD 100/barrel in 2014 to just over USD 50/barrel in 2015. At that point, ordinary people started feeling in their own lives the volatility resulting from an economic dependence on resource revenues.
With the help of local experts, the Natural Resource Governance Institute has collected and presented Azeri budget data to explore and explain how huge oil revenues were used; how dependent the state budget was and is on the extractive sector; and what spending the government prioritized during and after the oil boom. The analysis covers the years from 2005 to 2016 and consists of an interactive visualization showing correlations between oil revenues, government revenues and budget expenses. There are two options available in the visualization; these can be toggled at the top left. The exact values of bar and line segments can be seen by hovering the pointer over the chart.
Click above to see the visualization.
Budget priorities versus extractive revenues
The first visualization shows budget priorities prior to, during and after the oil boom. As seen from 2005 to the oil boom peak in 2013, the government prioritized infrastructure spending, increasing infrastructure spending by over 5,000 percent, compared to a 1,000 percent increase in overall spending in the same time period. Health spending and education spending rose only 375 percent and 400 percent during that time period, respectively. In 2016, post-oil boom, the amount of infrastructure expenses went down to USD 1.7 billion, just 20 percent what it was three years prior. It should also be noted that Azerbaijan faced double devaluation in 2015, and its national currency lost half its value.
Budget dependence on the extractive sector
The second visualization illustrates the dependence of the Azeri budget on extractive sector revenues, as well as the volatility of budgets when depending so heavily on the natural resource sector. The State Oil Fund of Azerbaijan (SOFAZ) is a public sector organization that collects and manages revenues from oil and gas production on behalf of citizens and future generations. As the oil boom went on, SOFAZ transferred an increasing amount of its revenues to the state budget. From 2005 to 2007, SOFAZ transferred 43 percent of its revenues to the state budget; for 2011 to 2013, that grew to 70 percent. And in 2015 and 2016, SOFAZ transferred more money to the state budget than it earned in revenues.
Encouragingly, non-oil state revenues saw solid growth of over 350 percent between 2005 and the oil boom peak in 2013, and stayed consistent through 2014 and 2015 despite the oil crash.
While the lasting effects of Azerbaijan’s revenue policy throughout the oil boom are still being revealed, tools like these can help citizens, media and governments better understand the implications of heavy reliance on natural resource revenue and the importance of proper oversight.
The data used in this blog is available on ResourceData.org here.
Fidan Bagirova was formerly NRGI's Eurasia senior officer. Tommy Morrison is a research and data associate with NRGI.