Achieving substantial fiscal consolidation in Azerbaijan would require a comprehensive strategy.
Report informs citing the International Monetary Fund that the country needs to implement a range of measures.
The fund said this includes broadening the tax base (the authorities estimate annual revenue loss from tax expenditures in excess of AZN 2 billion, or about 1.5 percent of GDP), continuing to strengthen tax administration and tax compliance, and reviewing the current tax system to identify new sources of revenues.
"Undertaking the TADAT could help identify potential weaknesses in tax administration and assist in the effort to improve revenue collection. On the expenditure side, the authorities should pursue the moderation of wage bill growth and rationalization of subsidies. In this context, staff welcomes the recent increase in some administered prices. Gradual unwinding of public investment spending while focusing on improving investment efficiency should also contribute to fiscal consolidation. In this context, the authorities could consider undertaking a PIMA," the fund said.
It further notes that sustained fiscal adjustment should be supported by a strengthened fiscal rule.
The fund noted that while the country has so far been meeting the fiscal rule targets, largely due to significant overperformance in 2022, the medium-term target has shifted.
"Avoiding similar slippages in the future and sticking to the targeted deficit reduction path are essential to boost the credibility of the fiscal rule. In addition, in the context of planned changes to the budget legislation system, the authorities could consider specifying a clearer and more limited escape clause to minimize changes to the fiscal rule targets and putting in place an automatic correction mechanism. Efforts to more closely link the annual budget to the fiscal rule and to take stock of fiscal risks should also continue," the IMF said.
