Economists and experts assess President’s order as unprecedented step - OPINION

“We have been witnessing a serious newness in terms of macroeconomic governance for recent months," Professor at the Azerbaijan State Economic University Elshad Mammadov told Report while commenting on the President Ilham Aliyev’s orders on increase of minimum wages and salaries in several fields.

According to him, these orders pave the way to discussions on complete change in the philosophy of economic governance: "This is already a fact that a social factor has come into prominence in the governance. These orders are serious steps towards improvement of welfare and enhancement of social protection of the population. Moreover, these steps can also change the structure of the national economy’.

Professor at the Azerbaijan State Economic University Elshad Mammadov

"Measures taken in Azerbaijan can be assessed as the unprecedented steps in the history of independence of the country".

Elşad Məmmədov

Azərbaycan Dövlət İqtisad Universitetinin (UNEC) professoru, iqtisadçı-ekspert Elşad Məmmədov

According to the expert, the orders will also produce economic results: “I think that this new approach is fully adequate to the new policy in terms of economic governance, as well as processes in the world economy and the science of economy. Because if we take a glance at the world economy, we’ll see that expenditures on human capital, including state expenditures in the economically developing countries are increased. This has not only social, but also economic meaning. Because, expenditures on human capital, increase in social expenditures, on one hand, serve improvement in social welfare and, on the other hand, economic development in terms of expansion of domestic market. Moreover, human capital and social fields are coming into prominence in the world economy. The matter is about health, education, science and social cultural fields. Increase of expenses for these fields is already a trend in the leading economic systems.

Mammadov also commented on the opinions that increase in salaries will trigger inflation: "This is a superficial approach. Azerbaijan has not so large money supply for increase in salaries to cause inflation. Further increase of the social expenditures must not have negative impact on the inflation."

These orders embrace 600,000 people. An average Azerbaijani family consists of 4 persons and more than 2 million people will be covered by these order. To my mind, social measures being taken since early 2019 can be assessed as the unprecedented steps in the history of independence of the country."

Economist and expert Rashad also believes that the orders are unique for citizens: "Social burden of the Azerbaijan’s state budget was lower than in other countries. For instance, this figure was around 32% in 2019’s budget while this is more than 70% in certain countries. The state budget has a sufficient potential to extend the spectrum of the social expenditures. In the state budget, nearly AZN 2 billion is for socio-economic reforms. Infrastructure costs will be reduced. By reducing infrastructure costs, it’s possible to direct a certain part of the expenditures to the social sphere."

According to the expert, elimination of shadow economy in Azerbaijan allows increase in budget revenues and creates new opportunities to strengthen the social protection: "We know that a significant part of the economy in Azerbaijan was a hidden economy. Amendments were made in the Tax Code and Law on Social Insurance in early 2019. These were mainly directed to the legalization of the hidden economy. In this case, revenues from the real sector gradually increase. This process should continue. Because there is a potential, but it cannot be used completely. Currently, there are nearly 5 million employed people, of which nearly 1.8 million operate under law and fulfill fiscal obligations. Works are underway to make other operate under the law. If targets of employment strategy are followed, significant increases will be observed. Current social projects will not be a serious burden for the budget."

Economist and expert Rashad Hasanov

"It is necessary to keep on eliminating imbalance among social standards."

Rashad Hasanov

Economist-expert

Hasanov also commented on the increase of tax burden of individual entrepreneurs, who pay relevant social insurance fee after increase of minimum wages: "According to calculations, wages of 950,000 citizens will be increased. However, according to the Chamber of Accounts, the number of individual taxpayers is six times less than those benefiting from this decision. I think that social expenditures should be increased significantly in the structure of state budget expenditures. This is also significant in terms of fair redistribution of the incomes. People are mainly dissatisfied with that the current criteria do not meet the reality. The minimum pension was AZN 110, subsistence minimum for elderly was AZN 180 in early 2019. A man receiving a minimum pension was to borrow 60% to end the month. Main principles should be towards elimination of such differences."

"In Europe, the minimum wage is more than 65% of average salary. This index is planned to reach 60% in Azerbaijan by 2020. With the law to enter into force on September 1, this index will reach 45%. Because, the average monthly salary in Azerbaijan is around AZN 550. In my opinion, this process should continue to eliminate the imbalance among the social standards. Citizens are also dissatisfied with that a part of population get high income as a result of unfair distribution of large resource revenues. As the social mechanisms are improved, fair distribution of the resource revenues will be strengthened," the expert said.