VZCZCXYZ0002
RR RUEHWEB

DE RUEHKB #0221/01 0710504
ZNR UUUUU ZZH
R 110504Z MAR 08
FM AMEMBASSY BAKU
TO SECSTATE WASHDC 4909

UNCLAS BAKU 000221 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/PGI, THOMAS CUNNINGHAM, EUR/ACE - MARTA YOUTH, 
EEB/IFD/OMA - ANDREW SNOW, RICHARD FIGUEROA 
 
E.O. 12958:  N/A 
TAGS: EAID ECON PGOV PREL TI AJ
SUBJECT: AZERBAIJAN - REPORT ON FISCAL TRANSPARENCY 
 
REF: STATE 16737 
 
¶1. Per reftel, this cable contains Embassy's 2008 country 
narrative on fiscal transparency in Azerbaijan. 
 
¶2. The process to publicize the state budget in Azerbaijan 
has changed with the implementation of the Budget System 
Law, which took effect in January 2003.  The President 
submits the budget to Parliament for approval.  Once 
approved by Parliament, budget information is typically 
published in the local print media.  Budget amendments are 
also published in the media, once they are approved by 
Parliament.  During the fiscal year, press releases 
containing revenue and expenditure information are 
regularly available.  Information about the State Budget 
can be found on the Ministry of Finance web site 
http://www.maliyye.gov.az/index_en.jsp 
 
¶3. The Budget System Law, which was designed in close 
cooperation with the IMF and the World Bank, has improved 
transparency.   Over the last three years World Bank staff 
and USAID/U.S. Treasury technical experts have worked with 
the government to improve the information included in the 
Medium-Term Expenditure Framework (MTEF).  The dramatic 
increase in oil revenues since the opening of the Baku 
Tbilisi Ceyhan pipeline in 2006 has made budget formulation 
more difficult.  Until recently, the approved budget 
included a one line lump sum amount for the investment 
budget.  Starting in 2007, public investment projects to be 
included in the budget were itemized in the budget document 
submitted to Parliament for approval (although the total 
amount of funding for the capital budget continued to be 
stated as a lump sum amount).  The problem of selecting the 
investment programs projects, after budget approval is not 
addressed in the Budget System Law. 
 
 
4.In 2007, with USAID support, the Ministry of Economic 
Development (MOED)issued for the first time a systematic 
capital budget call circular and established a Public 
Investment Planning Department in order to promote more 
well-organized and better informed capital budget planning 
processes.  In addition, USAID has worked with the MOED and 
line ministries to expand the number of budget planning 
staff with training in cost/benefit analysis principles and 
techniques.  USAID experts have been working with the MOED 
since mid-2007 on development of a draft Public Investment 
Planning Decree.  Once approved, the Public Investment 
Planning Decree will mandate the adoption of rigorous 
cost/benefit analysis procedures for all large-scale public 
investment projects; and facilitate the formation of 
sectoral medium-term budget planning committees to ensure 
that sector strategies/operational plans and related public 
investment plans are soundly formulated.  In addition, the 
GOAJ recently approved a World Bank-supported resolution 
mandating formation of a COM [What is COM?] macroeconomic 
working group to ensure that consistent macroeconomic 
forecasting projections are utilized for annual/medium-term 
budget development purposes. 
 
¶5. Treasury operations in Azerbaijan improved with the 2005 
passage of the Single Budget Classification of budget 
revenue and expenditures.  The lack of computerization of 
the Treasury function has traditionally hindered the 
Ministry of Finance from accurately determining its current 
expenditures, commitments, and cash positions.  The lack of 
a computer system has resulted in the opportunity for graft 
and a considerable lag time in the collection and 
preparation of financial reports.  USAID has worked to 
improve the budget tracking and execution system through a 
treasury automation support program also supported by the 
World Bank.  Under this program, an automated budget 
execution system has been set up in four pilot sites 
covering approximately 15 percent of public expenditures. 
The GOAJ wants to roll the system out to cover about 85 
percent of expenditures in 2008.  USAID's current intensive 
technical training support programs in the budget planning 
and administration areas, which wrap up in early 2008, will 
be followed by a new public expenditure reform support 
program scheduled to start implementation in spring 2008. 
The core goals of this program will be to ensure that 
rigorous capital budgeting and medium-term budgeting 
procedures are effectively introduced in key expenditure 
sectors, and that the transparency and efficiency 
characterizing the budget administration system is 
significantly improved. 
 
¶6. The IMF regularly reports on macroeconomic developments 
in Azerbaijan through the Article IV consultation process. 
In addition, the GOAJ also publishes a fiscal transparency 
ROSC (Review of Standards/Codes); and is available on the 
 
IMF website.  A joint IMF and World Bank-supported Public 
Expenditure Management Assessment project is currently 
underway. 
 
¶7. Key relevant laws/regulations on budget disclosure: 
Budget System Law 2003 as amended, and Single 
Classification, Capital Budget Call circular (2007), and 
draft Public Investment Planning Decree (expected 2008), as 
already mentioned. 
 
DERSE