Prepared by Eurasia Extractive Industries Knowledge Hub Expert Group
Providing public access to public financial information and ensuring financial transparency is one of the most important issues in increasing accountability and efficiency of government activities. The availability of public access to information on public finances and the establishment of regular and professional public oversight by civil society will make the government more responsible. Several International organizations observe how the improvement of transparency and accountability of state finances influences the efficiency of governments.
A number of international standards have been developed to enhance transparency and accountability in public finance (IMF - 1997, 2014, 2019; OECD - 2015), recommendation documents and guidances were prepared (OECD - 2002 and 2017; PEFA - 2006 and 2016; EITI Standard,2013; 2016 and 2019; IPSASB - 2016 and so on), which continuously are being updated. International initiative in the field is also expanding (EITI, GİFT, G-20, OGP, etc.). International organizations are also monitoring financial transparency and accountability and accessibility of financial information within the framework of their mandates and providing recommendations to the governments (IMF - Fiscal Transparency Evaluation (FTE), World Bank - PEFA, International Budget Partnership (IPP) - Open Budget Index).
Assessment of the fiscal transparency by the IMF in Azerbaijan was conducted only once, in 2000 (the last assessment in neighboring Georgia was in 2017). Or, the PEFA assessment in Azerbaijan has not been conducted since 2014. For comparison, in Georgia, this estimate is valid for 2008, 2013 and 2018 (including 2010, 2013, and 2018 for Tbilisi Municipality, as well as Batumi and Martvili Federation in 2007,) in the Republic of Turkey in 2009, in the Republic of Kazakhstan in 2009 and 2018 and in the Republic of Belarus in 2009 and 2014.
Azerbaijan is one of the countries that have serious problems with public finance disclosure and financial transparency. Our research shows that the situation with disclosure of public finance information in Azerbaijan is significantly lower than recommendations of relevant international organizations require. Although there has been some progress in this direction, even before 2015, there have been serious delays in the disclosure of large parts of financial information in connection with the economic crisis in Azerbaijan in 2015-2016- disclosure of some financial data has been either completely stopped or made later than the required date. It is not a coincidence that in the Open Budget Index released by the International Budget
Partnership in January 2017, Azerbaijan was ranked 78th in the group of countries with a minimum budget score of 34 out of 100 possible points. Azerbaijan's rating was 8 points lower than the average of 115 countries surveyed (42 points). Also, Azerbaijan's position in the ranking of 2017 dropped 17 points compared to the 2015 ranking index (51 points).
Public Finance in Azerbaijan consists of two sectors, according to the IMF's Guidance on Public Finance Statistics (GFSM, 2014): public administration sector: this includes central government, regional (governments) governing bodies (Nakhchivan AR), local governments (city and regional executive authorities) and extra-budgetary funds (SOFAZ, SSPF, Unemployment Insurance Fund). 26.1 billion manats (88.4%) of the 29.5 billion manats (88.4%) of the consolidated budget of the country in 2020, 850.1 million manats (according to the documents submitted to the parliament and publicized together with the draft law on the state budget for 2020). 2.9% will be accounted for by local governments (executive power and budget organizations), 482.1 million manats (1.6%) 5.16 billion manats (17.5%) of Nakhchivan AR as a regional government, will be allocated to the three extra-budgetary funds: state-owned companies that includes financial companies of the state (Central Bank, Azerbaijan International Bank OJSC, AzerTurkbank OJSC, AzerTurkbank, Aqrarkredit CJSC BoKT, etc.) and non-financial state companies (SOCAR, Azerenergy, Azerbaijan Railways, Azerbaijan Airlines, CJSC (AZAL), Azersu OJSC, Azerishig ACC, and other state-owned enterprises).
According to the World Bank, in 2016, the government of Azerbaijan has 20 large state-owned enterprises, including 5 in the financial sector. According to the WB, except for four out of the 15 largest public sector entities in the non-financial sector, the rest do not disclose their financial and economic information. Our research shows that, despite the fact that there are several legal and regulatory documents and requirements regarding the disclosure of important information on public finances, there are a number of conflicting points in that legal framework. Thus, the existing legal norms do not adequately regulate the full scope of the information required to be disclosed as well as the responsibility of the competent authorities for refusing to disclose the information on public finances.
In addition, Article 2.4-1 of the Law “On Access to Information” states that “access to information is permitted provided that it protects the interests of the Republic of Azerbaijan in the political, economic, military, financial, credit and currency policy, the protection of public order, health and morality, the protection of the rights and freedoms of other persons, the commercial and other economic interests, the integrity and impartiality of the court, the normal conduct of criminal proceedings. " So far, however, no legal framework has articulated what is meant under "the political, economic, financial, credit and currency policy interests of the state." This allows the relevant information owners to refuse to disclose a substantial part of the information under the pretext of "protecting the public interest". At the same time, Article 10 of that Law does not have any requirement on a list of information that they must disclose. This creates uncertainty about the scope of the information that the owners have to disclose.
We recommend adding a list of information on owners' duties they need to disclose (including information and names of indicators, disclosure dates, disclosure forms, and responsible persons). Existing regulations do not establish clear standards for the preparation and disclosure of public finance information, including electronic data. The requirements for the dissemination of information in the budgetary legislation are vague, there are no clear legal frameworks and timelines for the dissemination of specific information. The disclosure of monthly budget reports is not stipulated as a legal norm in general. The absence of a list of budget information that is required to be disclosed, the lack of accurate timelines for the dissemination of these data, and no clarification on the forms of dissemination (in print or online or in both forms) impact adversely the responsibility of authorities. There are no clearly defined requirements for the structure, content, and quality in the legislature on budget reports.
In 2019, the Ministry of Finance of the Republic of Azerbaijan has made a significant step forward in the disclosure of public finance information by posting the “Budget Statement”, the state budget plan for 2020 and a large list of documents submitted to the Milli Majlis on the website. Despite the fact that some of the information posted on the ministry's website is incomplete and not in a machine-readable format, this is one of the serious steps the government has taken in recent years to increase public finance transparency.
Preparation and disclosure of monthly reports on the execution of the state budget and of extra-budgetary funds should be included in the legislation as a mandatory legal norm;
Information on public investment expenditures, list of investment projects, budget allocations for each project, and on the progress and results of these projects should be publicly available and published online;
Information on the formation of budget revenues according to property and economic sectors should be accessible
It is also desirable to prepare this information for each type of case;
The full text of annual reports on the execution of the state budget and extra-budgetary funds must be accessible to the public;
Moreover, reports on the implementation of the budget should be prepared in accordance with the budget draft format approved by the Parliament;
The budget envelope should include separate income revenues for each city and region, and the functional, organizational and economic classification of expenditures;
Separate reports on extra-budgetary revenues (including all sources) and expenditures of government agencies (including all directions) should be prepared and publicized;
Separate reports on the use of reserve funds by the President and the Government
should be disclosed; Preparation and dissemination of a separate report on the budgetary activities of the target budget funds is necessary;
The online text of the full text of procurement contracts of budget organizations
should be accessible;
Tax expense information and calculations should be publicly available;
A register of exemptions, privileges on all taxes, duties, and payments must be pre-
pared, a list of legal entities and individuals benefiting from these exemptions and
privileges should be identified and publicized with an impact assessment;
Information on all the government debt and their structure should be disclosed periodically and in a timely manner;
Necessary steps should be taken to ensure the timely disclosure of annual reports,
particularly of audited financial statements, on the financial and economic activities of all state-owned companies, including public entities.
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