BAKU, Azerbaijan, October 16. A decline in oil prices below the projected level can negatively impact the balance of Azerbaijan’s consolidated budget and the assets of the State Oil Fund (SOFAZ), but the impact of potential fluctuations in oil prices on fiscal indicators during the 2027–2030 period is expected to be constrained through a fiscal rule.
This was reflected in the Medium-Term Expenditure Framework prepared by the country's Ministry of Finance for the next four years.
According to the document, the significant share of the oil and gas sector in state budget revenues and national exports amplifies the impact that fluctuations in crude oil prices and production volumes have on fiscal and macroeconomic indicators. A decline in oil prices below projected levels can lead to a reduction in oil and gas revenues, subsequently weakening the consolidated budget balance and diminishing the assets of SOFAZ.
In this context, it is of particular importance to assess the potential impact of price volatility in the global energy market, production outlooks, and geopolitical developments on public finances.
To account for uncertainties in the oil market, possible deviations from the baseline oil price forecast for 2027–2030 were analyzed under various scenarios. These scenarios envisage oil prices rising or falling by $5, $10, $15, or $20 per barrel from the baseline level.
The charts in the document show the baseline forecast as a central line, while the colored bands represent possible ranges of oil price fluctuations. This approach makes it possible to assess how budget indicators and the State Oil Fund's assets could change if oil prices rise or fall.
According to the charts, under the baseline scenario, the State Oil Fund's assets are projected to reach $73.9 billion in 2030. Under various oil price scenarios, the assets are expected to differ from the baseline figure by approximately $0.9 billion to $1.8 billion.
Taking into account possible deviations from the baseline oil price forecast, the consolidated budget balance as a share of GDP in 2027 is expected to vary by approximately 1.4–2.7 percentage points across different scenarios, compared with a baseline deficit of 2% of GDP.
The document states that, despite the volatility of oil prices in global markets, the likelihood of prices falling below $65 per barrel in the coming year is considered low, and fiscal risks stemming from oil price fluctuations are assessed as minimal.
What measures will be taken to mitigate fiscal risks?
According to the Ministry of Finance, the application of a "fiscal rule" will continue in order to limit the impact of oil and natural gas price volatility on public finances and to maintain macro-fiscal stability.
A key aspect of this mechanism is keeping the ratio of the non-oil primary deficit of the consolidated budget to non-oil GDP within established targets. This approach serves to gradually reduce the dependence of public finances on fluctuations in oil and gas revenues.
Furthermore, defining the transfer from SOFAZ to the state budget in the national currency (manat) limits the direct impact that changes in oil prices, production volumes, and exchange rates might otherwise have on budget revenues. The fact that the transfer amount is not directly dependent on these factors allows for a more predictable formation of oil revenues within the state budget.
Under the fiscal rule framework, it is envisaged that the ratio of the non-oil primary deficit to non-oil GDP, as well as transfers from SOFAZ to the state budget, will be gradually reduced over the medium term.
The primary objective of these measures is to reduce fiscal reliance on oil and gas revenues, maintain discipline in public finances, and ensure the preservation of the State Oil Fund’s assets for the long term.
Thus, limiting the impact of potential fluctuations in oil prices on the state budget and implementing budgetary policy on a more sustainable foundation are among the key priorities of Azerbaijan’s medium-term fiscal policy.