Oil and Gas Revenue Management in Azerbaijan

This policy paper is an assessment of the current situation in management of oil revenues in Azerbaijan in order to find solutions for improving it. This policy paper is the result of research conducted by the research team of Economic Research Center with the financial support of Revenue Watch Institute in 2013. In the paper, analysis was carried out on the macroeconomic environment, fiscal rules and legal bases for the management of oil revenues in Azerbaijan, policy of the management of oil revenues was evaluated, assessment was done on participation of policy makers, especially national oil fund, in the decision-making process on the management of oil revenues, and their influences. In some instances, the comparative analysis of superior and inferior features of oil revenues management was done taking Kazakhstan and Norway as the reference countries. The main aim of this policy paper is to assess the current situation of management of oil revenues in Azerbaijan, unfold its weaknesses and strengths, identify key problems and prepare alternative policies for solution of these issues. The first part gives the general assessment by describing Azerbaijan’s revenue management system; the second part diagnoses the problems; the third part analyzes the problems created by the inefficiencies in the legislative system; and the fourth part describes four possible futures depending on the choices taken today. This paper does not just diagnose the problem; it also offers solutions. It suggests specific fiscal rules that could be adopted by the Government of Azerbaijan to reduce volatility and improve the quality of public spending. It provides options for enforcing these fiscal rules. And it makes recommendations on improving the credibility of fiscal policy through enhanced transparency and accountability. The readers of this policy paper will be informed about the outcomes of retrospective analysis of oil revenues in Azerbaijan as well as various options in management of oil revenues within the scope of current and perspective opportunities.