Azernews.Az

By Aynur Karimova

Azerbaijan's state oil fund SOFAZ expects its budget for 2015 to be deficit-ridden due to the long decline in world oil prices.

SOFAZ told Trend last week that while drawing up the fund's budget for 2015, the basic parameters of the state budget were taken as a basis and the expected oil price was set at $90 per barrel.

"Taking into account an oil price of $50 per barrel, SOFAZ’s total income, including the proceeds from the sale of oil and gas are predicted at 7.4 billion manats [$7.05 billion] until late 2015, which is 28 percent less than SOFAZ’s income approved for this year," SOFAZ said.

The fund's budget expenditure, including project financing and operation expenses, will amount to 9.6 billion manats ($9.15 billion), which is 19 percent less than the approved budget expenditures.

“Thus, given an oil price of $50 per barrel, excluding the currency exchange rate differences included in the investment portfolio of SOFAZ, the fund's budget deficit by late 2015 is forecasted at 2.2 billion manats [$2.1 billion],” said the fund.

In accordance with SOFAZ's budget for 2015, its revenues are estimated at 10.25 billion manats ($9.77 billion), with expenditures t 11.81 billion manats ($11.25 billion). In the structure of expenses of the fund, transfers to the state budget of the country were provided in the amount of 10.39 billion manats ($9.9 billion).

The decrease in oil prices in the world market began in September 2014. Experts predict that the price of oil will remain at current levels for the next two years.

The International Monetary Fund expects world oil prices to amount to $52 per barrel in late 2015 and $63 per barrel in 2016. At the same time, according to the IMF, the break-even price of oil for Azerbaijan in 2016 will be $60 per barrel, while in 2015, this figure will amount to $75, and in 2014, it exceeded $90 per barrel.

At the same time, the World Bank lowered its 2015 forecast for crude oil prices from $57 per barrel to $52 per barrel. The revised forecast reflects a further slowing in global economic performance, high current oil inventories, and expectations that Iranian oil exports will rise after the lifting of international sanctions.

This is all while the World Bank has lowered forecasts for oil prices for 2016 from $61 to $51 per barrel.

Israfil Mammadov, the Deputy CEO of SOFAZ, believes that lower oil prices along with the SOFAZ’s declining revenues have some positive impact on the fund’s investment portfolio.

“We invest in many oil importing countries in emerging economies which benefit from oil prices,” he earlier told local media, adding that in this case, the decrease in oil prices has a positive impact on SOFAZ’s portfolio.

SOFAZ, an entity that accumulates and manages Azerbaijan's oil and gas revenues, was established in 1999 with an asset worth $271 million.

The main goals of the fund include the accumulation of revenues, the investment of assets abroad to minimize negative impacts on the economy, the prevention of 'Dutch disease', ensuring savings for future generations, and maintaining the current social and economic standards in the country.

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Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova

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