Azerbaijan to increase minimum wage

The Azerbaijani parliament has proposed raising the minimum wage in the country to 500 manats [approximately $294]. According to MP Vahid Akhmedov, this will ensure a normal life for the population. Opposition politician nd economist Natig Jafarli argues that such a dramatic increase in the minimum wage will cause a new wave of inflation, and other economic levers are needed to normalize the financial well-being of the people of Azerbaijan.

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Deputy of the Milli Majlis (parliament of Azerbaijan) Vahid Ahmedov proposed to increase the minimum wage to 500 manats [approximately $294]. The last time the minimum wage in the country increased in early January 2022, and currently stands at 300 manats [approximately $176].

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According to experts, the increase in the minimum wage at the beginning of the year caused a wave of inflation, which practically “ate” the entire effect of this step of the country’s government.

Inflation in Azerbaijan continued throughout the year, and as President Ilham Aliyev noted in one of his interviews with local television, it is “imported”. In other words, the Azerbaijani economy itself is not able to keep the inflation rate at the desired level due to the unstable situation in world markets.

According to the Ministry of Finance of Azerbaijan, official annual inflation by the end of 2022 will be in double digits and exceed 10 percent. According to experts, inflation is much higher than declared. An independent assessment of inflation in Azerbaijan, unlike neighboring Turkey, is not being carried out. For example, in Turkey, estimates of inflation by independent experts are often twice as high as the official figure.

“Government must address several other issues”

According to Natig Jafarli, one of the leaders of the Republican Alternative opposition party, the MP’s proposal deserves attention, because inflation and rising prices “tortured people”, but before making such a decision the government must resolve several other issues.

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“First of all, it is necessary to remove the requirement to link the contributions of individuals to the pension fund to the minimum wage. This is very illogical. For example, a person whose monthly turnover is AZN 500 pays the same amount to the pension fund as an individual whose turnover is ten times higher. Because, according to the law, the amount of deductions is 25% of the minimum wage. In some areas of the economy, this figure reaches 50%.

This approach is fundamentally wrong. We propose to set contributions to the pension fund in the amount of 2% of the monthly turnover of an individual doing business,” Jafarli said.

He added that another problem with the current economic system in the country is the inflationary pressure on the growth of wages and pensions:

“The mere news that the minimum wage is about to increase is pushing prices up on almost all goods.

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Therefore, in parallel with the increase in wages and pensions, it is necessary to lower the level of taxes and customs duties, thereby preventing a new round of inflation.

Months earlier we proposed economic measures that remain relevant today. The value-added tax on food and medicines should be reduced from the current 18% to 2%, imported medicines should be exempt from customs taxes.

These steps can achieve stable prices for goods, nd sharply reduce inflation.

And of course it is necessary to solve the problem of monopolies in systemic and economic ways, which has become a “ulcer” of our economy throughout the entire period of the country’s independence,” Jafarli went on.

“The country should also change the rules of the pension fund. Today the fund manages our retirement savings at its own discretion, but at least our funds are not indexed, not to mention the dividends from transactions with them.

Almost half of Azerbaijan's population does not live to retirement age

According to statistics, approximately 40% reach retirement age. Among men, this figure is 47%

For example, I already have about 20,000 manats [about $12,000] in my pension account. But the purchasing power of this money is declining every year, and there is no question of any indexation.

If the problems that I have indicated are not resolved, then the next increase in the minimum wage will not lead to any real effect for citizens,” Jafarli concluded.

Azerbaijan to increase minimum wage