Azerbaijan’s 2027 budget: how will fall in oil revenues be offset?
Azerbaijan’s 2027 budget
The Azerbaijani government forecasts lower state budget revenues from the oil and gas sector in 2027, while tax revenues are expected to rise. Preliminary figures point to moderate growth in government spending and a greater role for non-oil revenues in financing the budget.
These changes will also affect working people. From next year, the income tax rate on salaries in the private non-oil sector will increase. As a result, higher tax payments on wages will partly drive the growth in budget revenues.
According to a statement published by the Finance Ministry on 16 September, these figures are only preliminary. The figures may change before the government submits the draft budget to parliament.
How will budget revenues and spending change in 2027?
In 2027, state budget revenues are forecast at 39.234 billion manats, while spending will reach 42.4 billion manats (around $25 billion). Compared with the approved figures for 2026, revenues will rise by 1.6% and spending by 1.7%. The difference between revenues and spending — the budget deficit — is expected to reach 3.166 billion manats (around $1.86 billion).
This comparison uses the planned figures for 2026 and 2027. If actual budget execution in 2026 differs from the approved figures, the growth rate in 2027 compared with the actual results will also differ.
Higher spending in monetary terms does not automatically mean that the state will provide more services. Price rises must also be taken into account. If maintaining schools, buying medicines or repairing roads becomes more expensive, some of the additional funding will go towards maintaining the existing level of services.
A 1.7% increase in the overall budget also does not mean that funding for all sectors will rise at the same rate. The government may increase spending in one area while cutting it in another. For citizens, therefore, the overall size of the budget matters less than which services receive the funding.
Why are oil revenues falling?
Budget revenues from the oil and gas sector are forecast at 15.48 billion manats (around $9.1 billion). This is 955 million manats (around $562 million) less than the amount planned for the current year. Of this reduction, 935 million manats (around $550 million) comes from a cut in transfers from the State Oil Fund. Next year, the government plans to transfer 11.9 billion manats (around $7 billion).
The main change, therefore, is a reduction in the amount the State Oil Fund transfers to the state budget. This should not be interpreted as an equivalent fall in the country’s oil sales revenues. The fund’s revenues and the amount it transfers to the state budget are separate indicators.
The budget will nevertheless continue to receive significant support from the State Oil Fund. The planned transfer will account for 30.3% of budget revenues, meaning roughly one in every three manats will come from the fund.
Where will the additional funds come from?
Revenues collected by the State Tax Service are forecast at 18.43 billion manats (around $10.85 billion). This is 1.52 billion manats (around $894 million), or 9%, more than the amount planned for the current year. Customs revenues will increase by just 3 million manats and are expected to reach 6.865 billion manats (around $4.04 billion).
Personal income tax revenues are expected to rise by 690 million manats (around $406 million) to 3.07 billion manats (around $1.8 billion). This is around 29% more than the amount planned for the current year.
Corporate income tax revenues are planned at 6.983 billion manats (around $4.01 billion). The government therefore expects higher tax revenues from both personal incomes and corporate profits.
The increase in tax revenues cannot be explained solely by stronger economic activity. Revenues can rise not only because of higher wages, employment and corporate profits, but also because of changes in tax rates and more effective tax collection. More detailed calculations are needed to determine how much each factor contributes.
However, the additional revenues will not be enough to cover all spending. According to preliminary calculations, the government plans to finance 2.751 billion manats (around $1.62 billion) of the 3.166 billion-manat budget deficit through borrowing. It plans to cover the remaining amount with funds left in the Treasury account and proceeds from privatisation.
Overall, the government plans to cover around 87% of the deficit through borrowing. Borrowing allows the government to finance current spending, but it also creates obligations for future budgets to pay interest and repay the debt. Assessing budget sustainability therefore requires looking at borrowing terms and how the government plans to use the funds it raises.
What will change for salaried workers?
According to an official explanation from the State Tax Service, in 2026 the tax rate on the first 2,500 manats (around $1,470) of monthly taxable income for employees in the private non-oil and gas sector is 3%. In 2027, it will rise to 5%, and to 7% from 2028.
For example, if monthly taxable income after allowances is 1,000 manats (around $588), income tax will rise from 30 to 50 manats (around $17.65 to $29.40). With the tax base unchanged, this means an additional 20 manats (around $11.80) a month, or 240 manats (around $142) a year.
This calculation covers income tax only. The final amount a worker receives after tax also depends on other mandatory deductions and the tax allowances that apply to them. The changes do not affect workers in all sectors.
If an employer does not increase the gross salary and other deductions remain unchanged, the higher tax will reduce the worker’s take-home pay. To keep take-home pay at the same level, an employer may need to increase its labour costs.
Will higher social payments offset the higher tax burden?
Vugar Bayramov, a member of the Milli Majlis Economic Policy Committee, views the expected increase in the share of non-oil revenues to more than 60% positively. He considers this important for budget sustainability. According to him, structural reforms and greater transparency in public procurement could allow the government to allocate additional funds to social needs.
Economist Natig Jafarli said on 8 September, before the publication of the preliminary budget figures, that he expected pensions and salaries for public-sector employees to rise by 8–10%. He stressed that higher social payments sometimes only offset rising prices. This is the economist’s expectation.
Even if such increases take place, it cannot be said that they will offset the additional tax burden on private-sector employees. Higher salaries, pensions and benefits affect different groups of the population.
The preliminary figures point to the following trend: as transfers from the State Oil Fund decline, the government plans to increase tax revenues. What this will mean for citizens will depend on which services receive the additional funding, as well as on how their incomes and everyday expenses change.
Azerbaijan’s 2027 budget
