Application of the rule is to contribute to reducing the state budget dependency on oil revenue volatility and considerably strengthen aggregate fiscal discipline. The fiscal rule sets a mechanism for calculating – based on the country`s net financial assets – the upper limits both on oil revenues to be spent in a particular fiscal year and on a consolidated budget expenditure.
It is aimed at preventing sharp increases in budget expenditure in the years of high crude oil prices even if it can be afforded by net financial assets, thus constraining the procyclicality of the fiscal policy.
The pursuit of a countercyclical budgetary policy in accordance with the advanced international experience is of crucial importance as country enters into a post-oil era.
The new rule is a vital element of the reforms, which are being implemented in Azerbaijan under the leadership of President Ilham Aliyev with the aim of diversifying the economy.
The new fiscal rule was voted into law by Milli Majlis (Parliament) of Azerbaijan on June 29, 2018.
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