Azerbaijan increases minimum wage

Azerbaijan is to increase the minimum monthly wage from ₼180 ($110) to ₼250 ($150) as of 1 September.

This is the second rise in the minimum wage this year after in March it went up from ₼130 manats ($76).

On 18 June Azerbaijani President Ilham Aliyev signed 17 orders, which included raises for employees in several state-funded institutions by up to by 40%.

The salaries of teachers working in state vocational training institutions will rise by an average of 20%, depending on their skills and experience.

Aydin Mirzazade, a member of the ruling New Azerbaijan Party’s Political Council, told local media that Azerbaijan had not taken such radical steps to increase wages before in its history.

Mirzazade said that increasing the minimum wage would affect the incomes of 1 million people. 

‘About 600,000 people are working in the state sector and their minimum wage will grow. About 350,000 people work in the private sector and their salaries will grow. These increases are the result of the policy pursued by the country’s leader’, he said.

Natig Jafarli, an economist and the executive secretary of the opposition ReAL Party told OC Media that one of the main reasons for the decision was a recent statement by the Statistical Committee of the Commonwealth of Independent States (CIS) according to which Azerbaijan fared poorly compared to other countries in the region, including neighbouring Armenia.

‘These official figures became one of the key factors driving the Azerbaijani government. This recent increase in wages and the minimum wage will lead to significant progress in Azerbaijan’s [ranking in terms of] minimum wage and the average wage in the CIS.’

Economist Zohrab Ismayil wrote on Facebook that the increases would put Azerbaijan in 5th place in the former Soviet space, after the Baltic countries and Russia, in terms of the average wage. Azerbaijan will have the highest average wage of any of the European Union’s Eastern Partnership countries, he added.

Possibility of inflation

Natig Jafarli warned that there is not enough money in the current budget to cover increased salaries of this magnitude and that additional funds would need to be found. ‘The only source of additional funds is the Oil Fund in Azerbaijan’, Jafarli said. 

According to him, ‘the economy depends on the energy sector’. ‘There is a very primitive economic model in Azerbaijan; 91.2% of exports depend on oil, oil products, and gas. Real estate sector growth is very weak’, he said. 

‘Fifty per cent of the 2019 budget is directly formed from the Oil Fund. In addition, oil indirectly accounts for around 15%–20%. About 70% of the budget depends on direct and indirect oil revenues.’

According to him, because of the increased salaries, the government will have to take ‘at least $2 billion’ from the Oil Fund in order to avoid devaluation.

‘We can see that the next wave of devaluation could take place at the end of the summer and early September. The manat may drop by about 15%–20%’, he said.

According to him, because the government receives money for oil in dollars, such a devaluation would save them ₼2 billion–₼2.5 billion ($1.2 billion–$1.5 billion), which they could use to fund the increased salaries. ‘There is a very big possibility that such a step would be taken’, he said.

Jafarli also said that salary and pension payments have a direct connection with inflation.

‘The increase in wages is a key factor in the rise of prices. If there is a devaluation of about 15%-20%, then we can expect to see double-digit inflation in Azerbaijan starting in the autumn’, he said

MP Aydin Mirzazade said that the increase in salaries will not lead to price increases.

‘An increase in wages took place earlier, at the beginning of the year, the first wave of salary increase by presidential decree. If prices were going to go up, then it would have happened. At present, there is no reason to worry.’

Independent MP Rufat Guliyev also told local media that he does not understand the relationship between salary growth and the devaluation of the manat. He said that if there is no sharp change in oil prices, devaluation cannot happen. 

‘It is a world practice, economic theory. There is no question of the impact of wages on devaluation, but the impact is a slight one. I do not predict that this can happen. The price of oil would have to fall dramatically for this.’

Guliyev insisted that inflation was under control. ‘Naturally, increasing salaries will affect inflation somewhat. This is the law of economics. The impact on inflation is dependent on the widening of salaries. Inflation could be 0.5%–1%, but this is a necessity.’

The draft amendments to the 2019 state budget have already been submitted by the president to the Azerbaijani parliament, the Milli Majlis.