With rising oil prices Society is looking forward to a sharp increase in wages, benefits and other budget allocations. Getting no clear explanation in a situation where the hopes were not realized, it continues illusory dream and criticize government policy.
Our Institute will attempt to clarify this question.
One of the most pressing economic issues - how to dispose of revenue from oil and gas exports. The main problem is their sudden and unpredictable change. Accordingly, fiscal revenues and foreign exchange earnings to the country rising or falling. Full use of oil rents will inevitably lead to sharp fluctuations in government spending and exchange rate, which has a negative impact on investment and economic growth. The Establishment of the Petroleum Fund helps smooth out macroeconomic variables, saving part of the oil and gas revenues in the period of good conjuncture, in order to use them later at lower international prices. However, such a policy does not suit people who believe that life is not eternal.
But populism to use the additional revenue can lead to undesirable consequences.
The main role in macroeconomic stabilization plays a fiscal policy - it accounts for a large part of the neutralization of petrodollars. As mentioned above, the main factor is the stabilization of the Petroleum Fund of Azerbaijan Republic. We believe that another factor is the stabilization of the budget planning on the basis of relatively low oil prices and, consequently, an underestimation of budget revenues.
Systematic underestimation of revenues suggests that oil and gas prices predicted over carefully, deliberately undercounted. Such conservative prediction is widely used in the world since the revaluation of future income is much more dangerous than their underestimation. Even if the government will accurately predict whether it will be able to spend more? The analysis shows that the possibilities for this are extremely limited because of the problems laying at the intersection of the budgetary and monetary spheres.
Moreover, if the task with the higher oil prices to keep the old exchange rate and inflation, it is important to give up the increase in government spending. This is explained by the necessity to neutralize not only withdrawn in the budget of foreign exchange earnings, but also the fall in the economy of the indirect spin-offs in connection with the expansion of government investment.
Thus, we come to the unexpected conclusion: the possibilities of using state excess revenues from high oil prices very low. In the presence of inflation targeting and exchange rate at any time there is a limit on the possible use of the economy and the state oil and gas revenues.
A further rise in the cost of oil requires either output targets for monetary policy, or the optimization of budget expenditures. Trying to spend at the same time additional budget revenues leads to a loss of revenue due to lower exchange rate, or to the impairment of assets due to inflation .
During the period of higher oil prices and gas it is advisable to exempt from the additional load and stimulate exports in the non-energy sector.

Natig Shirinzade,
PH.D,Chairman of Institute of Global Economic Problems