Azerbaijan is not letting the global oil-price crisis interfere with its penchant for military and sports- spending. The nation’s 2016 defense budget is now set at $1.2 billion, a 21-percent increase from 2015. Despite sagging petroleum revenues and a severely weakened currency, Baku also is moving ahead with $1.2 million in financing for a European soccer championship.
The amount set aside by Azerbaijan for defense spending is hardly modest, but once again it comes up short of the über goal of spending more on defense than enemy Armenia does on its entire government budget. Before the oil-price slump, Baku had met that goal. Some analysts, however, suspected that Azerbaijan was gerrymandering figures and budget lines to puff up its military outlays and alarm Armenia.
But with the drying-up of oil revenues, Azerbaijan failed to keep the pace. Azerbaijan’s latest 2.2- billion-manat ($1.2 billion) military budget plan does dwarf Armenia’s projected defense spending (208 billion drams or $430 million), but the amount does not exceed Armenia’s total planned government spending (just under 1.4 trillion drams or $2.8 billion), like it reportedly did a few years back.
While Azerbaijan relied on energy sales for defense purchases, Armenia relied on help from Russia. The hike in Baku’s spending came just as Russia approved $200-million worth of credit for Yerevan to do some military shopping of its own.
Watching such developments, US National Intelligence Director James Clapper told Congress this month that Azerbaijan’s ongoing military buildup and economic slow-down increase the risk of a repeat Armenia-Azerbaijan war over breakaway Nagorno Karabakh.
The oil-market collapse meant that Azerbaijan in 2015 was forced to reduce by 15 percent its overall state spending. The Central Bank used up more than 60 percent of its reserves to shore up the national currency. In January, Standard & Poors downgraded Azerbaijan’s credit rating to junk status, making it more expensive for Azerbaijan to borrow money through government bonds. Baku has denied reports of asking for a $4-billion international donor-bailout.
Protests by Azerbaijanis struggling to make ends meet flared up briefly in the regions earlier this year.
Arguably, therefore, increased spending is not just about military concerns or vanity projects, but about the government's political security as well.
This week, President Ilham Aliyev approved 2-million manats ($1.2 million) in state funding for hosting the finals of the Union of European Football’s youth championship in Baku this May. Azerbaijan agreed to host the event back in relatively prosperous 2012.
Despite criticism of the government’s perceived preoccupation with PR projects, plans also remain on for the first-ever Formula One race in Baku.
The exact price tag for setting up a 6.6-kilometer race track in Baku’s downtown and hosting racers and fans remains under wraps. Sports officials only said that the cost is far less than the reported $150 million.
Gushing government media reports say that events like Formula One will help establish Baku as a home for major international sporting events – something that can only be good for the country’s international reputation and tourism prospects.
But the ultimate question is, with no end in sight to low oil prices, how much can Azerbaijan continue to pay for arms or sports?