To lessen the budgetary impact of losing subsidies from the Soviet Union, beginning in 1992 a value-added tax ( VAT--see Glossary) and excise taxes were introduced to replace sales and turnover taxes. The new taxes enabled Azerbaijan to maintain only a small state budgetary deficit for 1992 (see table 15, Appendix). The deficit came mainly from increases in wages and from defense and refugee expenses related to the conflict in Nagorno-Karabakh. State-owned enterprises continued to survive on liberal bank credits and interenterprise borrowing, which caused the accumulation of sizable debts. Substantial increases in defense expenditures (from 1.3 percent of GDP in 1991 to 7.6 percent in 1992) drastically reduced expenditures for consumer subsidies in bread and fuels, as well as government investment and other support for enterprises. Increased salaries for civil servants also increased the 1992 deficit.

In mid-1992 Azerbaijan was not receiving enough printed rubles from Moscow to meet wage payments, so it introduced its own currency, the manat (for value of the manat--see Glossary), at that time. Because domestic financial transactions still involved Russian banks and many rubles remained in circulation, the ruble remained in circulation as an alternate currency. After ruble notes became more plentiful in late 1992, the manat remained a small fraction of circulating currency. In September 1993, Azerbaijan planned to make the manat the sole national currency, but the weakness of the Azerbaijani monetary and financial systems forced postponement of that move. The manat finally became the sole currency in January 1994.

Data as of March 1994