Azerbaijan’s Milli Majlis has passed the second reading of a bill amending the Law on Public Debt, which could fundamentally change how state-backed loans are repaid. If adopted, the updated legislation would allow the government to cover unpaid loans—issued from the state budget to publicly funded institutions—using the Public Debt Guarantee Fund.
A Safety Net or a Backdoor to Irresponsibility?
On the surface, the move aims to ensure financial stability by guaranteeing that debts won’t go unpaid even if the borrower defaults. But economists are warning that such a system could erode financial discipline, allowing state-linked entities to take loans with little fear of consequence.
“This creates an illusion of insurance,” says economist Khalid Kerimli. “But that insurance is paid for by taxpayers. In the end, it’s the public that foots the bill for mismanagement.”
The State Isn’t a Bailout Bank
The new mechanism applies to state-created legal entities—such as public universities, transport firms, and service agencies—many of which have been criticized for poor governance and inefficient spending.
“The government should set the rules of the game, not reward failure,” says economist Vugar Bayramov. “If managers aren’t held accountable for defaults, it’s no longer support—it’s a subsidy for failure.”
Public Resources at Risk
The Guarantee Fund, which would now cover these internal debts, is made up of public funds originally earmarked for essential services like healthcare, education, and infrastructure. Diverting that money to cover unpaid loans could undermine these core sectors.
Experts are calling for clear safeguards—mandatory project assessments, risk evaluations, collateral requirements, and most importantly, individual accountability for the executives of defaulting institutions. Without those controls, the policy risks becoming a loophole for systemic mismanagement.
From Fiscal Strategy to Budget Loophole?
The proposed legislation, while designed to safeguard stability, could end up normalizing irresponsible borrowing. Instead of reinforcing financial discipline, it risks becoming a mechanism for quietly transferring bad debt from underperforming entities to the national budget—meaning all citizens absorb the cost.
Support is important. But without oversight, evaluation, and accountability, it stops being support and starts being a bailout culture. Lawmakers must remember: every “guarantee” is backed by public funds—and the public deserves transparency in how those funds are used.
