Broadly, two pillars of Bank’s strategy in Azerbaijan are: strengthening the non-oil economy and improving the effectiveness of social and community services. The former will be achieved through better business environment, better infrastructure and agriculture improvements, while the latter will be achieved by overhauling health, education, social protection and water supply.
The Bank, therefore, is modifying its approach in many ways. It will focus on completing the implementation of existing projects, and only consider new ones where there is a strong track record of institutional capacity. The Bank will also lean towards more analytical work and policy dialogue.
In the past, World Bank operations in Azerbaijan have had mixed results and have served as learning points for present and future projects. For instance, strong results were observed in expanding access to credit, and progress was made in improving the business environment, particularly on business registration. But much work remains to be done in other areas, especially with respect to permits and inspections, which hinder private economic activity.
Results have also been delayed in larger infrastructure projects, especially road, rail and sanitation with slow implementation and in environment efforts where progress is limited. Factors that contributed to weak performance included lack of project readiness, a sharp increase in lending even as amid a dearth of implementation capacity, lack of strong project ownership and an imbalance between lending and analytical work.
For the full CPS period of FY11 to FY14, the Government has requested a total IDA/IBRD lending envelope of about $1 billion. Actual funding would be back loaded based on the principle of starting out modestly and adjusting lending volumes to performance. Over FY11-12, lending is anticipated at about $300 million in IBRD, plus about $80 million in IDA in FY11. FY11 is the last year of IDA, after which Azerbaijan will become IBRD-only.
The biggest risks Azerbaijan faces on the road to development are social and political economy challenges, slower-than-desired progress in improving institutional capacity, implementation of existing portfolio, global economic uncertainties, and regional security issues. With better calibration to client demands and capacity, stronger emphasis on analytical services, faster implementation of the existing portfolio, and cross-cutting filter of governance, Azerbaijan can mitigate these risks.