With a solid rise in income and a reduction in poverty, Azerbaijan weathered the recent global economic crisis much better than many other countries. But the post-crisis world is not free of challenges. While it withstood the crisis relatively well, the situation showed Azerbaijan’s need for a diversified economy, market-based policies and better social services.
The country has a unique opportunity to enter the ranks of higher middle-income countries, evidenced by the decline in the poverty rate from 50 percent in 2001 to 7.6 percent in 2011. While some of this improvement was driven by high growth rates, a strong increase in wages, and the introduction of a well-targeted social benefit system, much of it resulted from a jump in oil and gas revenues.
However, these revenues are likely to stagnate over the coming decade and then to decline, so the country must diversify to strengthen its economic position. Even the new natural gas fields coming into production are unlikely to compensate for the revenues that the oil sector has provided. To foster continued improvement in the economy and to increase employment rates, Azerbaijan must find new, sustainable sources of growth in the non-oil sector.
Better infrastructure is critical in Azerbaijan. Its geographical position makes it an important link between the Black and Caspian Seas and between Russia and Iran. Achieving Azerbaijan’s potential as a transit economy is essential for the stimulation of economic growth, non-oil economic development, and safety and for the reduction of poverty. Improvement of the road network has been identified as one of the priorities for production diversification for the country.
Education is another key area, and the urgency for sustainable long-term reforms has increased, given the country’s desire to join other upper middle-income countries. Enrollment rates in pre-school and higher education are still low and the quality of educational results shows room for improvement. The World Bank supports the Azerbaijan government’s education reform program through investment operations and policy advice.
Agriculture is a meaningful component of Azerbaijan’s non-oil economy and has significant potential for boosting export revenues for the country. While the sector only accounts for 7 percent of GDP, it is still a key source of jobs and is a priority in the context of food security.
In addition to financing several developmental projects, the Bank is also providing Azerbaijan with analytical and advisory services. This will serve a two-pronged purpose of informing the country growth strategy and policy choices as well as the design of its investment operations. The Bank, with the government of Azerbaijan, is also developing a multi-year Joint Economic Research Program (JERP) that will ensure continuous and timely access to policy advice and technical expertise.
Azerbaijan joined the World Bank in 1992.