WASHINGTON, October 21, 2010 – The World Bank Group Board of Directors today discussed a new Country Partnership Strategy (CPS) with Azerbaijan, which provides the framework guiding the World Bank Group’s assistance to Azerbaijan for 2011-2014.
The new Strategy builds on the Government’s own development priorities and centers on two key areas. The first area is focused on strengthening the non-oil economy, primarily through an improved business environment, better infrastructure, and agriculture improvements. The second area is focused on improving the effectiveness of social and community services, including health, education, social protection and water supply.
“While Azerbaijan weathered the recent global economic crisis relatively well, the crisis has underlined the need for a diversified economy, market-based policies, and strengthened social services and support,” said Asad Alam, World Bank Regional Director for the South Caucasus. “As the Government prepares to meet these emerging needs and challenges, this World Bank/International Finance Corporation strategy seeks to support the country in this endeavor.”
In recent years, Azerbaijan’s GDP has risen sharply and poverty has fallen dramatically, led by increasing oil and gas revenues. Its remarkable success in reducing poverty from 49 percent in 2001 to 16 percent in 2008 was largely driven by very high growth rates which averaged more than 20 percent for the period. This was complemented by a strong rise in wages and transfers, and a well-targeted social benefits system. However, much of the rapid growth stemmed from a large increase in oil and gas revenues which are now likely to flatten over the coming decade and decline thereafter. That’s why economic diversification and development of non-oil sector are becoming more important.
The new Strategy has a number of distinctive features. First, the focus will be on accelerating the implementation of existing projects. Second, new investments will be undertaken selectively in the areas where there is clear Government’s demand and ownership and a strong record of institutional capacity. Finally, the Bank will rebalance activities towards more analytical work and policy dialogue.
“Boosting human capital development and resolving key institutional weaknesses are going to be critical for developing the non-oil sector as a relevant source for growth,” said Joseph Owen, World Bank Country Manager for Azerbaijan. “This Strategy, with its greater emphasis on analytical services, knowledge transfer and institutional capacity building is our effort to respond to this shift in the client needs. We will also be focusing on our large undisbursed portfolio and be giving a priority to accelerating project implementation.”
For the full Strategy period of four years the Government has requested a total investment of about US$ 1 billion. In the first two years, lending is anticipated to be around US$ 380 million. With Azerbaijan’s per capita income of US$ 4,820 (Atlas method, 2009), which is now placing the country in the group of the middle income countries, 2011 will be the last year when the country will receive concessional financing from the World Bank. International Finance Corporation (IFC), the World Bank Group’s private sector lending arm, will increase its investment program to about US$ 200 million during this period.
World Bank lending will be complemented by a strong and enriched program of knowledge services. This would serve the dual purpose of informing country growth strategy and policy choices as well as the design of investment operations. The Bank will increase its analytical work in the areas of job creation and growth, poverty and inequality, financial sector, agriculture and irrigation, wastewater, and public expenditures.
The Government has agreed to partner with the Bank through a Joint Economic Research Program (JERP) where the Bank would share with Azerbaijan’s policy makers the experience and best practices of other fast growing middle income and more advanced economies. The Bank and the Government have also established a strong vehicle for policy dialogue through the High Level Economic Policy Forum, held for the first time in 2009, and expect to hold it annually during the CPS period. IFC will continue to complement this with advisory services to strengthen the financial sector and improve the environment for private businesses.
“IFC will prioritize an improved business climate, more transparent corporate governance, and greater access to finance through continued support to its banking clients and through new investments to companies in the real sector,” said Nena Stoiljkovic, IFC Director for Eastern Europe and Central Asia. “We will continue to provide advisory services to private sector clients and the Government to foster an environment in which real sector companies can thrive and contribute to the strengthening of the non-oil economy.”
Strengthening governance and institutional capacity, as a means to reduce corruption and improve public sector efficiency, will be a cross-cutting theme throughout the new Country Partnership Strategy. It will seek to address these issues at the three levels – project, sectoral, and national – with appropriately targeted instruments.
Azerbaijan’s Development Results
During the past four to five years, Azerbaijan has had some very positive development successes, including:
- Witnessing a quadrupling in its GNI per capita (using the Bank’s Atlas method) from US$ 1,270 in 2005 to US$ 4,820 in 2009.
- Reducing poverty dramatically to below 16 percent by 2008.
- Providing targeted social assistance to over 50 percent of the very poor.
- Delivering pension and social insurance benefits through ATMs for over 97 percent of beneficiaries.
- Ensuring that oil revenues are managed prudently and secured for future generations through the investments by the State Oil Fund (SOFAZ). Azerbaijan was the first country in the world to receive validation as a compliant country under the Extractive Industries Transparency Initiative (EITI) in 2009.
- Significant progress was made to improve the ease of business entry. Business registration time dropped from 51 days in the 2007 Doing Business Report to 8 days in the 2010 Report.
The World Bank’s Rural Investment Project (AZRIP) is a good example of the Bank’s contribution to the development results in the country. The Project was able to rehabilitate critical rural infrastructure (water, rural roads and irrigation systems) that benefited more than 1 million people in over 430 communities. As a result, agriculture productivity in many of these communities increased by more than 30 percent and farmers saw an increase of over 20 percent in prices for their produce.
Since joining the IBRD in 1992 and IDA in 1995, the World Bank commitments to Azerbaijan total approximately US$ 3 billion in 43 projects. Commitments from the IFC, since Azerbaijan joined in 1995, amount to almost US$ 350 million in 45 projects.