World Bank’s Board Discusses Azerbaijan CAS

World Bank’s Board Discusses Azerbaijan CAS
and Joint Staff Assessment of the
State Program on Poverty Reduction and Economic Development

Contacts
In Baku: Saida Bagirova (994-12) 921-941
Email: Sbagirova@worldbank.org
In Washington : Miriam Van Dyck (1-202) 458-2931
E-mail: Mvandyck@worldbank.org

WASHINGTON, May 28, 2003--The World Bank’s Board of Executive Directors yesterday discussed the Bank Group’s Country Assistance Strategy (CAS) for Azerbaijan for 2003-2005 and the Joint Staff Assessment of Azerbaijan’s Poverty Reduction Strategy Paper, known as State Program on Poverty Reduction and Economic Development 2003-05 (PRSP/SPPRED). The CAS is a major World Bank document which presents the assistance that the World Bank Group aims to provide to the recipient country over a 2-3 year period. The CAS for Azerbaijan is a unified strategy of the entire World Bank Group, including IDA, IBRD and IFC, and aims to support the PRSP/SPPRED.

World Bank Azerbaijan Country Manager Akbar Noman, who presented the CAS to the Executive Board, noted that “Both the CAS and the SPPRED were received well by the Executive Directors. They commended the participatory process followed in preparing the documents and several Directors also commented favorably on Azerbaijan’s reform efforts, and wished Azerbaijan success in the implementation of the SPPRED.”

The CAS notes that Azerbaijan has made impressive progress with macroeconomic stabilization since 1995, including, notably, in its management of external debt and of investment and revenue inflows tied to the development of the oil sector. Prudent fiscal and monetary policies, including the sterilization of oil earnings through the State Oil Fund (SOFAR), have stabilized inflation in the low single digits and prevented exchange rate appreciation. But despite annual GDP growth rates averaging nearly 9% during 1997-2002, the adverse trends in output and poverty of the preceding 7 years have been only partially reversed and poverty remains a major problem. In 2001, 50% of Azerbaijan's population lived in poverty, among whom 17% lived in extreme poverty.

During the next decade, a major increase in oil revenues will begin to flow into Azerbaijan, but barring new discoveries, production is scheduled to peak in 2011 and begin to decline soon thereafter at a relatively rapidly rate. The CAS period 2003-2005 represents the critical period to prepare for this revenue inflow and ensure that it is used to benefit the country appropriately. This requires strengthened public institutions and policies to arbitrate more equitably and transparently between competing claims on resources, to stimulate growth and employment opportunities in the non-oil sector, and to reverse the deterioration in social services and infrastructure that have been important contributors to the high poverty rate. As the experience of many resource-rich countries demonstrates, it is a major challenge to manage a resource boom by designing and implementing a policy agenda that leads to poverty reduction and improves incomes as well as equity, while maintaining macroeconomic and financial stability.

The SPPRED (State Program on Poverty Reduction and Economic Development 2003-2005) represents an important milestone in Azerbaijan's ongoing efforts to elaborate a comprehensive, homegrown strategy for poverty alleviation and economic growth. It marks the start of a comprehensive dialogue on the overall development strategy between the Government and all key stakeholders. Recognizing that "poverty alleviation measures cannot be formulated just by national governments and donor organizations", the program deepens the involvement of the representatives of civil society in the formulation process. Successful implementation of the SPPRED should make it possible for Azerbaijan to meet most, if not all, of the Millennium Development Goals.

Based on the country’s priorities as expressed in the SPPRED, the Bank Group's strategy will consist of four inter-related pillars: (i) managing the oil windfall; (ii) fostering creation of jobs and non-oil growth; (iii) improving social services and infrastructure and (iv) supporting the realization of Azerbaijan's oil potential. The proposed financial assistance will include lending on the highly concessional IDA terms as well as the commencement of lending on IBRD terms in recognition of Azerbaijan’s improved creditworthiness and prospects. In addition, the IFC expects to finance both the oil and non-oil sectors. The proposed IDA lending program is expected to total around $125 million over FY 03-05, assuming satisfactory macroeconomic policies, structural reforms and portfolio performance. The program also envisages the initiation of IBRD lending in Azerbaijan, with a loan of $40 million. With accelerated reforms, IDA and IBRD lending could rise to around $160 million and $75 million, respectively. Planned projects include a Poverty Reduction Support Credit, and investments in education, irrigation, rural community infrastructure, energy, pension reform, environment and private sector development. There will also be substantial non-lending services, including studies bearing on improved trade, business environment and governance, capacity building and better data. IFC expects to provide up to $250 million to finance both ACG phase I and the BTC projects.

The Bank a works closely with the IMF and other multilateral and bilateral agencies supporting Azerbaijan's economic development and coordinates support on issues of mutual concern. The PRSP/SPPRED process is the major organizing framework for donor coordination in Azerbaijan, and the World Bank Group plays an active role in it.

For more information on the World Bank’s work in Azerbaijan, visit http://lnweb18.worldbank.org/eca/azerbaijan.nsf