World Bank-Azerbaijan Partnership

A bazaar in Azerbaijan. World Bank's new partnership framework for the country aims to boost the competitiveness of its micro, small and midsize enterprises. Photo by: Francisco Anzola / CC BY The nonrenewable resource that fueled Azerbaijan’s growth during the past decade is now the reason for the contraction of the country’s economy. Oil revenues, which in 2006 contributed to Azerbaijan’s 34.5 percent economic growth, had helped boost public spending on infrastructure upgrades, the modernization of public institutions, the expanded use of ICTs, poverty and other social issues. Poverty levels dropped from 50 percent in the early 2000s to just 5 percent in 2013. The share of the middle class also improved during the period, rising from just 4.3 percent of the population to 28.9 percent by 2013. But Azerbaijan is seeing a decline in its oil resources at a time when global oil prices are dropping toward a six-year low. This and the uncertain regional economic environment have adversely affected the country’s expansion. From registering double-digit growth, Azerbaijan is now forecast to slide into a fiscal deficit this year. This has prompted to government to actively seek a new growth model based on a diversified asset base. The World Bank recently finalized its 2016-2020 country partnership framework, which aims to support Azerbaijan’s efforts to achieve inclusive, sustainable and private-sector led growth. Funding levels and priorities Azerbaijan joined the World Bank in 1992 and the International Finance Corp. in 1995. It has since received International Development Association credits and grants and International Bank for Reconstruction and Development loans amounting to $3 billion. There are 16 projects worth $2 billion in the World Bank’s investment portfolio in Azerbaijan. IFC, the bank’s private sector arm, has invested around $365 million in 54 projects and mobilized $74 million from other lenders. Shown below are the bank’s commitments to Azerbaijan from fiscal years 2011 to 2015. Under the new framework, three agencies — IBRD, IFC and the Multilateral Investment Guarantee Agency — will be working together to achieve the overarching objective of supporting Azerbaijan’s move toward sustainable, inclusive and resilient growth. The indicative resource envelope is estimated at $300 million to $500 million per year, depending on bank capacity, country demand and overall performance. Meanwhile, IFC’s investment program for the partnership period is envisaged at $100 million to $150 million. The five-year strategic engagement focuses on two strategic areas: Focus area 1: Public sector management and service delivery A bank-led diagnostics emphasized the need to strengthen fiscal management and reduce reliance on oil revenues, and to improve access to and the quality of service delivery. The World Bank will focus on helping Azerbaijan improve public sector management and realize its service delivery transformation vision. Specific objectives under this focus area are: ● Strengthen capacity for public resource management.● Support access to, and satisfaction with, public services.● Contribute to improved access to water, sanitation and communal services.● Contribute to improved quality of environmental assets. Focus area 2: Economic competitiveness The World Bank is pledging full support toward transforming Azerbaijan into a diversified economy that is based on nonoil sector growth and improved business environment, financial inclusion, agriculture and agribusiness development. The four objectives under this focus area are: ● Contribute to the development of the main transport network for enhanced international and domestic connectivity.● Support enhanced access to finance for micro, small and medium enterprises.● Contribute to reduced regulatory burden for SMEs.● Support enhanced competitiveness of agriculture and rural development. IFC interventions will focus on supporting this area by continuing and strengthening initiatives for greater financial inclusion and improvements in the business environment. At the same time, it will seek investment and advisory opportunities to support infrastructure projects, agriculture and export-oriented sectors. The bank hopes to achieve all objectives through a number of ongoing operations and new interventions, both as investment lending and technical assistance. Two crosscutting themes — gender and governance — will inform all bank activities. These two were identified in a bank-led diagnostics as critical for effective management of resources, social inclusion and accumulation of diversified assets. Devex analysis Because Azerbaijan’s oil-dependent growth model is no longer sustainable, and the government has recognized the urgent need to diversify its economy and promote private sector-led growth. The World Bank crafted its new framework around this agenda, fully cognizant of underlying risks associated with weak political and governance structures and macroeconomic instability. To mitigate governance-related risk, the bank will prioritize strengthening the institutional capacity in the two focus areas and improving program monitoring. If the macroeconomic situation in Azerbaijan continues to deteriorate, the bank will be more flexible and may introduce a development policy operation into the partnership framework, where resources from planned lending can be redirected toward budget support. The World Bank is also closely coordinating with other development partners to ensure maximum impact of aid delivery. The bank is working with the European Union on financial sector modernization, justice and education reform, and agriculture and agro-business development; with the Asian Development Bank, European Bank for Reconstruction and Development, European Investment Bank, Japan International Cooperation Agency and KfW on infrastructure development; and with the United Nations on sustainable development goals and UNDAF implementation. At this critical phase in Azerbaijan’s development, the World Bank had pledged to be fully supportive of the government’s development plans to ensure the gains in the past decade will not be reversed and, at the same time, the economy will be able to get back to its high-growth path. Contact World Bank – Azerbaijan Country Office Tel: (994-12) 492-1941 Email: