The World Bank's Strategy in Azerbaijan: 2007-2010
Over the past few years, Azerbaijan has put into place both the infrastructure needed to realize rapid growth in oil and gas exports, and a credible framework to manage the increase in resource flows in a reasonably effective and transparent manner. The World Bank Group has been actively engaged in both tasks – through IFC in building the oil pipelines which are now generating the oil boom, and through IDA in establishing the institutions responsible for safeguarding and using the resources well.
As Azerbaijan’s known reserves are more limited than is the case for many other oil exporters, however, the resource boom will also be more shortlived. The challenge facing the Azeri leadership and its international partners will therefore be to use the next 10-15 years very carefully to develop sound growth opportunities in the non-oil economy and achieve sustainable reductions in poverty for current and future generations.
Azerbaijan was among the world’s leading oil producers in the late 19th century, but during the Soviet period exploitation of Azerbaijan’s oil resources was not a high priority and economic policies left little to show for the country’s oil wealth and much of its population in poverty. Since independence, oil and gas discoveries have given Azerbaijan new means of combating poverty and developing into a diversified, sustainable middle-income economy in the coming years. Driven by the new oil boom, per capita income rose to US$1,240 in 2005, up from a post-independence low of just US$470 in 1995.
Azerbaijan’s challenge is to use its oil revenues to stimulate sustainable broad-based growth and ensure the welfare of current and future generations. As Azerbaijan’s known reserves are more limited than is the case for many other oil exporters, however, the resource boom will also be more shortlived. The challenge facing the Azeri leadership and its international partners will therefore be to use the next 10-15 years very carefully to develop sound growth opportunities in the non-oil economy and achieve sustainable reductions in poverty for current and future generations. The long-term vision is for Azerbaijan to become a prosperous transit center for energy and goods flowing between Europe and Central Asia.
Azerbaijan is just completing a first PRSP period, and is now developing a new State Programme on Poverty Reduction and Sustainable Development (SPPRSD) for 2006–15. The Bank Group’s CPS reflects the objectives of the SPPRSD, which are closely aligned with the vision and challenges mentioned above. The CPS rests on four main pillars: (i) improving the quality and transparency in public sector governance; (ii) supporting sustainable and balanced growth of the non-oil economy; (iii) increasing the quality of and access to social services; (iv) improving environmental management and furthering the climate change agenda.
Primary risks to achieving CPS objectives include: possible delays or waning consensus in implementing structural reforms; state capture and corruption; deterioration in financial management of oil revenues, disruptions in revenue flows due to volatile energy prices, output or pipeline performance; and deterioration in the political or security environment. These risks are mitigated by a strong emphasis on macroeconomic management and sterilizing excess oil revenues. The risks are also mitigated by the strong focus of the CPS on improving governance and financial accountability, diversifying sources of growth, and expanding participation of the civil society in policy making and monitoring.
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