Azerbaijan

ISO3
AZE
Date of publication
August 2013
Geographical focus

Poverty remains a major challenge in
Azerbaijan, where income poverty is spread throughout the
country. This Poverty Assessment reviews available household
data, which suggest particular demographic characteristics
of the poor - no significant differences in the poverty rate
by gender of the household head were recorded. However, the
report conveys the internally displaced people, are a core
group of particularly vulnerable people, heavily dependent
on state transfers, and donor assistance. Moreover, there
are serious concerns about the non-income indicators of
poverty, including the quality of health care, and
education, as well as access to basic services. The report
however highlights that the macroeconomic outlook for
Azerbaijan is positive, and, it should be possible to
achieve significant impact on poverty over the next ten
years, provided appropriate policies are followed. The oil
and gas windfall should be a major benefit, contributing to
lasting poverty reduction, and raising incomes. The strategy
for poverty reduction stipulates the need for increased
employment rates, and productivity in the non-oil economy,
accompanied by measures to strengthen, and improve the
provision of basic services, and infrastructure. Likewise, a
well-targeted social assistance provision for vulnerable
groups should be considered, if a sustaining economic growth
is to be attained, to be accompanied by targeted programs,
focused on education and health programs. In addition,
positive economic growth should be based on a vibrant
private sector, resulting from a more liberal business
environment, improved financial intermediation and credit
availability to the enterprise sector, supported by a clear
legal framework, and implementation of the privatization
program, to enhance investments in human and physical
capital. Regarding the rural sector, while the strategy
should aim at improving the incomes of the rural population,
it should however emphasize the development of
non-agricultural activities, i.e., food processing, and
services in rural areas.

Date of publication
June 2013
Geographical focus

The study reviews the performance of
four transition countries - Albania, Azerbaijan, the Kyrgyz
Republic, and Moldova - in the areas of private, and
financial sector development, identifying both their
achievements, and challenges, to extract beneficial reform
efforts, and alternative approaches, setting the pace for
sustainable growth. These countries were selected because
they are among the poorest in the region, whose problems are
seemingly intractable, and have been largely detached from
the international marketplace until the transition began.
Thus, in terms of history, resource endowment, and proximity
to markets they are viewed as "late reformers" in
economic development, and competitiveness, despite policy
reforms. Enterprise arrears, and soft budget constraints
have been a significant problem in many transition
economies, more often than not, manifested as some fiscal
tightening occurred to offset budget constraints. Hence, a
core challenge of the transition is to reduce the role of
government from all encompassing presence, towards a
professionally managed model, and one which provides high
service delivery, strengthens civil institutions, and plays
an effective regulatory role in a market economy. This
requires improved financial discipline, reasonable fiscal
policy, and structural adjustment, while privatization that
promotes concentrated outsider ownership, and foreign
participation, should be favored.

Date of publication
June 2012
Geographical focus

The energy sector plays a significant role in the overall economy of Azerbaijan, as in other transition countries, and the World Bank's experience suggests that without energy sector reform and financial viability the transition process is much more difficult and delayed. The objective of this report, therefore, is to outline the issues and options facing Azerbaijan as it develops and implements its agenda for reform of the energy sector in order to inform the country's dialogue on this subject and the associated decision making process. The report focuses on seven key topics: Oil Revenue Management; The Petroleum Sector; The Gas Sector; The Power Sector; The Regulatory Environment; Energy and the Environment; And Social Issues in the Energy Sector. Each section of the report can be read as a stand-alone document; as a result there is some duplication between sections. Each section includes a summary followed by a more detailed discussion of the issues and options. Moreover three appendices are included. The first discusses the factors influencing oil prices, the second outlines the liberalization process and the regulatory models adopted for the gas sector in a number of locations and the third summarizes The State Program for the Development of the Fuel and Energy Sector of the Azerbaijan Republic (2005 - 2015).

Date of publication
July 2013
Geographical focus

Azerbaijan's early transition to an
independent, market-based economy has been tumultuous,
entailing significant economic costs, and social impacts.
Yet, unlike many transition economies, sound economic
reforms since 1995, have enabled the country to achieve
macroeconomic stability, and resume growth. Notwithstanding,
the impact on poverty reduction has been modest,
particularly in the case of the urban poor who did not
benefit from land reform. To this end, the Government is
committed to a poverty reduction program, through
macroeconomic and structural reforms, to alleviate poverty
and improve living conditions. This report looks at the role
of trade and investment in reducing poverty, taking into
account the fact that the oil sector, expected to be the
primary driver of growth, accounts for 75 percent of the
total increase in real output. Although projected growth in
the non-oil sectors is 6.3 percent, and while relatively
slow compared to the expected rapid growth in the oil
sector, it would be a significant improvement over the
average 3.8 percent growth rate achieved between 1995 and
2001. This base case growth scenario would reduce the
incidence of poverty from 50 percent, to 30 percent, and
would reduce the share of those in extreme poverty from 17
percent, to 7 percent by 2010. The report stipulates the
exchange rate does not appear to hamper competitiveness, but
remains a future challenge. Given the fact that private
sector is liquidity constrained (the capital market is
underdeveloped), fiscal policy will provide main policies to
manage the oil windfall successfully, as well as
accumulating the excess oil revenues in the Oil fund abroad,
providing a fiscal sterilization, thus avoiding excessive
real exchange rate appreciation. This study is a diagnostic
of the non-oil trade and investment environment in
Azerbaijan. Its primary objective is to define a strategy
for enhancing competitiveness at the macro- and
micro-levels, and increase trade and inward investment in
the non-oil sector to assist in poverty reduction efforts.
The strategy implements one of the key objectives of the
Government's program, i.e., enabling income generating
opportunities, and jobs in the non-oil sector. The
analytical approach includes such program; and various
strategies and analyses of the Government, donors,
international financial institutions, private sector groups,
and NGOs; relevant analyses of the Bank and International
Monetary Fund (IMF); as well as three assessments conducted
for this report: an analysis of administrative barriers to
inward investment; an evaluation of trade policy and market
access agreements of Azerbaijan, including issues related to
the World Trade Organization (WTO) accession; and, a pilot
study of the potential for a fruit and vegetable processing cluster.

Date of publication
July 2013
Geographical focus

Azerbaijan's early transition to an
independent, market-based economy has been tumultuous,
entailing significant economic costs, and social impacts.
Yet, unlike many transition economies, sound economic
reforms since 1995, have enabled the country to achieve
macroeconomic stability, and resume growth. Notwithstanding,
the impact on poverty reduction has been modest,
particularly in the case of the urban poor who did not
benefit from land reform. To this end, the Government is
committed to a poverty reduction program, through
macroeconomic and structural reforms, to alleviate poverty
and improve living conditions. This report looks at the role
of trade and investment in reducing poverty, taking into
account the fact that the oil sector, expected to be the
primary driver of growth, accounts for 75 percent of the
total increase in real output. Although projected growth in
the non-oil sectors is 6.3 percent, and while relatively
slow compared to the expected rapid growth in the oil
sector, it would be a significant improvement over the
average 3.8 percent growth rate achieved between 1995 and
2001. This base case growth scenario would reduce the
incidence of poverty from 50 percent, to 30 percent, and
would reduce the share of those in extreme poverty from 17
percent, to 7 percent by 2010. The report stipulates the
exchange rate does not appear to hamper competitiveness, but
remains a future challenge. Given the fact that private
sector is liquidity constrained (the capital market is
underdeveloped), fiscal policy will provide main policies to
manage the oil windfall successfully, as well as
accumulating the excess oil revenues in the Oil fund abroad,
providing a fiscal sterilization, thus avoiding excessive
real exchange rate appreciation. This study is a diagnostic
of the non-oil trade and investment environment in
Azerbaijan. Its primary objective is to define a strategy
for enhancing competitiveness at the macro- and
micro-levels, and increase trade and inward investment in
the non-oil sector to assist in poverty reduction efforts.
The strategy implements one of the key objectives of the
Government's program, i.e., enabling income generating
opportunities, and jobs in the non-oil sector. The
analytical approach includes such program; and various
strategies and analyses of the Government, donors,
international financial institutions, private sector groups,
and NGOs; relevant analyses of the Bank and International
Monetary Fund (IMF); as well as three assessments conducted
for this report: an analysis of administrative barriers to
inward investment; an evaluation of trade policy and market
access agreements of Azerbaijan, including issues related to
the World Trade Organization (WTO) accession; and, a pilot
study of the potential for a fruit and vegetable processing cluster.

Date of publication
July 2013
Geographical focus

Tariffs are low in Azerbaijan and need
to be raised to finance badly needed network maintenance and
to balance supply and demand. This study presents an
analysis of the short-term impacts of a 50 percent
electricity tariff increase on residential consumers. The
study starts by reviewing electricity tariffs, consumption
levels, and expenditure patterns compared to neighboring
countries. It then considers the welfare effects o f raising
tariffs, with particular attention to the poor and other
vulnerable groups. It concludes with potential links to
agriculture, the environment, and stakeholder analysis.

Date of publication
April 2015
Geographical focus

This country note for Azerbaijan is part
of a series of country briefs that summarize information
relevant to climate change and agriculture for three
countries in the Southern Caucasus Region, with a particular
focus on climate and crop projections, adaptation and
mitigation options, policy development and institutional
involvement. The note series has been developed to provide a
baseline of knowledge on climate change and agriculture for
the countries participating in the regional program on
reducing vulnerability to climate change in Southern
Caucasus agricultural systems. This note for Azerbaijan was
shared with the Government and other agricultural sector
stakeholders and used as an engagement tool for a National
Awareness Raising and Consultation Workshop, held in Baku in
March 2012. Feedback and comments on the note from this
consultation process have been incorporated into this
updated version in collaboration with the Azerbaijan
Ministry of Agriculture.

Date of publication
February 2013
Geographical focus

The Country Environmental Analysis,
presents a review of environmental priorities, public
environmental expenditures and the supporting institutional
framework and makes recommendations to improve the
efficiency and effectiveness of public environmental
expenditure in Azerbaijan. The focus is to identify areas
for improvement and changes to ensure that the process of
establishing environment-related priorities is sufficiently
comprehensive. The report concludes that investment
effectiveness is key to environmental improvements and
without significant political backing, monitoring
environmental progress will continue to be based on
individual project records. Also, without a clear decision
on monitoring, the State Environmental Program will fall
short of its potential. The report makes specific
recommendations to fulfill the objectives and address the
challenges identified.

Date of publication
March 2012
Geographical focus

Government of Azerbaijan (GoA) and the
World Bank have a long history of partnership in addressing
the needs of Internally Displaced Persons (IDPs) in the
country. The purpose of this study was to start identifying
gaps and areas for further engagement. The report would not
have been possible without the support of GoA counterparts.
The report pursues the argument that in order to expand the
choice of IDP livelihoods it is possible to build upon and
extend economic activities in which they are already
involved and which are currently unprofitable. Indeed, the
report shows that many IDPs do seek to supplement their
household incomes through a range of strategies but, due to
a series of constraints, these strategies neither provide a
viable employment source nor bring in substantial incomes.
The report concludes that, two decades after their forced
displacement, the IDPs' economic and social development
still lagged behind that of the rest of the non-displaced
population, and they needed continued support. Therefore,
targeted investments by the GoA to support IDPs are
justified and are still required to address their specific vulnerabilities.

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