Azerbaijan's demand for the foreign monies has come off for long. Currently Azerbaijan itself provides credits to foreign countries. The first $200mln credit (under 1% interest rate per year) will be provided to Georgia within the construction of the Georgian section of Baku-Tbilisi-Kars railway. In addition, the limit for the external borrowings will amount to AZN 1.2bln which is practically two times more than the figures of the last year. But why not? Why not to borrow from the World Bank if the credits are provided under low interest rate and other conditions are available and correspond to those which we wish to achieve?
Long-term credits are profitable to Azerbaijan as borrowing necessary money today one can timely and expediently put them in an appropriate sector and can see the effect, while the credit can be returned in several years. Azerbaijan has the opportunity to cover all its foreign liabilities, but the Government considers that unreasonable. Drawing funds under privileged interest rates, Azerbaijan use the money in world markets, thus receiving additional benefit. Notably, Azerbaijan received most of the credits under 0.75-1% annual privileged rate.
Increase in incomes per capita made several international financial organizations remove Azerbaijan from the list of the countries receiving privileged credits. Leaving the rating of poor countries with the GDP of $800 per capita, Azerbaijan three years ago passed to the category of countries receiving credits under commercial terms. According to official forecasts, GDP in Azerbaijan will increase from current $2,200 to $3,000 per capita by the end of 2007. According to the experts of the World Bank (WB), in this case it would be more expedient to allot privileged credits to poorer countries, American countries in particular. Azerbaijan agrees with the standpoint.
At the same time neither financial activity in the world is implemented without credits. Therefore, the problem is not whether to take credits or not, but under which terms to take them. For instance, now there is no necessity in full-scale support to Azerbaijan state business and replenishment of currency reserves, instead of which Azerbaijan has to fulfil all requirements of international financial institutions (IFIs) which are sometimes unacceptable to the country. Now more precise projects are developed in selected fields. There are a plenty of fields - education, health, transport, institutional development, where the funds of international banks can provide for respectively cheap and long-term credits accompanied by know-how and experience in solution of analogical problems in other countries.
Development of economy in Azerbaijan changes the policy of the country towards IFIs. Azerbaijan has been maintaining a consultative form of cooperation with the International Monetary Fund (IMF) for some three years. Azerbaijan rejected credits and is paying off its liabilities in accordance with the schedule. The reason is that for a long time Azerbaijan has not been in need of stabilizing credits of the IMF and has been having budget surplus. In February 2006, Azerbaijani Government rejected extension of the Poverty Reduction Support Credits (PRSC) allotted by the WB. The matter is the funds allotted within the framework of the project in separate tranches in the sum of SDR 20mln were used to cover budget deficit. However, improvement of the situation in payment of foreign liabilities in Azerbaijan removed the need in the funds of the WB allotted for this purpose, which were a heavy weight for Azerbaijan.
During the years of working with international organizations Azerbaijan gained experience in communicating with them, became more discerning while selecting projects and credits intended for their implementation. Before receiving an offered credit Azerbaijani experts analyze it and in case the terms of the project do not correspond to Azerbaijan's interests they demand to reconsider them. Thus, Azerbaijan prefers the projects of the WB for this financial institution can compromise with Azerbaijani Government. For instance, the project on WB's new strategy for Azerbaijan for 2007-10 (CSP) had a plenty of disputable points which were eventually resolved in favour of Azerbaijan. WB took all notes and requests of Azerbaijan into account. Moreover, for the first time in such kind of documents WB indicated problems of occupation of Azerbaijani lands, problems of refugees and internally displaced persons and their harmful effect upon the economics of the country.
Moreover, virtually all international creditors, including WB, have a plenty of different terms regarding the way of spending the money, such as where you should order the work required for re-structuring, how you should pay for it and so on. One has just to take an active position. The terms appropriate to us should be the subject of an action. Practice shows that the charter of the WB is not an indestructible concrete wall. In any charter it is possible to find loopholes, by-pass routes. The only required thing is qualified staff.
Meanwhile, Azerbaijani economics experiencing an important boom period due to high incomes from sale of natural resources enabling the republic to move forward with his status of a middle income level country makes Azerbaijan one of the most interesting countries in the policy of International Financial Institutions (IFIs). According to WB forecasts, Azerbaijan will face great changes in next 15 years: GDP per capita will increase 4 times and there is a probability to face high risks, including 'Holland Syndrome'. In this case WB having good experience in this field will support Azerbaijan and share its experience with the country. According to IFIs, Azerbaijan still needs practical advises and IFIs will assist Azerbaijan when required.
Unlike IFIs, WB allots funds to Azerbaijani Government for different projects. Amount of privileged loans allocated by WB to Azerbaijan is decreasing each year. Almost for two years Azerbaijan has been receiving combined loans from WB. Thus, $70mln was intended for 2006 financial year, but Azerbaijan succeeded to receive $105mln from privileged funds for three projects - agricultural development and crediting, reforms in judicial and health systems. Limit for Azerbaijan in 2007 financial year made up some $80mln, and 50mln is expected to be allotted for 2008. It is planned to allot $20mln for accounting projects in corporative and public sectors of Azerbaijan and for the third reform stage in education system. In 2009 financial year WB will stop financing of Azerbaijani projects at privileged terms and will turn to work with commercial loans.
Profitability of foreign credits, including commercial, first of all proceeds from the fact that IFIs are interested in using the best approach, rendering experience, holding international tenders. The first international creditor insists on spending of the funds allotted by it under a clear and transparent control. Participation of IFIs enables to establish a serious control over implementation of projects, efficient development of feasibility study. Furthermore, monitoring of project implementation is held every quarter, and an audit is held annually. The problems are different, that is whether transparency is maintained in Azerbaijan.
This term is important for Azerbaijan. The country itself should be interested in maintaining a financial order if it receives a loan for a worthy project which has to be implemented immediately without waiting for the funds to be allocated from the public budget for this purpose in several years.