Last week was remembered with an unexpected event for Azerbaijani public. But it might be so only at first glance. If to analyze all scene one can observe that it was part of the governments policy. Thus, the Azerbaijani government refused from continuing the Poverty Reduction Support Credit (PRSC) in Azerbaijan, approved by the World Bank. The official statement on refusal from further installments under the project was made during the visit of the WB mission led by Christian Petersen, World Bank leading economist for Europe and Central Asia.
The Board of Directors of the WB approved the approval of the first installment under the PRSC on 17 May 2005. On 15 December 2005 President confirmed a credit agreement between the WB and the Azerbaijani government. The total amount of PRSC, allotted on the terms of the International Association for Development (IAD) with the term of 35 year with 10-year grace period under the rates of 0.75% per annum, is $60m. It was to be assimilated through equal installment each comprising $20m. The major direction of credits is covering a public budget deficit, while the next part will be spent on opening of new jobs.
According to Avez Alekperov, the first tranche will be approved this week. There are only technical issues to resolve and a relevant document was signed on 9 February 2006.
The Azerbaijani government planned to receive the first credit late 2004. However, the WB refused to allot the loan by that period due to non-fulfillment of the banks some recommendations by Azerbaijan. They were the development of medium-term tariff policy and medium-term plan on reforming the communal sector, as well as a draft law on regulation of communal sector and plan on restructuring the water and gas economy. In general, the bank regarded the problems as minor and therefore, there was not any serious disagreement between the WB and Azerbaijani government.
The talks on development of PRSC-2 were set up last year. Azerbaijan was to implement several recommendations to receive second installment in the amount of $20m, while some of them stipulated the continuation of actions started under the first project. There were the adoption of the bill on Investment activities, draft Code on Rivalry, strengthening of functions of the Anti-monopoly Department the Accountancy Chamber, differentiation between the political and commercial functions in the transport sector and establish departments at the Transport Ministry (railway, air transport). The Marine Administration was established under the PRSC-1.
Now Azerbaijan will receive only tranche under the PRSC in the amount of $20m, envisaged for covering the 2005 public budget deficit. The Finance Minister said there will be no need for the credit resources to cover the public budget deficit in 2007. It was the major reason that the government indicated while refusing from the credit.
Azerbaijan went to refusal from the credit step by step. In summer the government reused from the 6th tanche of the IMF credit under the PRGF. Azerbaijan received 54.71m SDR of the total 80.45m SDR under the program. Then the government openly stated it did not need the IMF credits and could do without it. The country decided to refuse the financing of IMF and continue the cooperation without any of form of cooperation.
Lets remember one more recent step by the government. The government declined to use the funds saved under the WBs the World Bank second report "Теchnical assistance to the institutional building in Azerbaijan (IBTA-2). By IBTA-2 total cost of 7‚470 million SDR, which is equivalent to $10.6 million, $5,1 will be returned to the World Bank.
The Finance Minister made the following statement to bring a light on the WBs perplexity. Following a rise in the internal resources of the country the Azerbaijani government does not intend to take more credits. first it is planned to increase the state share in the international credits attracted under the state guarantees. Earlier due to limited capacities the participation shares in every project comprised 5-10% of its total value, while it is planned to increase it to 50%. Though Azerbaijans foreign debts are comparably low than other countries debts and does not exceed 20% of the Gross Domestic Product (GDP), it is planned to reconsider a policy of attraction of foreign credits.
The government is eager to implement many projects at the expense of the internal reserves. The Azerbaijani government has taken took a decision to allot 310m euros in 2006 for the construction of module stations. Alakperov also didnt rule out a probability of repayment of some foreign debts ahead of schedule. They can be credits of the IMF, WB, whereas the public organizations, which received foreign debts under state guarantees, should themselves serve them. The IMF credits were repaid by 50% and now $212-215m is left to be repaid.
The common strategy is that the foreign debts should not be regarded as easy one and analyze the need for the capital. It is necessary to take credits only for strategically important projects, in particular infrastructure projects, he Minister of Finances said.
The logic of the government is quite clear: to make the cooperation with the WB quite applicable. So, the government should again renew a program of cooperation, enriching it with new projects, the implementation of which is almost impossible only at the expense of the budget. These are the projects on construction of roads, bridges.
On 17 January the World Bank (WB) and the Azerbaijani government signed a loan agreement on allocation of two grants within the implementation of new project Agricultural Environment of Azerbaijan at the Ecology and Natural Resources Ministry. The project consists of three major components and aims at preservation of bio species in two mountainous regions, management of natural resources, restoration of ecological health and productivity of forests in these regions.
The total value of the project comprises $17.1m with $8m falling to the loan by the International Development Association, $5m - Global Ecological Fund, $2.72m - grant by the Japanese government. The Azerbaijans share in the project makes up $1.38m.
Further it is planned to carry out a huge project with the WB with the total estimated value of some $120m, which envisages the establishment of SCADA system in the water economy. The project stipulates the establishment of automated enlightenment, distance regulation and access of information, rehabilitation of water treatment constructions.
Benefit of the foreign credits is that international tenders are held and the international financial institutes are interested in the use of better approach and experience.
These credits are very profitable, as they were allocated at 0.5% annual rates when the currency deposits in the foreign banks varies from 2% to 2.5% per annum. The WB credits are more profitable for the country due to its long-term character. They are allotted for 35- 40 years at the rate of 0.75% per annum. Therefore, we should first analyze how profitable it might be to repay them ahead of schedule. We still hold an idea that the internal resources of Azerbaijan will grow this year and therefore, it is possible to reconsider the structure of foreign loans and repay them. In general, the Minister estimated the situation with the foreign loan as good. In some countries the special weight of the foreign debt in the GDP is reaches even 70-80%, while in Azerbaijan it comprises 15-16% and never exceeds 19%.