Wb azerbaijan's partner for many years

Analysis Materials 26 December 2006 12:05 (UTC +04:00)

In difference to the International Monetary Fund, Azerbaijan's attitude towards the World (WB) has been always characterized with mutual understanding and stability. Joint project between the Government of Azerbaijan and WB have always reached efficiency in every sphere, first of all because WB takes into consideration the peculiarities of the country investing in the sphere in more need.

Next year a new Country Partnership Strategy (CPS) covering 2007-2010 will replace the traditional Country Assistance Strategy (CAS). CPS reflects the tasks of the State Program Poverty Reduction and Growth Facility in Azerbaijan in 2006-2015 and pursues 4 goals improvement of transparency and quality of governance, support to sustainable development of non-oil sector, increase of quality of the social sector and improvement of environmental management. The total budget of the strategy adopted at the WB Board of Directors on 7 December 2006, is $1,260mln, or $350mln a year in average.

The previous strategy ended in June 2006 in connection with refusal of the Government of Azerbaijan from the rest two installments. The point is that the funds under the project were sent with different installments in the amount of 20mln. SDR were directed at covering the budget deficit, whist the improvement of the situation in the country with repayment of debts removed the need in these funds, which were burden on Azerbaijan's foreign debts balance.

In 2007 fiscal year WB plans to allocate a total of $350mln within the framework of a new strategy with Government of Azerbaijan. Some $80mln of the funds will be allocated by the International Association for Development and the rest part the International bank for Reconstruction and Development (IBRD). IAD funds will be mainly spent on improvement of the state administration system, where special weight of technical assistance is high, as well as projects in the social sector and projects requiring improvement of skills. IBRD funds are allocated for financing the infrastructure projects.

Every year the amount of privileged credits in WB's total credit portfolio for Azerbaijan decreases. Thus, 2006 FY allocated $70mln preliminarily, but in the end the country achieved to receive $105mln of IAD funds for three projects agriculture development and crediting, reforms in court system and health system. In 2007 FY limitation for issue of IAD loan for Azerbaijan is set at $80mln, while in 2008 it is planned to allot $50mln in this respect. Over the first 2 years the WB will continue allotting privileged credits for the country through AID. In the subsequent years with the consideration of economic development of Azerbaijan, WB can cease financing the country on privileged terms and Azerbaijan will have an access only to IBRD's commercial credits, WB Country Manager in Azerbaijan, Gregory T. Jedrzejczak, notes.

Thus, following increase of incomes Azerbaijan will be gradually excluded from the list of countries receiving privileged credits. The countries with per capita GDP not exceeding $1,280 are included in this list. Azerbaijan has exceeded this level of income, set by WB as a major criterion for issue of IAD loan. In this respect it is more expedient to direct the privileged credits to poor countries, in particular African states.

WB's experience shows that the countries that borrow on both terms, like in case with Azerbaijan, they prefer spending IAD credit on social projects, whereas IBRD loan on infrastructure projects. The countries with average level of incomes inline with the world standards use IBRD credit for their own projects in any sphere ranging from agriculture to infrastructure projects.

According to WB, Azerbaijani economy is undergoing the important period of boom in connection with big revenues from the sale of natural wealth, enabling Azerbaijan to move rapidly to the status of country with average incomes". The public budget expenses increase with high speed, which is very important for the rehabilitation of infrastructure and socials services in the country, money mass grows, there is annual increase in the non-oil sector. The Bank regards Azerbaijan as one of interesting countries in WB policy and the country with will witness tremendous changes in the nearest 15 years. Thus, in accordance with WB's forecasts, over 15 years per capita GDP in Azerbaijan will raise 4 times. At the same time there is probability for big risks, including the Dutch Disease'. Incase with WB, having large experience and skills in this sector, intends to render assistance and share experience with Azerbaijan.

Respectively, WB's country policy on Azerbaijan will change following the development of Azerbaijan. The major accent in the cooperation between Azerbaijan and WB in the nearest perspective will be replaced from the credits for support to reforms and public budget with major stress on political terms to the investment financing. In this respect we are developing some projects in the sphere of water supply, transport, etc. At present Azerbaijan has more need in consultations rather money and we are open for technical consultations at the Government's request, Mr. Jedrzejczak noted. It means the Bank will step aside from the terms put while approval of credits, while WB's consultations will be of recommendation character.

At present the Bank is eager to continue crediting in case the governmental guarantees are provided. In the cooperation with WB, changes occurred with respect to the correlation in the share of government's share in the project. So far, it ranged from 10% to 15% of the cost of the project, but now it can vary from 30 to 80%. Moreover, the country's participation share in the project increased since 2006.

Over the 4-year validity period of the Strategy, the WB intends to allocate a large sum for road construction, more than $500 mln. These projects will be financed in accordance with the terms of the International Bank for Reconstruction and Development. The privileged credits are expected to be allocated for the improvement in the systems of education, health, law enforcement bodies, modernization of the accounting standards, reconstruction of irrigation-drainage system and improvement of the water supply.

Thus, in several years CSР  will promote Azerbaijan's transition from beneficiary of funds on IAD terms to full-membership at the International Bank for Reconstruction and Development. Thus, IBRD has an experience with direct financing of regions without the government's guarantees and the WB is ready to consider it in Azerbaijan. In 2007 a combined form of crediting (IAD and IBRD) will be maintained. At present IBRD's country portfolio (2 credits worth $240mln) is equal to only 23.2% of WB total portfolio ($1.030,1mln). IBRD fund are allocated at 2% above LIBOR for the term of 12-20 years with 5 year grace period.

The International Finance Corporation will continue direct financing the private sector. It has already achieved progress in some fields and we expect expansion in its activities, Mr. Jedrzejczak assures. The Bank is also ready to intensify the activities of the Multilateral Investing Guarantees (MIGA) in the country. WB asserts that following cit in attraction of IAD credits Azerbaijan will deepen its relationships with WB group. Azerbaijan seeks for other services rather money and in this respect use of MIGA's difficult instruments can be expanded.

In general the Government's policy targets reducing foreign debts given under state guarantee. This initiative promotes decrease in country's debt burden and envisages more active and efficient investing of revenues from oil export, as well as measures on strengthening of control over big state enterprises. In the latter case it was decided to adopt annual estate of incomes and expenses, which enables to carry out control over investments. As to oil revenues, their use in the current situation of rise in oil prices remains actual. Moreover, the last forecasts almost by all analytical centers urge rise in oil prices in the near future. Perhaps, instead of passive placement of country's strategic reserves in deposits of foreign banks, in future the Government will undertake a role of active creditor of national economy.

The limit on foreign borrowings for 2007 has been extended up to 1.2 bln. AZN ($1.4 bln.). Indeed, WB has big projects. Thus, WB intends to finance the third main automobile road ($150mln), improvement of water supply system ($100mln), support of trade and transport ($100mln), treatment of oil and gas polluted areas in Absheron peninsular ($50mln), and construction of garbage reproducing plants ($150mln).

In 2006 the limit is forecasted to $600mln. Such increase is explained with the signing of credit agreements with WB in October on three projects reformation of the court system, healthcare system and the second stage of the program on agriculture development and crediting. In general, WB has allocated $105mln privileged loan on the three projects. The credits will be given to IAD (35 years with 10-year grace period under rates of 0.75% a year). Finally, the Bank's portfolio on the country, adopted in 1995, rose to $911.1mln over 35 projects, while with the consideration of stabilization loans it reaches $1,030,1..