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Countries and Regions Country Partnership Strategies Document
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Country Strategy and Program Update 2003-2005: Azerbaijan
II. Implementation of the Country Strategy and ProgramA. Progress on Poverty Reduction, Poverty Partnership Agreement12. In mid-2001, the Government formally launched the National Program for Poverty Reduction (NPPR). An NPPR Secretariat was established to guide the process of preparing the NPPR and 15 sector working groups were formed to prepare the sector inputs for the NPPR. The final NPPR will then be prepared on the basis of these inputs and unveiled at a national conference in September 2002. ADB is assisting the Government in preparing the NPPR, through assistance to the NPPR Secretariat and five of the sector working groups, as well as financing of a national workshop.3 ADB's involvement is closely coordinated with the Government's Steering Committee for NPPR and other external agencies such as the World Bank and United Nations Development Programme (UNDP). In response to Government's request, ADB will provide assistance for a follow-on technical assistance (TA) to assist with the implementation of the NPPR. In parallel with its assistance for the NPPR, ADB is initiating its poverty reduction partnership process in Azerbaijan. The preparation of a poverty analysis paper will be undertaken in fourth quarter 2002. The National NPPR Conference scheduled in September 2002 will serve as the high-level poverty forum. A poverty reduction partnership agreement is scheduled for finalization late in the fourth quarter of 2002. 13. The Government has also made considerable headway in its efforts to improve the estimates of poverty in the country. Whereas the previous most reliable official statistics dated from 1995, the State Committee for Statistics (SCS) has been able to generate reliable data from the 2001 annual household income and expenditure surveys. These new data have been made available to policymakers in the context of the preparation of the NPPR and indicate that the poverty head count has declined to 49% from the 1995 level of 61.5%. In addition, the new data indicates that an estimated 17% of Azerbaijanis lived in extreme poverty in 2001. ADB has supported the efforts of the SCS through a small-scale TA, which has helped build capacity within the agency to improve the quality of the statistical data stemming from the surveys.4 14. In the last 12 months, the Government has issued a number of presidential decrees to improve the situation of refugees and IDPs in Azerbaijan. These decrees have allocated a total of AZM391 billion ($90 million) to build 19 settlements in Bilasuvar and Fizuli regions and 1,400 houses in Goranboy region, as well as to provide food for 160,000 IDPs in resettlement camps. The greater part of the funds was sourced from the State Oil Fund of Azerbaijan, although the State Oil Company of Azerbaijan also provided assistance. ADB is currently providing support to the Government in its efforts to assist IDPs. With financing from the Japanese Fund for Poverty Reduction (JFPR), ADB has already started implementation of a project to aid IDPs in Mingechevir City5 reintegrate themselves into the economic mainstream. The project is expected to assist 403 IDP households currently crowded into a number of schools and public buildings by relocating them to a new settlement area. The school buildings will then be refurbished and made available to schoolchildren. A second project to finance new IDP settlements in Fizuli and Agdam regions is expected to be undertaken in 2005. The processing of this second project will take into account the experience with the pilot project in Mingechevir, the activities currently being implemented by the Government to assist the IDPs in Fizuli region, as well as other matters such as resettlement issues, future economic activity prospects for IDPs in the new settlement areas, and IDPs' legal title to the property in the new areas. B. Progress in the Country Strategy and Program Focus Areas15. Although ADB has approved six TA projects and two JFPR grants, ADB's lending operations in Azerbaijan have not yet begun. Delays in processing of project preparatory TAs due to uncertainty over which government agency will sign project-related documents is the main cause for this slowdown. This uncertain nature of lending operations in Azerbaijan makes it difficult to systematically pursue strategic sector objectives as envisaged in the IOS. ADB has maintained regular dialogue with the Government to minimize these uncertainties. The momentum will be sustained and additional efforts made to engage the Government on outstanding issues affecting lending and non-lending operations during the high level missions in the last quarter of 2002 for finalization of NPPR and the poverty partnership agreement. The planned setting up of a resident mission in late 2002 or early 2003 and the initiation of analytical work during 2003 for CSP planned for 2004, would also provide an opportunity to deepen ADB's dialogue with the Government and review and improve the strategic partnership with World Bank and EBRD. Within the above context, ADB has kept its focus in the next year's operations on assistance for IDPs, and three sector priorities: agriculture and rural development, water supply and sanitation, and roads. 1. Sector Priorities16. Given the reasons stated above, ADB's progress to date in meeting the sector objectives of the existing IOS is relatively modest. In the agriculture and rural development sector, ADB has recently approved a project preparatory TA to assist the Government prepare an investment project to reduce the adverse impacts of flooding in the northwest region of Azerbaijan.6 In the water supply and sanitation sector, ADB approved in November 2001 a project preparatory TA to assist the Government identify and prepare an investment project to rehabilitate water supply and sanitation services and provide institutional restructuring in selected towns. 7 In addition, the project will analyze the water supply and sanitation sector in secondary towns to identify the main institutional, technical, and financial constraints to efficient service delivery. In the road sector, ADB is planning to finance two loans for improving the central and the southern Azerbaijan road systems. These would be aimed at rehabilitating and improving existing highway infrastructure, as well as improving rural roads connected to the main road network. ADB's policy dialogue in the sector would include enhancing the policy-making and regulatory capacity of the newly established transportation ministry, improving road safety, reducing vehicle emissions, and introducing private participation, especially in road maintenance and the financing of road projects. 2. Thematic Priorities17. The analysis provided in the Country Strategy and Program Update (2001-2004) regarding ADB operations vis-à-vis thematic priorities remains valid. Updating is provided on a selective basis, to present some specific progress or issues that may have particular implications for future operations. (i) Human Development18. Although Azerbaijan's human development index improved marginally from 0.738 in 1999 to 0.741 in 2000, social indicators, including the infant and maternal mortality rates, in Azerbaijan have not improved significantly in recent years. The main reason for the lack of improvement is the continuing decline in the budget for social services, in particular for health care, compared to the levels existing during the Soviet period. For instance, the Government budget for health care represented only 1.0% of GDP in 1999, compared to 1.5% in 1996 and 2.6% in 1990. Azerbaijan's budget share for health care is currently the second lowest among the former Soviet republics, and far below the average of neighboring Central and Eastern European countries. Public health expenditure per capita was $146 in purchasing power parity (PPP) terms in 1990 and was $26 in PPP terms in 1997. State education expenditure in 1999 was 3.4% of GDP, a decline from 6.9% in 1990. Better quality of education and efficient allocation of budgets are needed to sustain the high achievements in the past and further improve human capital development in the country. Social and environmental indicators are given in Appendix 1, Table A1.3 and Table A1.4.8 19. In pursuit of the IOS objective of enhancing human development, ADB's assistance will focus on addressing the most pressing basic needs of the population. As described earlier, ADB's assistance for the IDPs, through development of social infrastructure in selected locations, will address the basic human needs of this severely disadvantaged group. ADB's planned assistance in developing basic infrastructure services, such as water supply and sanitation in secondary towns, will also improve the living conditions of the affected population. Finally, ADB's assistance for early childhood development will aim at providing integrated child development support for children between 0 and 8 years of age. The project is expected to be policy-oriented, community-based, and to cover various areas, such as maternal and child health (including immunization), micronutrient deficiency, and early child care and education at the community level as well as at state-run preschool institutions. ADB will work closely with UNICEF, which is providing assistance for maternal and child health care. (ii) Good Governance20. The Government has recently undertaken a major restructuring exercise and the World Bank is assisting the Government with public sector reform. ADB's assistance for governance will carefully take into account these activities, as well as the results of the Government's NPPR, in determining its future strategy. ADB has initiated work on a governance assessment and this work will be completed in 2003. The governance assessment will be a key input into future policy dialogue and ADB operations. (iii) Private Sector Development21. In line with the IOS strategy for assisting non-oil sector development, ADB will help develop small and medium-sized enterprises (SMEs). As a first step, ADB will provide capacity-building assistance for MOED, which is responsible for SME development. Second, advisory TA will be given to MOED in 2003 to examine and further develop the recently prepared State Program for the Development of Small and Medium Enterprises in Azerbaijan (2001-2003) and to formulate a policy on competition. Depending on the results of these activities, a loan for SME development could be considered in 2006 (project preparatory TA is scheduled in 2005). Assistance to SMEs will have an important impact on the country by helping it achieve more balanced sector and regional development. 22. ADB will closely investigate possible support for private sector activities in Azerbaijan. A private sector assessment, planned to start in the fourth quarter of 2002, will review the Government's policy on restructuring and privatization in the various sectors. (iv) Environmental Protection23. Environmental degradation is widespread in Azerbaijan, and little progress has so far been made during the ongoing transition to a market economy. Among the many problems are the issues of quantity and quality of water resources, wastewater treatment, and land degradation. In its proposed assistance for flood mitigation, ADB will assist in addressing related land degradation issues, including inefficient watershed management. In addition, ADB will investigate possible support for environment activities in Azerbaijan. An environment assessment planned for the fourth quarter of 2002 will review the Government's policy on the environment and recommend areas where ADB may be able to assist. (v) Regional Cooperation24. Due to Azerbaijan's geographic proximity and similarities in terms of transition experiences, ADB's support will have a strong focus on subregional economic cooperation with ADB's developing member countries in Central Asia. Following the Ministerial Conference on Economic Cooperation in March 2002, Azerbaijan formally joined the Central Asia Regional Economic Cooperation Program. Prior to being a full participating country, Azerbaijan had taken an active part in several important regional activities such as the consultation session at the Annual Meeting in May 2001, the senior officials' meeting in August 2001, and the customs cooperation meeting in January 2002. Important areas of regional cooperation may include energy, transport, and trade. ADB could also facilitate sharing of development experience. One policy issue common to several developing member countries relates to administration of oil and mineral funds in Central Asia. A list of subregional projects that are subject to the Government's confirmation is included in the tables on lending and nonlending products and services. C. Highlights in Coordination of External Funding25. The process of formulating the NPPR, which calls for close consultation and involvement of the international aid community, has brought about significant improvements in aid coordination over the last year. International agencies have met on numerous occasions to review the progress of the NPPR Secretariat and sector working groups, and will continue coordinating activities during the finalization of the NPPR. There is close coordination between ADB and the representative offices of the major funding agencies in the country.9 In addition to coordination with funding agencies, ADB missions meet regularly with representatives of the National NGO Forum of Azerbaijan and the major international nongovernment organizations (NGOs) such as Mercy Corps and World Vision. The activities of the major agencies in Azerbaijan may be seen from the Development Coordination Matrix in Appendix 1, Table A1.5. 26. Over the past year, ADB has had detailed discussions with KfW on potential cofinancing of the Urban Water Supply and Sanitation Project. In addition, cofinancing of the Southern Azerbaijan Roads Improvement Project and the Samur-Apsheron Water Supply and Irrigation Project had been discussed with several agencies. The proposed nonlending program is in excess of the TA indicative planning figure available for Azerbaijan and will require cofinancing. _______________
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