Azerbaijan and ADB

ADB's Work in Azerbaijan

Azerbaijan joined ADB in 1999.

The bank’s operations are guided by the country partnership strategy, 2019–2023, which supports diversified and inclusive growth in the country. By aiming to boost private sector development, raise public sector efficiency, improve infrastructure, and strengthen human capital, the strategy is closely aligned with the Government of Azerbaijan’s strategic road maps for the national economy and main economic sectors.

ADB and Azerbaijan work together to help the country achieve more diversified, inclusive, and sustainable economic growth.

Since Azerbaijan is a resource-rich, upper middle-income country pursuing an ambitious economic diversification agenda, ADB is emphasizing support for structural reforms, institutional strengthening, expansion of knowledge work, and financing of innovative projects. The bank is also helping the country meet the Sustainable Development Goals and attain its nationally determined contribution under the Paris Agreement of the United Nations Framework Convention on Climate Change.

Since 1999, ADB has committed $4,411.56 million in loans, $32.28 million technical assistance projects, including ADB-administered cofinancing for Azerbaijan.

Railway trains in Azerbaijan

ADB has helped construct approximately 325 kilometers of new and upgraded highways and rural roads in Azerbaijan. In the Agstafa and Gazakh districts, ADB-supported projects have improved road conditions and reduced travel times for 16 villages by rehabilitating 41.3 kilometers of rural roads and reconstructing four bridges. A total of 20,500 people now have all-season and easy access to schools, markets, and health facilities.

The $150 million investment component of the ongoing Railway Sector Development Program is helping to rehabilitate the tracks and structure of the Sumgayit–Yalama rail line. Meanwhile, the program’s $250 million policy component—completed in September 2019—has supported critical railway sector reforms, including the strengthening of corporate governance, operational efficiency, and financial sustainability of the Azerbaijan Railway Company.

Power transmission lines in Azerbaijan

ADB has invested in improved power distribution to deliver energy more reliably and reduce power outages across Azerbaijan. It has helped increase the availability of reliable electricity supply to more than 100,000 consumers in 13 regions and 3 cities, with 90% of consumers being households.

ADB’s partial credit guarantee of $500 million to help expand the Shah Deniz gas field attracted large-scale and long-term commercial financing from international lenders, while also improving transparency and governance in Azerbaijan’s oil and gas industry. The bank’s support helped the government continue the development of the South Gas Corridor project aimed at bringing gas resources from the Caspian Sea to markets in Europe.

The Improving Governance and Public Sector Efficiency Program, comprising two subprograms of $250 million each and completed in December 2019, helped the government introduce a fiscal rule on the use of oil revenues and a medium-term expenditure framework. It also worked to strengthen the financial oversight and reporting of state-owned enterprises (SOEs), adopt the country’s first SOE corporate governance standards, improve the business environment, and foster private participation in infrastructure.

The post-program engagement framework, supported by ADB technical assistance, will follow up on the reforms initiated under the program.

Beekeeper Feizulla Jamalov is one of the Azerbaijan entrepreneurs who have been supported and encouraged through the greater MSME lending from ADB’s partnership with AccessBank.

Nonsovereign Operations

As a catalyst for private investments, ADB provides financial assistance to nonsovereign projects and financial intermediaries. Total commitments from ADB’s own funds (in equity and direct loans) in 2019 amounted to $3.00 billion for 38 transactions in economic and social infrastructure, the finance sector, and agribusiness. ADB also actively mobilizes cofinancing from commercial and concessional sources. In 2019, ADB mobilized $3.28 billion of longterm cofinancing and $3.69 billion of cofinancing in trade finance, microfinance, and supply chain finance programs. Total outstanding balances and commitments of nonsovereign transactions funded by ADB’s own resources stood at $13.78 billion as of 31 December 2019.

Financing Partnerships

Financing partnerships enable ADB’s development partners, governments or their agencies, multilateral financing institutions, and commercial organizations to participate in financing ADB projects. The additional funds are provided in the form of loans and grants, technical assistance, and other nonsovereign cofinancing such as B loans, risk transfer arrangements, parallel loans and equity, guarantee cofinancing, and cofinancing for transactions under ADB’s Trade Finance Program and Supply Chain Finance Program.

ADB began cofinancing operations in Azerbaijan in 2002. Since then, sovereign cofinancing commitments for Azerbaijan have amounted to $102.50 million for two investment projects and $3.22 million for seven technical assistance projects. Nonsovereign cofinancing for Azerbaijan has amounted to $1.1 billion for six investment projects.

Projects Cofinanced, 1 January 2014–31 December 2018

Operational Challenges

Armenia’s high levels of public debt, its volume of undisbursed loan projects committed by the government, and its medium-term fiscal consolidation process all affect the government’s borrowing capacity and ADB’s portfolio performance.

For this reason, the CPS envisages a flexible and adaptive approach to financing government needs. Where appropriate, sovereign lending will be structured to promote private sector participation, nonsovereign financing, public–private partnerships, and other innovative solutions.

Future Directions

In November 2019, ADB approved the country operations business plan, 2020–2022 for Armenia. The plan is consistent with the CPS and reflects the government’s preference for investment projects over the medium term.

The indicative resources available for sovereign operations during 2020–2022 total $670 million. However, given the country’s debt situation, the firm lending pipeline over the period is $235.0 million for selected priority projects.

The operations business plan outlines ADB investments that will underpin higher growth, build on the momentum for nonsovereign operations, and scale up technical assistance for knowledge work.

An expanded nonsovereign portfolio and financing for social sectors will transform ADB’s relationship with Armenia to one appropriate for a growing middle-income economy.