Azerbaijan and ADB

ADB's Work in Azerbaijan

Azerbaijan joined ADB in 1999.

ADB operations in the country aim to boost private sector development, raise public sector efficiency, improve infrastructure, and strengthen human capital, with the bank’s investments closely aligned to 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 $4.91 billion in loans and $35.4 million in technical assistance for Azerbaijan.

Railway trains in Azerbaijan

ADB has helped construct approximately 395 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

Improved power distribution delivers energy more reliably and reduce power outages across Azerbaijan. ADB 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 in loans and equity investments from ADB’s own funds in 2020 amounted to $1.4 billion for 38 transactions in economic and social infrastructure, finance sector, and agribusiness. ADB also actively mobilizes cofinancing from commercial and concessional sources. In 2020, ADB mobilized $1.9 billion of long-term project cofinancing and $3.3 billion of cofinancing through its Trade and Supply Chain Finance Program and Microfinance Program. Total outstanding balances and commitments of nonsovereign transactions funded by ADB’s own resources stood at $14.3 billion as of 31 December 2020.

Total outstanding balances and commitments of ADB’s nonsovereign transactions in the country as of 31 December 2020 was $213.2 million, representing 1% of ADB’s total nonsovereign portfolio.

Financing Partnerships

Financing partnerships enable ADB’s financing 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 and Supply Chain Finance Program and Microfinance Program.

ADB began cofinancing operations in Azerbaijan in 2002. Since then, sovereign cofinancing commitments for Azerbaijan have amounted to $177.5 million for two investment projects and $3.72 million for eight technical assistance projects. Nonsovereign cofinancing for Azerbaijan has amounted to $1.1 billion for six investment projects.

In 2020, Azerbaijan received $75 million loan cofinancing from Agence Française de Développement for the Railway Sector Development Program.

A summary of cofinanced projects is available at Azerbaijan: Cofinancing.

Operational Challenges

Azerbaijan’s key challenge is achieving rapid and sustainable development of a non-oil economy. This entails improving infrastructure, reducing regional economic disparities, promoting good governance, and improving the climate for private sector growth.

To help diversify the economy, ADB and the government are working to expand agriculture, stimulate tourism, improve logistics, foster private enterprise, promote digitalization, ensure good governance, and strengthen knowledge management.

ADB and the government aim to further strengthen compliance with the bank’s procurement, financial management (including project and entity audit), anticorruption, environmental, and social safeguards requirements. Special attention is being paid to raising gender equality measures within projects, strengthening the governance and institutional capacities of implementing agencies, and promoting the financial sustainability of investments.

Future Directions

In accordance with its country partnership strategy, 2019–2023 for Azerbaijan, ADB will emphasize synergy between its sovereign and nonsovereign operations, increased knowledge sharing, and promotion of innovation.

ADB’s private sector operations will seek to support small and medium-sized enterprises, especially those involved in noncyclical sectors and operating outside Absheron peninsula. The bank may also engage with SOEs to attract private capital. Through its nonsovereign trade finance program, ADB will seek to provide guarantees and loans to local banks, aiming at closing market gaps and promoting non-oil trade. It may support public–private partnership infrastructure projects through equity or debt finance.

ADB’s increased knowledge work will provide technical advice and share knowledge to address constraints to economic diversification and inclusive growth.