News Brief: IMF Approves US$10 Million Tranche Under PRGF Loan to the Azerbaijan Republic
February 20, 2002
The Executive Board of the International Monetary Fund (IMF) today completed the first review of Azerbaijan's performance under the Poverty Reduction and Growth Facility (PRGF)1 arrangement. The decision will enable the Azerbaijan Republic to draw SDR 8.05 million (about US$10 million) from the IMF immediately.
The three-year PRGF arrangement was approved on July 6, 2001, (see News Brief No. 01/53) in an amount of SDR 80.45 million (about US$100 million). So far, Azerbaijan has drawn SDR 8.05 million (about US$10 million) from the IMF.
Following the Executive Board discussion, Eduardo Aninat, Deputy Managing Director and Acting Chair, said:
"Azerbaijan's macroeconomic performance in recent years, with rapid growth and low inflation, is commendable. Nonetheless, poverty remains pervasive, and Azerbaijan is thus confronted with the need to maintain its strong macroeconomic performance while further diversifying economic growth. The authorities should continue to take bold steps in implementing structural reforms and strengthening governance. In this context, the performance under the program supported by the Poverty Reduction and Growth Facility (PRGF) has been encouraging.
"Monetary and fiscal policies remain sound, and the exchange rate policy followed by the Azerbaijan National Bank is appropriate. The decision to incorporate into the state budget the value of the subsidies provided by the State Oil Company of the Azerbaijan Republic (SOCAR) to the utility companies is a crucial step toward fiscal transparency. In addition, in the context of the recently adopted plan to strengthen financial discipline in the energy sector, this reform should help build support for the implementation of other energy sector reforms.
"Important steps have also been taken to improve governance. The Chamber of Accounts has been strengthened by the adoption of a revised law expanding its authority to include all budgetary and extrabudgetary funds. An external evaluation of the Customs Committee has now been completed, and a reform program based on the results of this evaluation has been adopted; swift progress in implementing this program will be important. Finally, an improved procurement law has been passed, and the authorities have committed to public reporting and auditing of the activities of the oil fund.
"Following the adoption of rules for the oil fund budget, and the integration of the oil fund and state budgets, the authorities should now give a high priority to developing a framework for the use of oil fund assets, consistent with their poverty reduction strategy. Development of a Public Investment Program, with meaningful prioritization, as well as of a Medium Term Expenditure Framework, will be essential components of this framework.
"Good progress has been made in reforming the banking system. However, the authorities are advised to accelerate the privatization of the International Bank of Azerbaijan in order to foster the development of a truly competitive banking system in Azerbaijan. Progress in rehabilitating the other remaining state owned bank, United Universal Bank, has been encouraging and the authorities' plan to develop a timetable for the privatization of this bank is welcome.
"The Executive Board granted Azerbaijan's request for waivers for non-observance of four performance criteria under the Poverty Reduction and Growth Facility arrangement. Three of the waivers were related to delayed implementation of structural reforms; the Board shared the staff's view that these delays did not jeopardize achievement of the program's objectives. The fourth waiver was for the temporary accumulation of external arrears, related to the authorities' attempts to resolve a dispute over a modest debt.
"Commendable progress has been made in preparing a Poverty Reduction Strategy Paper. The main challenge in the preparation and adoption of the full strategy continues to be to ensure the development of a poverty reduction strategy with broad and effective participation," Mr. Aninat said.
1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility, was renamed the Poverty Reduction and Growth Facility, and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.