Public Information Notice: IMF Executive Board Reviews the Republic of Azerbaijan's Performance Under Past Fund-Supported Programs

July 29, 2005

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On June 24, 2005, the Executive Board of the International Monetary Fund (IMF) conducted an Ex Post Assessment of Azerbaijan's Longer-Term Program Engagement. Ex Post Assessments are prepared for countries with a longer-term program engagement in order to evaluate the success of past programs and implications for possible future Fund involvement.


Azerbaijan has had almost continuous program engagement with the Fund during the last 10 years. Early programs (1995-96) focused on macroeconomic stabilization and first generation structural reforms. By 1997, annual inflation rates declined to single digits from hyperinflationary levels, while output growth resumed, following many years of continuous decline. The twin shocks of the Russian crisis (1998) and a decline in oil prices complicated macroeconomic management and slowed down the implementation of structural reforms. In the early 2000s, a revival of structural reforms and a significant increase in oil-related investment led to an increase in GDP growth rates in a low inflation environment. However, the inflation rate reached double digits by 2004, as fiscal and income policies were loosened.

Azerbaijan has made substantial progress in economic development during the last 10 years. Program growth objectives were largely achieved, poverty declined to 40 percent in 2004 from about 60 percent in 1994, and Azerbaijan's current fiscal and external positions are sustainable. While most annual inflation targets were met, at times, there were deviations from program targets. On the structural front, significant progress was achieved in fiscal management, the privatization of small- and medium-size enterprises, and trade and price liberalization. However, advances in financial and energy sector reforms, as well as improvements in the business environment and governance have been slower than expected.

Executive Board Assessment

Directors noted that, with Fund support, Azerbaijan has made significant progress over the past 10 years in national institution-building, switching to a market economy, and improving economic management. As a result, Azerbaijan's growth and its fiscal and external positions strengthened during this period.

On balance, Directors considered that Azerbaijan's longer-term program engagement with the Fund was justified by the challenges of transition and nation building, high poverty, major economic dislocation caused by war and the disintegration of the Soviet economy, and inadequate policy implementation capacity. However, they believed that uneven ownership of, and commitment to, some structural reforms helped prolong Fund involvement. They noted, in particular, the mixed results with financial and energy sector reforms and with improvements to the business environment and governance.

Looking forward, Directors underscored that Azerbaijan faces the challenge of achieving sustainable growth of non-oil output, diversifying the economy, and reducing poverty while maintaining macroeconomic stability, at a time when oil revenue is projected to increase substantially. Although there is no balance of payments need, Directors felt that a successor low-access precautionary arrangement with Azerbaijan, or some form of non-financial support, will be beneficial, given the macroeconomic nature of risks and the need to continue with core reforms.

Directors stressed that any future Fund-supported program should focus on the development of a coherent framework for monetary and exchange rate policies, prudent management of oil wealth, enhanced monitoring of state-owned enterprises, banking system reforms, and improvements to the business environment and governance. Furthermore, strong ownership of reforms will be required to ensure successful implementation of the program.


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