The Asian Development Bank (ADB) today approved a $500 million loan to help Azerbaijan maintain social spending, create jobs, and diversify its economy to mitigate the adverse impact of a crash in oil prices.
“ADB’s countercyclical support is critical for Azerbaijan’s economy now and will help promote sustainable development and inclusive growth over the longer-term,” said Sean O’Sullivan, Director General of ADB’s Central and West Asia Department. “Transforming Azerbaijan into a dynamic and diverse economy will need major improvements in public sector efficiency, the ease of doing business and competition.”
The loan will contribute to the government’s $1.4 billion countercyclical stimulus package. The package is boosting social assistance for around 3.7 million people, or more than one third of the population, increasing the wages of public sector employees, increasing benefits for retirees and low-income families, and providing greater health, social, and food benefits to public and private workers and refugees.
The government is also promoting economic diversification away from the hydrocarbon industry with additional incentives to private investors in other sectors and spurring job creation through vocational training and infrastructure projects.
A 55% drop in oil prices over the last two years hit the Azerbaijan economy hard given that oil and gas revenues account for about 30% of gross domestic product, 60% of budget revenues, and over 90% of export revenues. In the first quarter of 2016, the Azerbaijan economy fell into recession and ADB forecasts the economy will shrink by at least 2.5% this year. This along with a sharp depreciation in the local currency, the manat, has brought hardship to the population as they see their real incomes going down and prices of goods soaring.
In addition to the loan, ADB will provide technical assistance of $1.2 million to help design reforms to macro fiscal management, state-owned enterprises, and the finance sector. The capacity of government departments in implementing the reforms will also be strengthened.