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2016, 08 Dekabr, Cümə axşamı, Bakı vaxtı 12:10

World Bank says oil money has served Azerbaijan well, but corruption is rampant


Azerbaijan -- Rashid Sherif's cartoon (Peak)

Azerbaijan -- Rashid Sherif's cartoon (Peak)

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Washington, February 4, (RFE/RL Azerbaijani Service)--A recent World Bank report finds that oil wealth has served Azerbaijan well, but rampant corruption is a big impediment to doing business.

According to a New World Bank report: Diversified Development: Making the Most of Natural Resources in Eurasia, Azerbaijan is now rated as an investment-grade economy by all three major credit rating agencies, on par with Bulgaria, Croatia, Romania, and Turkey. But the report aslo points out many challanges that Azerbaijan is facing.

The report claims that Azerbaijan has low tertiary education enrollment, and its students perform poorly on international tests. At about 1 percent of GDP, the country’s health spending is one of the lowest in Europe and Central Asia, leading to poor health outcomes.

"Azerbaijanis are among the most dissatisfied of all people in the region with the quality and efficiency of public services, and the country has the highest prevalence of unofficial payments for accessing public services."

Highlights from the Report:

With its huge increase in oil production, Azerbaijan’s gross national income (GNI) per capita grew from $720 in 2002 to $5,290 in 2011, helping it become a middle-income country. Along with growth, social transfers helped reduce poverty from 47 percent in 2002 to 6 percent in 2012. The government reduced public debt from 23 percent of gross domestic product (GDP) in 2002 to around 12 percent in 2012. Foreign exchange reserves increased to 67 percent of GDP.

Despite this progress, there are concerns. The country has seen increased volatility, reduced labor force participation, and low productivity. Oil revenue accrues to the central government budget and to an oil fund, and absent any formal mechanism to manage resource rents, public spending is linked to current oil revenue—and thus to volatile oil prices. This has led to volatile public spending, which has acted as a tax on investment.
Azerbaijanis are among the most dissatisfied of all people in the region with the quality and efficiency of public services, and the country has the highest prevalence of unofficial payments for accessing public services.

Azerbaijan has yet to operationalize a mechanism to manage its resource rents,
even though it adopted the Long-Term Oil Revenue Management Strategy, based on the permanent-income approach, in 2004. And while unemployment fell from 10 percent in 2002 to 5.2 percent in 2012, reduced labor force participation played a role, falling from 89 percent to 75 percent over the period. At the 2002 participation rate, unemployment would have been 20 percent in 2012. Finally, while productivity per worker increased nearly tenfold in the decade to 2012, it still remains below the average for middle-income countries.

To achieve high-income status, Azerbaijan needs to reduce volatility, create jobs, and increase productivity. These strides require investments in the country’s asset base, which includes human and physical capital and institutions.

Azerbaijan’s physical capital stock is low, possibly because of low contributions from the private sector, even though the government has prioritized infrastructure investments since the start of the oil boom in 2005. Azerbaijan has low tertiary education enrollment, and its students perform poorly on international tests. At about 1 percent of GDP, the
country’s health spending is one of the lowest in Europe and Central Asia, leading to poor health outcomes.

Azerbaijanis are among the most dissatisfied of all people in the region with the quality and efficiency of public services, and the country has the highest prevalence of unofficial payments for accessing public services. Major shortcomings are also evident in competition for and in access to infrastructure services and finance. And rampant corruption is a big impediment to doing business.

The government is aware of these problems and has formulated the Vision 2020 strategy to develop the country’s assets. It envisages doubling per capita GDP to $13,000 and transforming the country into a diversified, innovative, and competitive high-income economy by developing its human and physical capital and by modernizing its institutions.

The government also plans to encourage specific industries by setting up industrial estates and special economic zones and by offering subsidized credit. Vision 2020 incorporates all the crucial elements of a successful diversification strategy. The main challenge will be to pay more attention to developing assets and less to finding ways to use public resources for subsidizing specific sectors.
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