Azerbaijan—Enhanced Structural Adjustment Facility
and
Extended Fund Facility Policy Framework Paper, 1997–2000
Tables
Table 1. Azerbaijan: Summary and
Timetable for
Macroeconomic and Structural Adjustment Policies,
1998–2000
|
| Policy Area
| Targets
| Objectives and
Measures
| Strategies and
Implementation
| Technical
Assistance/status |
| | 1. Fiscal policy
| | 1.1 Revenue policy
| Improve the revenue raising capacity and
efficiency of the tax system
| Rationalize depreciation rules for profit
tax
| 1999 Budget
|
| |
|
| Rationalize the income taxation of dividends and
interest
| 1999 Budget
|
| |
|
| Make interest and other legitimate expenses fully
deductible for the purpose of calculating the base for the profit tax
| 1999 Budget
|
| |
|
| Allow fully profit tax deduction for loan
provisioning of banks1
| 1999 Budget
|
| |
|
| Move to destination principle of VAT and excises
for CIS trade
| 1998-1999
| As consistent with intra CIS agreements
|
|
| Review VAT law to ensure that all
business-related expenses are creditable
| 1999
| IMF technical assistance by FAD
|
|
| Calculate VAT liabilities on an accrual
basis
| 1999 Budget
|
| |
|
| Base land and property taxes on market
values
| End-December 1998
| Timetable for new cadastre may be longer
|
|
| Reduce employers' payroll tax rate from 35 to 33
percent, and increase employees' contributions from 1 percent to 3 percent
| 1999 Budget
|
| |
|
| Allocate 3 percentage points of employers' payroll
tax rate (33 percent) to employees' individual pension accounts
| 1999 Budget
| World Bank technical assistance to set individual
accounts
|
|
| Allocate the 3 percent employees' social insurance
contribution rate to individual pension accounts
| 1999 Budget
|
| |
|
| Update Tax Code in order to consolidate various
laws, decrees, and regulations to eliminate contradictions and ambiguities and to standardize
administrative provisions
| End-December 1998
| IMF technical assistance by LEG
|
| Improve tax administration
| Develop a common taxpayer identification for
STI, SCC, and banks (pass necessary legislation)
| End-June 1997
| In progress
|
|
| Amend law on Tax Services to provide collection
officers with authority to use a variety of tools and techniques to enforce collection
| End-December 1997
|
|
|
| Implement measures to improve excise tax
collection on tobacco and alcohol (payment at factory gate or customs)
| Early-December 1997
|
| |
|
| Double tax inspectors in LTU through reallocation
of staff, and assign 40 percent of staff to auditing
| End-November 1997
|
| |
|
| Improve VAT refunding mechanism by Ministry of
Finance
| Continuous
|
| |
|
| Grant legal authority to the State Customs
Administration to perform independent assessment of valuation
| End-December
1997
|
| | 1.2 Expenditure Policy
| Reorient expenditure priorities
| Eliminate or transfer non-essential tasks to the
private sector (e.g., from State Committees)
| 1998/99
| World Bank technical assistance
|
|
| Implement government employment/pay policy
consistent with objective to reduce number of employees while increasing wage incentives for
the more productive employees
| 1998 and 1999 Budgets
|
| |
|
| Introduce an effective severance pay
scheme
| End-June 1998
|
| |
|
| Grant targeted subsidies to families hardest hit by
increases in the price for communal services and electricity
| 1997-1998
|
| |
|
| Consolidate various social benefits into a single
categorical/means-tested poverty benefit
| 1999 Budget
|
| |
|
| Raise the statutory retirement age for men and
women by 6 months each year
| 1997-2000
| Ongoing
|
|
| Reform the pension system by introducing a
two-tier pension structure comprising of: (i) a basic social pension financed by the government
on a pay-as-you go basis; and (ii) a mandatory funded pension scheme financed through
individual contributions based on their labor income
| End-December 1998
|
| |
|
| Introduce individual retirement accounts
| End-December 1998
| World Bank technical assistance
|
|
| Shift initial responsibility for sick leave benefits
from the SPF to employers
| End-June 1997
| Pending
|
|
| Review eligibility requirements for unemployment
compensation
| End-March 1997
| Pending
|
| Improve infrastructure
| Develop a 3-year public investment
program
| End-June 1997
| Draft prepared; World Bank technical assistance
|
|
| Set annual consolidated budget investment targets
for general government
| 1998-2000
|
| 1.3 Fiscal
management
and budget planning
| Improve Ministry of Finance's control over public
finances and expenditures
| Integrate all government spending agencies'
accounts in the Treasury Single Account
| End-November 1997
| IMF technical assistance by FAD
|
|
| Make fully operative mandatory competitive
bidding procedures for government procurement and the Procurement Regulatory
Agency
| End-March 1998
| World Bank technical assistance
|
|
| Prepare proposals about institutional arrangements
to receive future oil revenues, and to decide on their best use
| End-September 1998
| IMF/World Bank technical assistance
|
|
| Clarify financial relations between government and
ANB regarding payments and receipts of interest on mutual claims, and allocation of central
bank profits
| End-December 1998
|
| | 2. Monetary policy
| Improve monetary management
| Allow off-auction interbank trading in foreign
exchange for all banks
| September 1997
| Implemented
|
|
| Remove remaining restrictions on direct
interbank trading in foreign exchange
| End-June 1998
|
| |
|
| Allow foreign banks to participate directly in the
foreign exchange (BICEX), Treasury Bill, and interbank money markets. Also allow
non-residents as well as all residents to participate in the Treasury Bill market
| Early-December 1997
|
| |
|
| Allow foreign banks to participate in the ANB
credit auctions market
| End-June 1998
|
| |
|
| Securitize part of outstanding government debt at
ANB with a view to developing the stock of Treasury bills
| From beginning 1998
|
| |
|
| Be prepared to start open market operations in
Treasury bills
| End-July 1998
|
| |
|
| Encourage full-fledged collateralized interbank
money market
|
|
| |
|
| Establish framework for auctions of central bank
deposits or ANB certificates to address any capital inflows problem
| End-March 1998
| Fund technical assistance by MAE
|
|
| Phase out credit auctions in favor of open market
operations
| End-December 1998
|
| |
| Improve banking supervision
| Increase frequency and quality of on- and off-site
inspections by hiring more staff and improving their skills through training and use of foreign
experts
| End-December 1997
| In progress
|
|
| Enforce timetable for fully achieving requirements
for loan-loss provisions over 3 years
|
|
| Up to 40
percent
Up to 75 percent
Up to 100
percent
| End-1997
End-1998
End-1999
|
| |
|
| Introduce a new chart of accounts and financial
reporting standards in line with international accounting standards for commercial
banks
| End-March 1998
| In progress
|
|
| Raise the minimum capital requirement for existing
banks to the manat equivalent of: US$1,000,000
| End-December 1997
|
| |
|
| Announce phased increase to minimum of US$5
million by 2001
|
|
| |
| Improve soundness of existing banking
system
| Implement the restructuring program of the four
state-owned banks
| 1997-1998
| In progress
|
|
| Resolve problem of bad loans portfolio upon
successful completion of initial phase of restructuring program, and privatize the banks
| 1998-1999
|
| | 3. Enterprise reform
| Medium- and large-scale privatization
| Privatize 400 (cumulative) medium-size/large
enterprises through voucher auctions or commercial tender
| End-December 1997
| In progress
|
|
| Establish privatization targets for 1998, including
50 large enterprises
| End-December 1997
| Part of World Bank SAC supervision
|
|
| Formulate and begin implementing program of
privatization by liquidation
|
|
| |
|
| Establish a National Share Registry and
Depository Agency
| October 1998
| To be made operational
|
|
| Establish a Securities' Commission
| End-June 1998
|
| |
|
| Issue regulations complementing Accounting Law
for enterprises to introduce international standards
| End-September 1998
| UNDP technical assistance
| 4. Agriculture
| Develop private sector agriculture
|
| 1998-2000
| Good progress with World Bank technical
assistance
|
|
| Complete the distribution of land titles to private
farmers
| End-June 1998
| In progress
|
|
| Reorganize irrigation management
| End-December 1997
| In progress
|
|
| Phase out most agricultural concerns
| End-June 1998
|
| | 5. Energy
| Rationalize use of energy
| Raise gas and electricity prices to full operating
cost recovery levels on average
| October 1997
| Implemented
|
|
| Phase out cross-subsidization in energy prices
(electricity, and gas)
| End-December 1998
|
| |
|
| Extend gas metering to cover all
customers
| End-September 1999
| In progress
|
|
| Develop a strategy for the rationalization of
Azerbaijan oil refineries
| 1998-1999
| World Bank technical assistance
|
|
| Provide data to IMF on the operations of
SOCAR
| End-December 1997
|
| |
|
| Reform communal services and phase out
subsidies
| 1999
|
| |
|
| Spin off noncore activities of energy enterprises
(SOCAR, Azerenerji and Azerigaz); and internally restructure them to reflect separability of
their business activities
| 1998-1999
| World Bank technical assistance
|
|
| Establish a proper regulatory environment for
natural monopolies
| 1999-2000
|
| |
|
| Introduce a Petroleum Law to provide a
sustainable basis for foreign investment in oil sector
| End-December 1998
|
| | 6. Education
|
| Establish government commission to develop a
comprehensive reform plan for the education sector, focusing on downsizing, improving
efficiency, and partial privatization.
| End-December 1997
|
| |
|
| Raise the student/teacher ratio by increasing the
class size or increasing the weekly teaching load from the current low level of 12
hours
| 1998-1999
|
| |
|
| Allocate budgetary funds on the basis of number
of students
| 1999 Budget
|
| | 7. Health care
|
| Establish government commission to develop a
comprehensive reform plan for the health sector, focusing on downsizing, improving
efficiency, and partial privatization
| End-December 1997
|
| |
|
| Develop regulatory framework for privatization
and entry of the private sector in health care
| 1998-1999
|
| |
|
| Eliminate 15 percent of hospital beds
| 1998
| some progress
|
|
| Allocate health budget among institutions
according to population rather than according to the number of beds
| 1998
| Some progress
|
|
| Reform provider payment mechanisms by paying
providers on a capitation basis
| 1998
| Some progress
|
|
| Reorganize health care system to provide universal
access to a basic package of medical services
| 1998-1999
|
| | 8. Legal framework
| Establish framework appropriate for market
economy
| Submit a Secured Transaction Law to parliament
| Early-December 1997
|
| |
|
| Issue a decree clarifying the debt-service
obligations of enterprises during and after privatization.
| Early-December 1997
|
| |
|
| Issue implementing regulations for the Bankruptcy
Law to provide enforcement measures
| End-December 1998
| World Bank technical assistance
|
|
| Introduce a new Securities Law
| End-March 1998
|
| |
|
| Adopt a new Land Code, including provisions for
privatized land of enterprises
| End-March 1998
|
| |
|
| Introduce a new draft law on the State Police and
Procurators
| End-June 1998
|
| |
|
| Introduce new Corporate Law, Civil Code, and
Competition Law
| 1998-1999
|
| 9. Trade and
exchange
regime
| Further liberalize the trade system
| Unify import tariff rates at 15 percent and
eliminate all exemptions
| 1997 Budget
| Modified in May 1997 to include a reduced rate of
5 percent for capital goods and raw materials
|
|
| Reduce progressively the general tariff rate of 15
percent by at least 5 percentage points
| 1999-2001
|
|
|
| Further liberalize remaining ex ante registration in
the case of exports on credit, consignment, and through barter
| End-December 1997
|
| |
|
| Introduce new Foreign Trade Charter to meet
requirements of WTO accession
| End-December 1998
|
| 10.
Government
restructuring
| Align structure of government with the needs of
the emerging market economy
| Reduce number of Ministries and Agencies.
Eliminate the state's commercial and industrial activities, while strengthening regulatory and
policy-making functions
| From End-March 1997
| Ongoing
11. Reconstruction
of
war-damaged areas
| Start rehabilitation of war damaged
areas
| Initiate information campaign on
mine-awareness
| End-March 1997
|
| |
|
| Undertake social assessments of internally
displaced persons
| End-March 1997
| Ongoing
| 12. Environment
| Halt and reverse degradation of environment due
to industrial pollution, overfishing, and deforestation
| Formulate and implement a National
Environmental Action Plan
| 1998, 1999
| World Bank assistance
| 13. Statistics
| Improve the statistical base for economic
policy
| Develop a new statistical program to make the
statistical system adequate for policy design, implementation and monitoring
| End-June 1997
| In progress
|
1Defined as the difference between end of year reserves and
begin of year reserves adjusted for bad debts written off and actual recoveries during the year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Table 2. Azerbaijan: Selected Economic
and Financial Indicators, 1995–2000
|
| |
1995 |
1996 |
1997
Estimate |
1998
Program |
1999
Projection |
| |
(Annual percentage change, unless otherwise indicated) |
| Output, incomes and prices |
|
|
|
|
|
| Real GDP |
-11.0 |
1.3 |
5.1 |
7.0 |
8.5 |
| Real GDP per
capita |
-11.6 |
0.7 |
4.5 |
6.4 |
7.9 |
| Real per capita
consumption |
-9.3 |
1.1 |
0.7 |
0.4 |
3.9 |
| Consumer price index (period
average) |
411.7 |
19.8 |
4.0 |
5.5 |
5.5 |
External sector (in terms of US
dollars) |
|
|
|
|
|
| Exports of goods and non-factor
services at current prices |
852 |
938 |
1,111 |
1,504 |
1,795 |
| Imports of goods and non-factor
services at current prices |
1,267 |
1,764 |
1,984 |
2,630 |
3,227 |
| Export volume |
-4.0 |
15.0 |
13.3 |
22.4 |
23.0 |
| Import volume |
-16.0 |
29.5 |
16.4 |
29.9 |
20.3 |
| Real effective exchange rate
(Index
1995=100) |
100.0 |
125.9 |
141.2 |
147.4 |
151.1 |
Money and credit |
|
|
|
|
|
| Manat broad
money |
175.2 |
55.7 |
19.4 |
16.6 |
. . . |
| Manat reserve
money |
190.6 |
62.7 |
25.0 |
15.0 |
. . . |
| Velocity of manat broad
money |
53.8 |
-23.8 |
-6.2 |
-3.8 |
. . . |
|
(In percent of
GDP, unless otherwise indicated) |
Public
finances1 |
|
|
|
|
|
| Revenue |
15.2 |
16.2 |
18.0 |
19.3 |
21.4 |
| Direct
taxes |
5.4 |
6.6 |
5.9 |
6.1 |
8.0 |
| Indirect
taxes |
4.3 |
6.4 |
7.4 |
7.8 |
8.7 |
| Social
Security contributions |
2.1 |
2.1 |
2.5 |
2.7 |
3.1 |
| Oil
Royalties |
0.0 |
0.3 |
1.8 |
2.1 |
2.2 |
| Other |
2.7 |
0.1 |
0.1 |
0.1 |
0.1 |
| Expenditure |
19.5 |
18.8 |
20.8 |
22.3 |
22.5 |
| Government
consumption |
9.1 |
9.6 |
11.8 |
11.8 |
11.5 |
| Transfers
and subsidies |
6.3 |
7.9 |
5.8 |
7.0 |
7.4 |
| Other
current expenditure |
4.1 |
1.3 |
3.2 |
3.5 |
3.6 |
| Capital
expenditure |
0.6 |
0.5 |
1.6 |
1.7 |
2.1 |
| Net
lending |
3.3 |
0.6 |
0.3 |
1.1 |
0.7 |
| Overall deficit (-) (on a accrual
basis) |
-4.3 |
-2.6 |
-2.8 |
-3.0 |
-1.1 |
| incl. oil funds and
privatization proceeds2 |
5.3 |
-0.9 |
-0.9 |
0.8 |
0.2 |
Savings and Investment |
|
|
|
|
|
| Savings |
2.8 |
0.0 |
5.6 |
6.1 |
7.2 |
| General
government sector |
8.2 |
-1.5 |
0.8 |
2.4 |
2.3 |
| Private
sector |
-0.1 |
1.6 |
3.4 |
9.0 |
5.8 |
| Gross investment |
14.3 |
23.6 |
27.2 |
33.7 |
39.3 |
| General
government sector |
0.6 |
0.5 |
1.6 |
1.7 |
2.1 |
| Private
sector |
13.7 |
23.1 |
25.6 |
32.0 |
37.2 |
| External current account
balance |
-11.5 |
-23.6 |
-21.6 |
-27.6 |
-32.1 |
External Debt and Debt
Service |
|
|
|
|
|
| Public sector external debt, end of
year |
15.1 |
15.4 |
14.0 |
16.2 |
17.3 |
| Public sector external debt
service |
2.4 |
2.6 |
2.5 |
1.7 |
1.4 |
| Of which:
interest due |
0.3 |
0.5 |
0.5 |
0.5 |
0.8 |
Gross official reserves, end of
year |
|
|
|
|
|
| (In millions of US
dollars) |
119 |
214 |
422 |
565 |
631 |
| (In
weeks)3 |
5.0 |
8.0 |
15.0 |
16.0 |
16.0 |
Exchange rate (manat/US
dollar) |
4,416 |
4,301 |
3,996 |
3,835 |
3,759 |
Nominal GDP (In millions of US
dollars) |
2,777 |
3,443 |
4,112 |
4,799 |
5,652 |
|
| Sources: Azerbaijan authorities; and IMF
staff estimates. |
| 1Revenue and expenditure
figures in 1994 and 1995 are not fully comparible to later years due to the inclusion of the Foreign
Exchange Fund which was dissolved in March
1995. |
| 2Signature bonuses from oil
consortiums and
privatization receipts are treated as below the line item in the program.
|
| 3Imports of goods and services,
excluding operations of oil consortia. |
Table 3. Azerbaijan: Income and Social
Indicators, 1995–2000
|
| |
|
1995 |
1996 |
1997 |
1998 |
1999 |
| |
|
|
| |
Unit of Measure
| Program |
|
| Population |
| Population
(mid-year) |
thousand |
7,487 |
7,535 |
7,575 |
7,620 |
7,666 |
| Population growth rate (annual
average) |
percentage change |
0.8 |
0.6 |
0.5 |
0.6 |
0.6 |
| Urban population |
percent of total |
54 |
. . . |
. . . |
. . . |
. . . |
Poverty |
|
|
|
|
|
| Headcount
index1 |
percent of population |
68 |
. . . |
. . . |
. . . |
. . . |
Income |
|
|
|
|
|
| GDP per capita |
US-Dollars |
371 |
457 |
543 |
630 |
737 |
| Official wage (monthly
average) |
US-Dollars |
13 |
20 |
31 |
37 |
46 |
| Real labor compensation
index |
1994=100 |
90.8 |
90.4 |
94.9 |
95.8 |
99.2 |
| Employment (annual
average) |
thousand |
2,837 |
2,886 |
2,941 |
2,960 |
2,983 |
Social Indicators |
|
|
|
|
|
|
| Life expectancy at
birth |
years |
71 |
. . . |
. . . |
. . . |
. . . |
| Infant mortality
rate |
per thousand |
26 |
. . . |
. . . |
. . . |
. . . |
| Illiteracy (population age
15+) |
percent of total |
3 |
. . . |
. . . |
. . . |
. . . |
Gross primary school
enrollment
(population in
school age) |
|
|
|
|
|
|
| Male |
percent of total |
91 |
. . . |
. . . |
. . . |
. . . |
| Female |
percent of total |
87 |
. . . |
. . . |
. . . |
. . . |
|
| Sources: Azerbaijan
authorities; and World Bank and IMF Staff estimates. |
| 1Percent of
population below the "food only" poverty line; see World Bank, Azerbaijan Poverty
Assessment, June 1996 (15601 AZ). |
Table 4. Azerbaijan-External Financing
Requirements and Sources, 1995–2000
|
| |
1995 |
1996
|
1997
|
1998
|
1999
|
2000 |
1998-2000
Total
|
|
| |
(In millions of US dollars) |
Requirements |
621 |
1,037 |
1,231 |
1,551 |
1,940 |
2,492 |
5,984 |
Financing
of the non-interest current
account deficit,
excluding official transfers |
392 |
880 |
921 |
1,328 |
1,798 |
2,267 |
5,393 |
| Scheduled
interest |
7 |
17 |
21 |
24 |
44 |
56 |
124 |
| Scheduled
amortization |
29 |
70 |
81 |
56 |
16 |
38 |
110 |
| IMF
repayments1 |
0 |
0 |
0 |
0 |
16 |
46 |
62 |
| Reduction
in external payments arrears (+) |
76 |
25 |
0 |
0 |
0 |
0 |
0 |
| Change in
ANB gross official reserves |
117 |
95 |
208 |
143 |
66 |
86 |
295 |
Resources |
327 |
884 |
1,088 |
1,435 |
1,862 |
2,493 |
5,790 |
| Official
project grants |
81 |
86 |
50 |
31 |
25 |
20 |
76 |
| Official
project loans |
14 |
19 |
62 |
156 |
179 |
128 |
463 |
| Private
direct investment (net)2 |
282 |
661 |
929 |
1,189 |
1,588 |
2,275 |
5,051 |
| Other
private capital (net)3 |
(51) |
118 |
48 |
60 |
70 |
70 |
200 |
Financing
gap |
295 |
153 |
143 |
116 |
78 |
(0) |
194 |
Exceptional
financing disbursed |
295 |
153 |
0 |
0 |
0 |
0 |
0 |
| Use of
IMF resources |
101 |
71 |
0 |
0 |
0 |
0 |
0 |
| World
Bank program assistance |
30 |
31 |
0 |
0 |
0 |
0 |
0 |
| Other
bilateral and multilateral assistance |
72 |
0 |
0 |
0 |
0 |
0 |
0 |
| debt
rescheduling or cancellation |
92 |
51 |
0 |
0 |
0 |
0 |
0 |
Exceptional
financing committed |
0 |
0 |
143 |
96 |
38 |
0 |
134 |
| Use of
IMF resources |
0 |
0 |
108 |
61 |
38 |
0 |
99 |
| World
Bank program assistance |
0 |
0 |
35 |
35 |
0 |
0 |
35 |
| Other
bilateral and multilateral assistance |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
| Debt
rescheduling or cancellation |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Residual financing
gap |
0 |
0 |
0 |
20 |
40 |
0 |
60 |
| |
(In percent of GDP) |
| Memorandum
items |
| Financing
requirements |
22.4 |
30.1 |
29.9 |
32.2 |
34.1 |
38.2 |
31.6 |
| Official
financing |
3.4 |
3.1 |
6.2 |
5.9 |
4.3 |
2.3 |
4.8 |
| Private
financing |
8.3 |
22.6 |
23.7 |
25.9 |
29.1 |
35.9 |
25.3 |
| Residual
financing gap |
0.0 |
0.0 |
0.0 |
0.4 |
0.7 |
0.0 |
0.3 |
|
| 1Including repurchases. |
|
| 2Including oil signature bonuses. |
| 3Including errors and omissions. |
|
