Documentof The World Bank Report No: 29866 -AZ REPUBLIC OFAZERBAIJAN POVERTY REDUCTIONSTRATEGY PAPER FIRST ANNUAL PROGRESSREPORT AND JOINT WORLD BANK-IMFSTAFFASSESSMENT OF THE PRSP: STATE PROGRAMONPOVERTY REDUCTIONAND ECONOMIC DEVELOPMENT August 26,2004 PovertyReductionand EconomicManagementUnit South Caucasus Country Unit EuropeandCentral Asia Region FOROFFICIAL USEONLY INTERNATIONAL MONETARYFUND AND THE INTERNATIONAL,DEVELOPMENTASSOCIATION REPUBLIC OF AZERBAIJAN PovertyReductionStrategy PaperProgressReport Joint StaffAssessment Preparedby Staffs o f the International Development Association and the International Monetary Fund Approved by Shigeo Katsuand GobindNankani (IDA) And Lorenzo PCrez and MartinFetherston (IMF) August 12,2004 I.OVERVIEW 1. The Government o f Azerbaijan has prepared the first Annual Progress Report o f its Poverty Reduction Strategy Paper, known as the State Program for Poverty Reduction and Economic Development (SPPRED). The SPPRED was approvedon February 20,2003 and presentedto the Boards o fthe IMF and IDA on May 14 and May 27,2003 respectively. This Progress Report presents the results o f the implementation of the SPPRED. The Report is a well structured document presentinga review o f measures taken to date to achieve the goals set in the SPPRED and identifying areas for further improvement. It addresses six key areas: (i)SPPRED and Millennium Development Goals (MDGs); (ii) economic growth and employment; (iii) social policy and human capital; (iv) regional policy; (v) institutional reform and capacity building; and, (vi) the participatory process. Inaddition, the Report updates the poverty profile, analyzes the main poverty indicators, and discusses ways to improve poverty monitoring. 2. The ProgressReport indicatesthat the Governmenthas hada number of accomplishmentsin the implementationof the SPPRED and stresses the need to further accelerate execution o f the identified policies and programs to meet the desired goals. Accomplishments include (i)a new Household Budget Surveyto update and improve the analysis o f poverty; (ii) strengthenedcapacities o f the SPPRED Secretariat through establishment o f a Monitoring Unit; (iii)a new Budget Systems Law that integrates extra This document has a restricteddistributionandmay be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without World Bank authorization. - 2 - budgetary funds into the state budget; (iv) improved costing and prioritization o f the SPPRED through the MediumTerm Expenditure Framework (MTEF); (v) enhanced links between the SPPRED and the MDGs; (vi) a mediumterm strategy for enhancing targeting o f social assistance; and (vii) established audit institutions and adopted a governance and management framework for the Oil Fund.The progress report placed continued emphasis on macroeconomic stability and economic growth as key instruments to generate employment and achieve poverty reduction objectives. The Report highlightsthe need to strengthen institutional capacities and the removal o f administrative barriers to economic activity and to improve the efficiency and effectiveness o f the public sector in general, and social policies in particular. It also identifies challenges inachieving the MDGs, particularly the lack o f adequate data to set benchmarks andmonitor progress, and notes the need to develop specific indicators as one o f the Government's immediate tasks. 3. However, the Report does not incorporate some of the recommendations flagged inthe JSA of the SPPRED and suffers fromweaknessesinseveral areas. The Report is weak inthe analysis o fpolicies inkey sectors, identification o fproblems inthe implementation o fthe SPPRED, and inthe discussion o f alternatives to enable the main poverty reduction objectives to be met.Prioritization o fprojects and analysis ofproject costing needs to be further strengthened, together with detailed analysis o f the budgetary allocations across key sectors. While the Report incorporates the MTEF inits discussion o f SPPRED objectives, it does not elaborate on efforts made to carefully design the LongTerm Oil Revenue Management Strategy which is critical indevelopingthe long-run strategy for poverty reduction. There is limiteddiscussion o f the governance issues inthe social sectors, which impede efficient implementation o fpolicies to fulfill SPPRED objectives. Finally, the Report could have made some suggestions to improve engagement o fkey line ministries to the main goals o f the SPPRED. 11. THEPARTICIPATORYPROCESS 4. The Progress Report reflects an extensive process of consultation involving the Government, civil society, the private sector, and the donor community. This has resulted inthe participatory process broadening andbecoming an integral part o f SPPRED implementation. The 15 Sector Working Groups setup for the SPPRED, composed o fboth government and civil society representatives, continue to be functional. Policy formulation as well as changing priorities have been discussed with, and communicated to, the general public through regional Town Hall meetings, seminars, workshops, and the mass media. This has helped increase the public's general interest inthe SPPRED and MDGs, and increased feedback on improving the SPPRED agenda interms of prioritizing and sequencing. Donor participation and coordination has also improved significantly and multipledonors are involved invarious aspects o f the poverty reduction programs o f the Government. USAID, - 3 - the EUand other donors are directly supporting the SPPRED secretariat and deriving their program according to the agenda.' 5. The consultationprocess hassignificantlyincreasedpublicawareness and interestin debatingkey policyissues.There is a new openness to discussing and analyzing the economic reform agenda o f the Government. Over the last year, the consultation process has improved the ability o f communities to analyze the emerging problems and to propose ways for their solution. Public debate has been conducted through a broad range o f activities, public information has been increased through radio and TV broadcasting, newspapers and website forums, and trainings inparticipatorymethods, particularlyby local communities and municipalities, have been conducted byNGOs. 6. In staffs' view the participationprocessneedsto be institutionalizedandbecome an integralpart of policyformulation inAzerbaijan. The staffs believethat greater ownership would be fostered ifthe Government generated well-focused andrealistic action plans directly from the participatory process. An enhanced role for Parliament, which has already demonstrated its commitment to the SPPREDimplementation through the PRSP Support Group, would also be an important step inthis process. The staffs welcome the efforts to improve the coordination o f the assistance provided by the donor community and believe that this has been instrumental inengaging the donors inthe implementation o f the SPPRED. 111. UPDATED POVERTY DIAGNOSTIC 7. The ProgressReportpresentsan updatedpovertydiagnosticbasedon the HouseholdBudgetSurvey (HBS) for 2002. Poverty is estimated at 46.7 percent o fthe total population with an extreme poverty incidence o f 8.8 percent. The Report highlightsthe changes to the HBS questionnaire in2002 to achieve consistency with EUROSTAT. These changes, together with changes inthe calculation o f poverty aggregates and the poverty line, preclude the comparison o f poverty estimates between 2001 and 20022. Inspite o f this, the Report could have conducted a more rigorous comparison o f the changes inpoverty rates over the two years, for example, by calculating rates based on the same food-item derived ' Otherexamples o f enhanced donor coordination include budgetary reform, inwhich the Bank and the Fundare working closely together with USAID and the U S Treasury, as well as accounting reform, where we work as one team with EUTACIS. The main differences include (i) changes inthe definition o f consumption expenditure inthe HBS questionnaire; (ii)differences inthe poverty lines with 2002 figures defining a minimumconsumption basket for food and non-food products, and 2001 figures incorporating only food items; and (iii)changes to the weights and prices o f items inaggregating the consumption basket. - 4 - poverty line. Furthermore, although substantial changes are not expected to be introduced to the survey methodology, the Government needs to ensure that future revisions or modifications o f this methodology do not adversely affect data consistency and comparability. 8. Despite the change in methodology, the 2002 data do not show a significantly different poverty profile for Azerbaijan. The incidence o fpoverty remains slightly higher among urban than rural households-47.8 percent compared to 45.4 percent respectively- and i s associated with falling employment opportunities and earnings inthe formal economy. Although Baku(with a poverty rate o f 40 percent) has the largest absolute number o f urban poor, poverty incidence i s highest inprovincial towns. Rural areas and small towns are more deficient interms o f access to basic services, inadequate infrastructure, and unreliable supply o f energy and gas, factors that contribute to intense rural-urban migration and discourage investment inthe regions outside Baku. With respect to individual and household characteristics, children under 15, andhouseholds with 3 or more children, experience the highest poverty risk. 9. Setting up a system to monitor living standards has been a major achievement to date, but the monitoring of those standards for refugees and internally displaced persons (IDPs) has serious shortcoming^.^ The SPPRED Secretariat uses a wide range o f indicators on living standards for education, health, employment, environment, and gender to monitor poverty and assess the overall progress inthese areas. However, as the Report notes, there are sizeable deficiencies inmonitoring the living standards o f IDPs and refugees who are most vulnerable to poverty. No progress has been made inthe introduction o f a unified annual survey as had been envisaged by SPPRED. Monitoringliving standards o f IDPs and refugees has therefore relied on various one-time surveys designed to meet different needs and the HBS, resultingina lack o f coherent, periodic, and systematically comparable collected data. 10. The Report assessesthe impact of education and health services on poverty and provides detailed assessments of measures to improve data quality. The Report finds that households with heads educated to higher levels are less likely to live inpoverty. It also notes that since current personal expenditures on education are low the possible decline inthe country's human capital could have serious implications for poverty. The staffs commend the authorities for the Report's detailed analysis o f data issues inthe assessment o f health policies through presentation o f unofficial survey data which demonstrate that official data underestimate the real health situation. It i s welcome that the SPPRED aims at improvingthe registration o f infant and child deaths inorder to produce reliable data. This, together with the IDPs of the Nagomo Karabakh conflict, who lack assets and depend heavily on State transfers, are particularly vulnerable. The conflict resulted innearly 209,000 rehges and 576,000 IDPs according to official registration, intotal almost 10percent ofthe population. - 5 - improved health information system and the international statistical classification, will contribute to the elimination o f discrepancies incertain key health indicators. Instaffs' view the SPPRED should continue to focus on improving quality and accessibility o f education and health services and developing a reliable database to assess progress. 11. The staffs recommend future Progress Reports include a broader analysis of labor market issues and explore in more detail the link between poverty and the ongoing reforms in key sectors. The staffs commend the Government for the analysis o f employment trends through introduction o f the Labor Force Survey (LFS). The LFS estimates the overall unemployment rate (10.7 percent) and labor force participation rate (62.9 percent), which is highby international standards; employment to population rate (56.2 percent); and an inactivity rate for women, which i s higher than for men inthe 25-59 age group. It i s important the LFS be conducted on a regular basis since the administrative data do not cover the informal sector. Inaddition, the staffs suggest that poverty analysis be integrated with the LFSto better enable future analysis o fthe working poor. Instaffs' view, the assessment o f poverty reduction inthe context o f the SPPRED goals would improve greatly ifthe future reports explore inmore detail the link betweenpoverty andthe on-going sectoral reforms. In this respect, the staffs recommend social incidence analysis o fpublic expenditure allocation, andthe integration o fqualitative data inpoverty diagnosis to better assess the effect o f SPPRED projects. The staffs commend the Government for including a matrix showing the MDGs(Appendix 1o fthe Progress Report) andthe status o f actions inthe case of each target. Iv. IMPLEMENTATIONAND UPDATINGOF THE STRATEGY 12. The Progress Report reviews progress made in implementation of SPPRED policy measures but is relatively weak incritically assessing achievements and inproviding specific measures to improve the effectiveness o f public policies. A large part o f the Report focuses on what has been achieved without providing much data on specific indicators. The Report stresses the importance o f reporting on all standard MDGs annually. Substantial work, however, is needed to better prioritize the strategic focus o fthe SPPRED and to better estimate the cost o fpublic action ineach area. A. MACROECONOMIC AND PUBLICEXPENDITURE POLICIES MANAGEMENT 13. In staffs' view the macroeconomic framework continues to be broadly consistent with the Government's poverty reduction objectives and the stability of inflation and exchange rates. The framework targets real GDP growth o f around 11percent per annum over the period 2003-05 which is consistent with the SPPRED reform objectives and the average growth inthe non-oil sector over the period 2000-2002. The oil-sector i s forecast to receive a major boost in2005 with a growth rate o f around 40 percent. While such a rapid expansion o f the oil export sector - which now comprises one-third o f the economy-runs - 6 - the risk o f impeding growth inthe non-oil sector, the foreseeable rapid profit repatriation and the plannedbuildup o fthe oil fundwill help limit the Dutch disease risks. However, continued fiscal prudence will remain necessary, and an expansion o f tools with which the Azerbaijan National Bank can sterilize its interventions inthe exchange market i s urgently needed. Real growth inthe non-oil sector i s projectedto average 9.7 percent between 2003- 2005. Although the scenario presented is realistic, the Report could usefullyhave presented altemative scenarios andpolicy considerations to deal with exogenous risks such as volatility o fworld oil prices. In addition, a clearer assesment o f material changes to the macroeconomic framework relative to the SPPRED would have been welcome, particularly as regards non-oil growth. Finally, the period o freference should havebeen 2004-2006 as the Report is focusing on developments in2003 and the macroeconomic framework extends only to 2005. This limits the impact o f the annual progress report inproviding guidance for medium-term expenditure prioritization and, indeed, project selection beyond 2005. 14. The staffs believe that the continuation of prudent fiscal policies is essential to Azerbaijan's economic stability and balanced growth. Azerbaijan has a relatively solid track record o f macroeconomic stability, notwithstanding the highoil prices andthe associated sizeable capital inflows. There has been a steady improvement inAzerbaijan's Country Policy and Institutional Assessment (CPIA) rating since 2000 and its ranking among IDA countrieshas improved from fourth quintile in2000 to second quintile in2003. The Government is gradually aligningbudgetary expenditures with SPPRED priorities as noted by the Report. Expenditures on education and health are still low as aratio o f GDPrelative to other countries, but the 2004 budgetdid allow for a significant increase inthe level o f allocations to these ~ectors.~ This apparent change inthe trendis significant given the importance o f social expenditures for poverty alleviation. The efficiency o f these expenditures should be monitored carehlly given institutional capacity and governance issues inthe social sectors. 15. Maintaining prudent fiscal policy in turn depends on the use of oil revenues. With the establishment o fthe State OilFundprudent arrangements have beenmade to manage oil revenues prior to their expenditure. A LongTerm Oil Revenue Management Strategy, to guide the expenditure o fthese funds, has been drafted. The strategy aims to ensure that the substantial, but relatively short-lived, non-renewable oil and gas revenue windfall benefits both current and future generations by setting fiscal rules which target a constant real non-oil deficit with a limit on the year-to-year fluctuation inthe non-oil deficit as a percentage o f non-oil GDP. Formal adoption o f the Strategy i s an important next step. In Educationand health expenditures grew by less than GDP o n average during 1999-2003. In2004, GDP is expected to increase by 16percent innominal terms, and total government spending (excluding BTC investments) by 25 percent. The Budget Law has allocated increases inexpenditures o f 27 percent for education and 32 percent for health in2004 (innominal terms, with an expected CPI inflation rate o f 5 percent). - 7 - addition, the implications o fthis strategy for budgetary allocations need to be discussed explicitly infuture Progress Reports. 16. Progress in public expenditure management has been significant, but the growth inconsolidatedgovernment expenditure needs to be better targeted, particularly in light of the pressing needs to meet the MDGs. The MTEF targets an increase inthe ratio o f government consolidated expenditure to non-oil GDP from 27.4 percent in2001 to 33.4 percent in2005. However, the staffs have some reservations regardingthe composition o f these expenditures which they believe should be targeted more toward poverty reduction and spending on basic services. First, although the government still needs to undertake much needed civil service reforms, significant andwidespread wage (andpension) increases were introduced in2003 and 2004, and more are planned for 2005. Second, the impact o f budgetary spending inthe priority sectors o f health and, to some extent, education is adversely affectedby serious governance problems at all levels, which the Government is not acting fast to address. This has prevented multilateral andbilateral assistance to the health sector inparticular, and ifcontinued, will adversely impact the Government's ability to meet the MDGgoals. Onthe revenue side, the staffs believe a stronger effort should be made to broadenthe non-oil tax base and lower tax rates, and continue structural changes to increase non-oil revenue performance. This is especially the case for taxes on labor, which are subject to very highsocial security contribution rates. 17. The Progress Report recognizes the importance of decentralization in the successfulimplementation of the poverty reduction strategy. Steps have been taken to improve local budget revenues and buildcapacity for local budget preparation. There is a need to focus on the creation o f a transparent budgetary transfer mechanism and on the transfer o f state properties to municipalities. The Report does not make clear why only one- fifthofthe budgetedtransfers havebeenmade availableto the municipalities in2003. The need to further define the decentralization strategy and, inparticular, the role o f the municipalities remains an important priority for the Government. Inparticular, the creation o f a governmental bodyresponsible for municipal affairs i s a priority inorder to promote regional development objectives and engage incapacity buildingwithin municipalities. 18. The Progress Report lists the many actions taken by the Government, and planned for the future, to improve transparency and operational efficiency in the public and private sectors. A new Law on Budget System was adopted inJuly 2002 and amended inMay2003. The 2004 budgetpreparationwas the first attempt withthis Law. The Report does a goodjob o f detailing the measures undertaken intax and customs administration to improve transparency and governance, but it is silent on public procurement issues, the Chamber o f Accounts, and the need to markedly improve the latter's effectiveness as an independent control agency. Inorder to strengthen the fiduciary framework, the Government is adopting a new Accounting Law that mandates the use o fpure International Financial Reporting Standards (IFRS)by public interest companies, including large government enterprises, and the use o f National Accounting Standards (NAS) by all other entities. The law also provides the basis for adoption o f International Public Sector Accounts Standards (IPSAS) for government accounting. The accounting and auditing framework for 2004-2006 - 8 - envisages revisions o f laws and related regulations to harmonize with the Civil Code and the Joint-stock Company Law, and establishment o f a new Audit Law according to International Standards o f Auditing (ISA). B. SECTOR POLICIES 19. The Progress Report puts special emphasis on the accessibility of education and basic health care services and the implementedpolicies to achieve the SPPRED goals. However, the Report is silent on key factors affecting the quality o f education, such as class size, and the requiredpolicy steps to improve delivery o f education services. With regardto health, advances have been made with the development o f a basic health package, establishment of community drug funds, and community health councils on a pilot basis. Capacityhas been built, and awareness raised through training and seminars, to increase birth safety and deal with AIDS, Malaria, andTB, while monitoring has been strengthened inorder to reduce incidence. However, the Report does not adequately address the reasons for health care expenditures persistently beingless than 1percent o f GDP. It understates the serious governance issues within all levels o f the health sector including the chronic problem o f informal payments and the pseudo privatization o f health services. Without improvements in governance, envisioned increases inhealthcare expenditures are unlikelyto be used efficiently. 20. The Government program on social protection will focus on a range of actions aimed at increasing efficiency, effectiveness and sustainability and supported by the IDA Pension and Social Assistance Project. Inthe area o fsocial insurance, the program includes linking benefits more closely to contributions; modemizing and strengthening financial management o f the State Social ProtectionFund(SPF); and moving all social insurance benefits administration from enterprises to the SPF. The Government will draft a new legislationonpensions, which will introduce parametric changes inthe pension system and closer links between contributions andbenefits. With regards to social assistance, the Government's program includes: (i) targetingo f social assistance benefits based on eligibility assessmenttaking into account the economic and social situation o f the applicants; (ii) consolidating various benefits into a single targeted family poverty benefit incash as o f 2006 and a significant increase o f resources allocated to its financing; (iii) modernizing the capacity o f Ministry o f Labor and Social Protection(MoLSP) to administer social assistance benefits using computerized MIS. A draft framework law on Targeted Social Assistance has beensubmittedto the Cabinet o fMinisters. The Staffs support the Government's strategy o f linkingthese programs with the ongoing utility sector reforms inorder to mitigate any adverse impact on the poor. 21. The Report recognizes the Government's efforts to reduce energy subsidies, intensify reforms in the energy sector, and provide reliable energy sources outside the capital city. The 2003 budget incorporated energy-related subsidies provided by the State Oil Company o fthe Azerbaijan Republic (SOCAR) to Azerenergy, Azerigas, andAzerchemia. In - 9 - order to control the level o fthese subsidies, the Government approved the 2004 revenue and expenditure plans o f these companies. The staffs welcome these developments, but believe the Report should highlight the difficulty the Government i s facing incontrolling and reducing energy-related subsidies, and inlowering the large quasi-fiscal subsidies implicit in oil product prices which are approximately 62 percent o f world market rates. The overall situation with respect to supply o f commercial energy outside Baku continues to be unsatisfactory, as power i s supplied a limitednumber o fhours per day. Furthermore, the increase inelectricity and natural gas consumption in2003 was matchedby an increase in supplycosts, causing the subsidy to the energy sector from the state budget to expand significantly. The Government intends to develop a medium-term tariff policy (inparallel with developing improved social protection) andto establish an independent utilityregulatory agency. A Presidential Decree issued inJanuary 2003 identified a number o frestructuring initiatives aimed at SOCAR, including the separation o fnon-core activities inadvance o f their privatization, but their implementation has been limitedand further work i s needed. Recommendations for financial restructuring o f SOCAR have beenprepared and additional technical assistance is under preparation to review the commercial structure o f SOCAR and implement a plan for the commercialization o f the company. 22. The Progress Report recognizes the importance of the agriculture sector in the development of the regions. The Government has taken several measures inthe agricultural sector. It has prepared a rural development strategy, taken steps to enhance the access o f farmers to finance, developed the land market, and improved access to water. The staffs believe that the SPPRED should further encourage the enabling environment for the development o f small- andmedium-sized businesses inrural areas. This requires a reduction intransactioncosts for businesses anddevelopment ofmarketinginfrastructure. These entail improvingthe reliability o f infrastructure, reducing corruption, and increasing economies o f scale by facilitating the formation o f rural business associations, for example for milk producers and processors. Other priority areas for improvingthe rural business environment include enforcing consistent and transparent standards for private sector activities. 23. The Progress Report relates improving living standards to the improvements of infrastructure facilities in both rural and urban areas. Progress has been made in construction and rehabilitation o f highways, rural roads, railroads, and the airport inthe Nakhchivan enclave. However, additional progress can be made inimprovinginfrastructure byproviding municipal governments with adequate resources and capacityto manage their infrastructure assets. Communities can play a significant role inaddressing the issues related to improvement o f rural infrastructure. The staffs support the Government's intention to encourage community development and recommend preparation o f a strategy for this purpose. It is important that the Government puts into effect the provision o f timely registration o f community-based organizations to enable the latter to fully participate inthe community development processes. 24. The Progress Report highlights a number of measures to strengthen the banking system and to broaden its out-reach, but recognizes that more remains to be done. Measurestaken include expansion o fthe banking network inthe regions, creation o f a - 1 0 - functional micro-finance market, expansion o f credit unions, and improved access to finance inrural areas. Theregistrationprocess andregulatory framework for non-bank credit institutions (microfinance institutions and credit cooperatives) has been streamlined, which has increased the number o f institutions and credit volume. Yet, the total volume o f credit to rural areas and to the disadvantaged remains small. What i s needed to reduce credit risk are parallel actions that would facilitate appraisal andmanagement o f credit risk for non-bank financial institutions and create better business andmarket environment for the private sector inthe regions. The Report fails to highlightthe substantial delays inthe privatization o fIBA and BUS Bank, and their muchneeded subsequent de-monopolization. Infact, over 2003 and 2004, IBA has consistently attempted to consolidate its monopoly power, sometimes with the assistance o f the Government, as seenwith the Social ProtectionFundtender. The staffs recommend these issues be raised in future progress reports, as they must be addressed to foster competition and efficiency inthe banking sector and to develop a sound financial sector, which i s essential for the future development o fthe economy. 25. In staffs' view, measures to strengthen the banking system and its legislation would contribute to the stability of the financial markets. While the recently enacted Banking Law is consistent with Base1Core principles, the associated implementing decree raises serious problems for independent regulation o f the bankingsector by effectively transferring control o f supervision to the Presidential Office. Furthermore, the decree calls for a Banking Sector Codex, details o fwhich are unclear but which has effectively stalled progress on the draft National Bank Law. The latter aimed to improve the quality o f banking supervision and regulation, as well as the disclosure o f information, which would affect transparency inthe banking sector andmarket operations. Inspite o fthese impediments, there has been some progress inimprovingthe banking infrastructure. The creation o f a credit register i s expected to improve banks' credit risk management capacity and facilitate access to credit. There have been important advances inimproving bank governance and in introducing international accounting and reporting standards inthe banking sector. The national payment system has gone through further improvement and the NBA has started developing a comprehensive system to introduce electronic payment means. The real difference andpositive impact that these actions will have on the banking system and access to finance will, however, take some time to materialize, and could be overwhelmed by the supervision problems noted above. Expanding access to the national payments system and financial services to rural areas would help integrate these areas into the national economic sphere. 26. The Progress Report attributes importance to the actions taken to create favorable conditions for income-generating opportunities. It elaborates on the adoption o f new laws facilitating the registrationo f legal entities and combating corruption, and emphasizes other positive developments including the simplification o f the licensing system, implementation o f the program on the development o f Small andMedium Enterprises, promotion o f investments through creation o f a foundation for investment promotion, development o f a public investment program, and reductions inthe tax burden and simplification of the tax system. Inaddition, WTO accession has been facilitated through various technical assistance programs. The staffs recommend that the Government focus even - 11- more attention on eliminating impediments to private sector development and foreign direct investment, including unreliable utility and infrastructure services, especially inthe regions outside Baku, as well as administrative barriers to business start-up, and site acquisition and development. 27. The Progress Report clearly defines the challenges of maintaining environmental sustainability as the economy expands. There is a need for greater monitoring and control o f pollutionlevels. SPPRED is addressing the shortage inhousehold drinkingwater supply andinadequate water quality (especially inrural areas) through rehabilitation o f infrastructure inanumber ofregions, withthe help ofthe donor community. A national forest rehabilitation plan, adopted in2002, has been implemented to meet the SPPRED objective o f creating and expanding forestry areas. The staffs concur that institutional capacity for monitoring environmental problems and developing an effective regulatory framework should be at the core o f SPPRED activities. 28. The Progress Report recognizes that gender issues have not received sufficient attention. The staffs recommend that this be addressed ina more systematic way inthe next progress report, with a clear mechanism inplace that would enable the utilization o fvarious data sources for an effective assessment o f gender as it relates to poverty. Instaffs' view the SPPRED could take stock o f all activities supported so far byboth the Government and donor community and conduct a country gender assessment. C. MONITORINGEVALUATION AND 29. The staffs welcome the establishment of the Poverty Monitoring Unit at the SPPRED Secretariat and efforts to buildcapacity for poverty analysis. The SPPRED Secretariat continues to monitor changes inpoverty levels and, where possible, analyzes the effect o fpolicies on poverty results. Capacities also need to be strengthened inkey line ministries to undertake policy monitoring and evaluation. The next progress report will need to be more explicit on monitoring o f outputs and outcomes. The staffs welcome the Government's intention to gradually expand the core set o f indicators, especially for measuring the targeting o f social services. Reporting annually on all the standard MDGs is critical. 30. The staffs encourage establishing annual surveys such as the Labor Force Survey, the survey of IDPs, and others that would assist Azerbaijan insetting up a credible database for monitoring poverty and living standards. It is important to continue to make data available for independent researchers as part o f the participatory process. Education and specially health sector data need to be dramatically improved. The staffs welcome the Government's engagement inthe Poverty and Social Impact Analysis (PSIA) on energy tariff reform and on worker displacement due to the enterprise restructuring and privatization. - 12 - v. R I S K S TO THE STRATEGY 31. In the staffs'view, the Strategy is subjectto severalinstitutionalandpolitical risksthat are notevaluatedinthe ProgressReport. The leadingone is the implementation risk resulting from weaknesses incoordination among line ministries and multiple agencies incharge o fthe implementation o f policies and programs identified by SPPRED. Inaddition, capacity constraints and governance problems inline ministries could pose risks infull implementationo fthe SPPRED programs. There is also a risk that power struggles as a result o f the recent political transition could leadto major shifts inpolicies. In the staffs' view, future Progress Reports should include an assessmento fthe exogenous risks and detail plans to mitigate them. The Government also needs to develop contingency plans and alternative scenarios and policy considerations to deal with these risks. VI. CONCLUSIONS 32. The Governmentof Azerbaijan has madesignificantprogress in implementing the SPPREDwithin a short periodof time, notwithstanding the political challenges in 2003. Although there are weaknesses due to insufficient implementationcapacity, instaffs' view the Progress Report is a credible and inclusive effort on the part o fthe Government and provides a basis for more harmonized and effective donor support. 33. Instaffs' view there are some shortcomingsthat needto be addressed during implementationof SPPREDandin subsequent progressreports.First, the analysis o f poverty needs to be strengthened by expanding the informationbase to include labor market surveys and social impact assessment. Health statistics, inparticular, need to be improved urgently.Second, policies should bebetter prioritizedto identifypro-poor spending programs. Third, the link betweenpolicies and budgetary allocations needs to become stronger through the MTEFprocess. This requires detailed analysis o fbudgetary allocations across key sectors and their poverty implications, as well as a more critical review o f government policies ineach area to identify the need for future support. Fourth, capacity constraints need to be further analyzed and clearly identified, including the need for possible support from the donor community. Fifth, more accurate costing o fprograms is needed. Finally, more attention needs to be paid to the analysis o f gender issues. 34. The staffsof the IDA andthe IMFconsiderthat Azerbaijan's povertyreduction strategy continuesto providea credibleframeworkfor BankandFundconcessional assistance. The staffs recommendthat the respective Executive Directors o fthe World Bank and the IMFreach the same conclusion. STATE PROGRAMMEON POVERTY REDUCTIONAND ECONOMIC DEVELOPMENT AZERBAIJAN PROGRESSESTOWARD THE ACHIEVEMENTOF THE MILLENNIUMDEVELOPMENT GOALS ANNUAL PROGRESS REPORT - 2003 BAKU 2004 , ACRONYMS: ADB Asian DevelopmentBank AIDS Acquired Immune DeficiencySyndrome AZM Azerbaijan NationalCurrency(Manat) BTA Baku-Tbilisi-Arzurum BTC Baku-Tbilisi-Ceyhan CIS Commonwealthof IndependentStates CM Cabinet of Ministers DOTS DirectlyObservedTreatment Short Course EBRD EuropeanBank for Reconstructionand Development ECCD EarlyChildhoodCare and Development ECO EconomicCooperationOrganization EPI ExpandedProgramme on Immunization EU EuropeanUnion EUlP EcologicallyUrgentInvestmentProjects FA0 FoodandAgricultureOrganization FDI Foreign Direct Investment FSlS FoodSecurity InformationSystem FSP Food Security Programme GDP Gross DomesticProduct GEF Global EnvironmentFacility GTZ GermanSocietyfor TechnicalAssistance HBS HouseholdBudgetSurvey HIV Human Immune DeficiencyVirus IBTA InstitutionalBuildingTechnicalAssistance IDA InternationalDevelopmentAgency IDP InternallyDisplacedPerson IFC InternationalFinanceCorporation IF1 InternationalFinancial Institution ILO InternationalLabourOrganization IMF InternationalMonetaryFund IsDB Islamic DevelopmentBank JSA Joint StaffAssessment KfW GermanBankfor Development LFPR Labour ForceParticipationRate LFS Labour ForceSurvey MDG MillenniumDevelopmentGoal MED Ministryof EconomicDevelopment MENR Ministryof Ecologyand NaturalResources MlCS Multiple IndicatorCluster Survey MLSP Ministryof Labourand Social Protection MOH Ministry'ofHealth MTEF MediumTerm ExpenditureFramework NB National Bank NGO Non-governmentOrganization ODA Official DevelopmentAssistance OECD Organizationfor EconomicCooperationand Development OPEC Organizationof Petroleum ExportingCountries PIP Public InvestmentProgramme PMU PovertyMonitoringUnit PPP PurchasingPower Parity PRSP PovertyReductionStrategy Paper RHS ReproductiveHealthSurvey SAP StrategicAction Plan SCRIDP State Committeefor Refugeesand InternallyDisplacedPersons SES State EmploymentService SFD Saudi Fundfor Development SME Smalland MediumEnterprises SOCAR SOFAR State Oil Company ofAzerbaijan Republic' State Oil Fund ofAzerbaijan Republic 3 SPPRED State Programme on Poverty Reduction and Economic Development SPSS ssc Software Package for Social Sciences State Statistical Committee SSPF State Social Protection Fund SWG Sector Working Group TAClS TechnicalAssistance to the Commonwealth of Independent States TB Tuberclosis UN United Nations UNDP United Nations Development Programme UNEP United Nations Environment Programme UNFPA United Nations Population Fund UNICEF United Nations International Children's Emergency Fund USA1D United StatesAgency for International Development USD United States Dollars USTDA United States Trade and DevelopmentAg ency WB World Bank WFP World Food Programme WHO World Health Organization WTO World Trade Organization 4 TABLE OF CONTENTS Introduction.................................... ..;.................................... 6 Chapter 1;: SPPRED and the MDGs .......................................... 9 Chapter 2: Poverty monitoring 12 Chapter 3: Economic Development and EmploymentGrowth ....................................................... 51 Chapter 4: Social Policyand Human Capital Development ......... 63 Chapter 5: Regional Policyand InfrastructureDevelopment ...... 74 Chapter 6: Institutional Reforms and Capacity Building. ........... 79 Chapter 7: The Participatory Process ....................................... 84 Appendixes: Appendix 1: MDGs Report Appendix 2: MediumTerm Expenditure Framework (MTEF) implementationstatus Appendix 3: Main socio-economic indicators 5 Introduction SPPRED:theglobal context Lowlevelofsecurity Thisdimensionislinkedto risks which may arise at Since the end of the 199Os, there has been the national or local level. reconsideration by the international community Some are predictable of the best ways to promote economic growth such as seasonal risks in and reduce poverty in the world. This has agricultural connected to resulted in efforts by national governments, in harvest. But some are close collaboration with international caused less predictable organisations, to produce nationally strategies risks, such as macro- for poverty reduction (Poverty Reduction economic shocks, natural Strategy Paper PRSP). Such strategies also disasters: provide a focal point for ensuring better Empowerment: This dimensionis linkedto coordination of external (donor) assistance the extent to which poor aimed at poverty reduction. In the years 2001- people can participate 2003, Azerbaijan, with support from its and influence decision- international partners, producedsuch a national making. strategydocument: theSPPRED. The SPPRED representsan attemptto take into The new global approach to poverty reduction accountall of these dimensionsof povertyandto has gone hand in hand with a broader understandthe linksbetweenthem. understanding of poverty. While there are different estimates of the number of poor in the The global commitment to reduce poverty has world, (and in individual countries), there is a been expressed in the clear poverty focus of common recognition that poverty is "multi- internationalorganizations since the late 1990s. dimensional" and that a "mix" of parallel policy While different organisations may call the actions are required to tackle the different strategiesdifferentnames,or mayhaveaslightly dimensions. Whereas previously the focus was different focus, the end aim for all is poverty almostentirely on"incomepoverty"(low levelsof reduction and economic development and the percapitaincomeorexpenditurelevels),itisnow strategies are fundamentally statements of accepted that coordinated efforts need to be national governments' commitment to poverty directed at all dimensions of poverty in order to reduction.However,they need not bea series of have a longterm and sustainableeffect on living different strategies for different donor standards. Using an income poverty type of organizations. In Azerbaijan, SPPRED has measurement, the World Bank (WB) has provided a successful example of full estimatedthat 2.8 billion peoplelive on lessthan collaboration and coordination between the $2 per day, and 1.2 billion on less than $1 per governmentandthevariousdonororganisations day`. (international and bilateral) in the formulation andimplementationofonenationalstrategy. The dimensions of povertycan be summarized as: SPPRED: Past and Present Lack of opportunities: This dimension relates As mentioned above, SPPRED was formulated income and consumption in the period 2001-2002. In 2001, a Secretariat levels, but also to human was set up at the Ministry of Economic capital, employment, Development(MED)with the task of leadingand wages, and access to coordinating work on the strategy document. 15 assets,suchas land: Sector Working Groups (SWGs) were also set Low capabilities: This dimension relates to up, including members from government health and education agencies, Non government organizations and indicators. Low education civil society. Drafts of the policy proposals being attainment, illness, and put forward in the strategy document were malnutrition contribute to discussed at various national and regional incomepoverty: seminars. The final draft was presented at an ` WorldDevelopmentReport2000/2001 6 internationalconference held in Baku on 25thof concentrated in the oil sector and which is October2002, andreceivedfinal approvalwith a spread evenly over the differentregions of PresidentialDecreeonFebruary20th,2003. thecountry. The SPPRED document was submitted to the 3. How do we want to get there?SPPRED International Monetary Fund (IMF) and WB. In identified six key strategic directions for April 2003, the staff of the International achieving its overall aims of poverty DevelopmentAgency(IDA)and IMFproduceda reduction and economic development, Joint Staff,Assessment (JSA) of the strategy namely: document. The JSA gives a positive review of SPPRED, evaluating it as a significant 1. Creatingan enabling achievement, and stating that it "represents a environmentfor the growthof credible povertyreductionstrategythat provides income-generatingopportunities a sound basis for Bank and Fund concessional 2. Maintenance of economic assistance". stability 3. Improvementofthequalityof and In May 2003, a resolution of the Cabinet of equity of access to basic health Ministers (CM) decreed that work should begin andeducationservices on the implementationof the strategy, and that 4. Improvementofinfrastructure the MED is to coordinate activities to ensure 5. Reformof the existing system of successfulimplementationofthestrategy. socialprotection 6. Improvement of the living Since then, the SPPRED Secretariat under the conditions and opportunities of MEDhas been re-formed and extended to therefugeeandIDPpopulation include a Poverty Monitoring Unit (PMU). Its activities were supported in 2003 through 4. How will we know that we are getting assistance from the WB, Asian Development there? SPPRED includes a policy matrix Bank (ADB), United Nations Development which summarises the policy direction and Programme (UNDP), US Agency for measuresconsidered necessaryto achieve InternationalDevelopment(USAID)andGTZ. the above strategic aims. It includes the policy priorities identified by the 15 SWGs, and categorises them into four main SPPRED: Brief summary of its content functionalgroups: goals 1. Economicdevelopmentand The aim of this report is to summariseprogress employmentgrowth achievedduring the first year of implementation: 2. Socialpolicyand human to highlight problems encountered, and outline development future activities. Beforegoing on to describe the 3. Regionalpolicyand structure of the report, it is worth summarising infrastructuredevelopment themainpointsoftheSPPREDdocument. 4. Institutionalreformand capacity building SPPREDas a strategy document set out to answer four key questions: The policy matrix includes a listof indicatorsto be usedfor monitoringimplementation 7. Where are we now?The first chapters of progress. SPPRED set out what we know about poverty and its determinants in the country SPPRED: Implementation and what factors are holding back future economicdevelopmentinthecountry. SPPRED is a strategy document for the period 2003-2005. This annual report summarises 2. Where do we want to go? The vision of activities and progress in the year 2003. Since the strategy is further economic this isthe first year of the programme,there has development which can guarantee a fairer notbeentimeto organiseimpactanalysesofthe distribution of the benefits of economic policy measures being implemented under any growth:broaddevelopmentwhich is notonly of the four categoriesmentionedabove. Neither has enough time passed for the full 7 implementation effect of most measures to those relating to environmental protection and become apparent, making impact analyses in thedevelopmentoftourism. anycasepremature. Chapter 6 summarises the policy measures As stated above, the SPPRED Secretariat was being implemented to promote institutional re-formed under the MEDin May 2003, and has reform and capacitydevelopment,both of which since been coordinating the monitoring of the are crucial to support the measures undertaken implementation process. Line ministries are for economicandsocialdevelopment reportedin responsible on implementation of the policy the previousthreechapters.This chapter reports actionswithin Policy Matrix of the SPPRED and on judicial and legal reforms, progress in to provide a quarterly report on the decentralisation and developing capacity in the implementationstatustotheSecretariat. municipalities, as well as capacity building in povertymonitoring. The report is divided into seven chapters reporting on the key areas outlined in the Chapter 7: Participation.The approach adopted SPPREDdocument: is an inclusive approach and the Secretariat is facilitating extensive and inclusive consultation Chapter 1 describes the relationship between and participation in the implementation and the global Millennium Development Goals evaluation of policymeasures.Thedevelopment (MDGs)and SPPRED goals.The MDGcountry- of a participatoryprocess in the implementation specific goals, targets, and indicators, are the phase has received a lot of attention from the subject of on-going discussions. It is anticipated Secretariat, donor organisations,NGO'sand the that once they have been approved, they are working groups. A full report of this year's unlikely to differ greatly from the goals and activities and recommendations for further objectivesofthe SPPRED. strengthening of participationof vulnerable and excluded groups are contained in this chapter. Chapter2 providesan update by the PMUwithin The adoption of an inclusiveapproach is viewed SPPRED Secretariat on the main economic as integral and fundamental in SPPRED development and living standards indicators. It implementationactivities. also points out the links between these and the country-specific indicators being discussed for The reportalsocontains3 appendices, namelya monitoring progress towards achieving the table summarisingdiscussionso far on country- MDGs. specific MDGs, a report on the status of the country's MTEF,andasummarytable containing Chapter3 providesan update on progressin the selected economic and social indicators for implementationof a range of measures relating 1999-2003. tofiscalpolicy,monetarypolicyanddevelopment of the banking sector, investment policy, energy policy, and labour market and employment policies. The information is based on the implementation progress reports received from the lineministriesinthese sectors. Chapter 4 reports on those sectors relating to social policy and human capital development. Progress in the implementation of policy measures and activities in education, culture, health,socialprotection,and improvingthe living standardsof IDPs and refugees is set out in this chapter. Chapter 5 is devoted to regional policy and infrastructuredevelopment.This chaptergives a summary of the activities related to public investmentin utilities and infrastructure;a report on measures relating to agriculture, irrigation, land protection and water resources, and also Chapter I: SPPRED and the MDGs In September 2000, 147 heads of state and involvingcivil society aswell as the International government, including the President of Financial Institutions (IFls) and donor Azerbaijan, Heydar Aliyev, committed community. In the same way, it is considered themselves to the Millennium Development important that the country-specific MDGs and Goals (MDGs)to achieve poverty reduction and targetsshouldbe nationallyowned,andthatthey promote human development in the world. The couldthereforebenefitfrombeing"embedded"in numberof countriesgivingtheircommitmenthas theSPPREDparticipatoryprocess. since risen to 191. MDGs were set out in the Millennium Declaration adopted by the United SPPREDwas developedas a poverty reduction Nations GeneralAssembly.They identifya set of strategy which could satisfy the requirementsof goals, which providea focus for the effortsof the a PRSP. While there are general guidelines on world community to achieve measurable the contentand approachrequiredfor a PRSP, it improvementsin people'slives bythe year 2015. is recognised that there is no single recipe for The full MDG framework comprises 8 goals, 18 each country, and that each PRSP will have to targets and48 indicators. Most targets are to be take into account the specific economic achieved over a 25-year period, from 1990 to conditions, problems, institutions, social capital 2015.The8 maingoalsareasfollows: etc of the specific country. Azerbaijan has alreadygonethrough a majorpartof the process Eradicateextremepovertyand hunger of adapting the PRSP guidelines to its specific Achieveuniversalprimaryeducation conditions. In the same way, the global MDGs Promotegenderequalityandempower haveto beadaptedtolocalconditions,and made women "country-specific". But this process could be 0 Reducechildmortality accelerated by buildingon the groundwork done 0 Improvematernalhealth inthe SPPREDformulationphase. 0 CombatHIV/AIDS,malariaandother diseases One of the principles of SPPRED is that it is not 0 Ensureenvironmentalsustainability an abstract "wish list" of good intentions, but is 0 Developaglobalpartnershipfor linked to the actual expenditurecapabilitiesand development potential of the country. For this reason, the strategy includes a Medium-Term Expenditure These MDGs(aswellasthe 18targets) aresetat Framework (MTEF). This is also one of the the global level, and cannot be considered principlesofthe MDGs; i.ecountry-specificgoals appropriatefor all countries.Azerbaijan, like the and targets should be backed up by a clear other nations who signed the Millennium expenditure programme, which makes their Declaration, now has the task of adapting them achievementrealistic. to its concrete conditions and stage of development and of setting country-specific The WB and the UNDP have recently issued a goals and targets. Initial discussion of possible joint statement, which sets out the desireof both country-specific goals has taken place in 2003 organisations to see PRSPs and country- within the framework of the SPPRED's activities. specific MDGs being integrated, since PRSPs The reasonsforthisareasfollows: are seen as ideal vehicles through which to mobilise the country's resources to achieve the The overall aim of the MDGs and that of MDGs. The ADB, which since 1999 has made SPPRED is poverty reduction, and the overall poverty reduction its overarching aim, supports goals identifiedby SPPREDare fully compatible the development of national poverty reduction with the MDGs. Moreover, SPPRED sets out a strategies and in Azerbaijan has provided series of priority policy directions and measures supporttothe Governmentintheformulationand which can be usedbythe government to achieve implementation of SPPRED. In 2002 the ADB thesegoals. also adopted the MDGs as the principletargets for poverty reduction. Thus SPPRED has so far SPPRED as a strategy is "nationally owned", Le. provided an excellent example of donor it is a poverty reduction strategy developed not coordination between IFls and also other by any individualdonor organisation, but by the members of the donor community. The UN government, through a participatory process organisations havealsobeenactivelysupporting 9 the SPPRED process, and by combining the in some cases 1995 is considered more formulation and implementation of country- appropriate(seeAppendix1). specific MDGs with the ongoing SPPRED activities and discussions, the excellent In the case of poverty figures, the baseline will coordination and focussed efforts seen so far have to be 2002, due to the lack of comparable could befurther enhanced. data before this date (see chapter 2 for more details). Only from 2002 onwards will there be SPPRED is a programme which sets out policy data collected on an annual basisina consistent goals and priorities for the period 2003-2005. way, i.e. using the same survey methodology The MDGs, on the other hand, set goals and and allowing the same definitionsof key welfare targets for the period upto 2015.The discussion indicators.A new absolute povertyline has been of the formulation period as well as the first prepared by the relevant SWG and this will be experiencesof implementationcouldbetakenas usedtosetthe2002baseline. a basis for developing longer term goals and targets for poverty reduction, and for country It is expedient that the second global MDG of specificMDGs. achieving universal primary education be replaced by the country-specific goal of During the period reported here (2003), achieving universalsecondaryeducation.Within preliminary discussions have been underway this itis recognizedthatthisonly makessense as within the SPPRED Secretariat and line ministries on the most appropriate MDGs for ameasures goal if it isSPPREDto country envisagedin accompanied by the improvethe Azerbaijan. There has also been discussion of quality of and accessto basic school education, these at the Regional Workshops held and to ensure that curriculum reflects both the throughout the country (see chapter 7 for changing skill requirements of the new labor details). The table in Appendix 1 gives a market and training in basic life skills. For summary of the country discussion so far, and monitoring purposes, itwill be necessaryto look some conclusions are reported in the relevant not only at enrolment rates, but also actual chapters in this report. Here we highlight just attendance rates. severalkey points: While goal three (promotinggenderequality and SPPREDhassofar identifieditsoverall goalsfor empowering women) isconsideredimportantfor poverty reduction and the next stage is to set Azerbaijan, the targets and indicators require concrete targets and indicators for these goals. further discussion. There will be less emphasis In the formulation period, it was found that for on literacy andqualityof opportunityat the lower most goals, the statistical basis for setting levels of education, but more on encouraging benchmarks and monitoring progress in women to take on higher education that could achievingtargets isstillweak; and moretimewas create an opportunity for them to aim for top needed for discussion of targets. However, positions ineconomicandpoliticallife. setting concrete targets and indicators is a task which the Secretariat is currently working on, While goals four and five (reducing child and parallel to its work in building up the statistical maternal mortality) are considered appropriate base and capacity in the country. The concrete for Azerbaijan, the main problemencountered is targets for both SPPRED and the country- the discrepancy betweenofficialdata (based on specific MDGs will be developed together administrative sources)and surveyestimatesfor through dialogue with the relevantstakeholders, these indicators. With regard to Goal 6 SWGsandlocalexpertsinthecomingperiod. (combating HIVIAIDS, malaria and other diseases), the goal is also considered One clear conclusion is that 1990 cannot be appropriate, and discussion is taking place on taken as a baseline for most country specific the targets and indicators. targets, partlydueto lackof data,andsometimes due to the fact that it is considered inappropriate Goal seven (ensure environmental sustaina- because it precedes a lot of the social collapse bility) is considered very relevant to Azerbaijan associated with the first years of the transition and is an integral part of SPPRED. However, period. Thus use of 1990 would lead to an initial discussion of targets and indicators has underestimation of the achievements of the shown that targets regardinglandareascovered country in overcomingthe difficultiesand drop in by forest or guaranteed protection to maintain value of most social indicators in the 199Os, and biological diversity will have to be set in a 10 sensitive manner, and involving local communitiesinthe discussion. This is partlydue to the need to ensure that the poor are not deprived of access to land and energy supply (firewood) in situations where supply of alternative energy sources cannot be . guaranteedataffordableprices. Settinga tgget for access to safedrinkingwater isconsideredappropriateforAzerbaijan, butthis will require an improvement of the monitoring system, and also more work on clarifying the definition of "improvedwater source"to be used inthecountry.At presentadministrativestatistics are available only on access to pipedwater, but there is noconsistentmonitoringof the qualityof the water which is deliveredthrough the pipes. For Azerbaijan it may be appropriate to set a target for increasing access to piped water in ruralareas, and also to set indicatorswhich rely on monitoring of the quality of the water being delivered to households.The latter will require improvementsin the current monitoring system (as envisagedby SPPRED; see policy measure underhealth). The global MDGs include a target .aimed at improving the lives of slum dwellers. This concept is considered difficult to define and monitor in Azerbaijan. However, it may be appropriate for Azerbaijan to set a target, possibly for 2010 rather than 2015, aimed at ensuring that all IDPs are re-settled from accommodationwithaccesstosanitation. The final MDG (developinga global partnership for development) requires more country discussion, but a first proposal has been put . forwardto adapt this forAzerbaijanto a country- specific goal of "increasing FDI in the non-oil sector". This is completely compatible with SPPRED's key strategic aims of creating an enabling environment for income-generating opportunities, and of promoting economic developmentoutsidethe oilsectorandoutsideof theAbsheronpeninsula. The country discussionof MDGswill continue in 2004, andtargetswill bedevelopedas SPPRED also goes on to develop specific targets. In line with the recommendations made in the Joint StatementbytheWB and UNonthe relationship between MDGs and PRSPs (April 2003), this report should be consideredas both an annual SPPREDreportandthecountryMDGreport. 11 Chapter 2: Poverty Monitoring Introduction Oneofthe tasks of the SPPREDSecretariatisto first two tasks are seen as a precondition for the coordinate work on monitoring trends in living implementation of all the poverty reduction standards in the country, using a variety of living measures envisaged in SPPRED; the last two standards indicators. In 2003, PMU was set up are particularlyrelevantto the key strategic aim within the Secretariat to carry out this work. This of creating an enabling environment to chapter summarises the results of the work encourage employment creation and income carriedout bythe PMUin2003. generation. The economic indicators available for 2002-2003areexaminedbelow inthecontext The chapter is structured as follows. Section2.1 ofthesetasks. provides an update on the main indicators for monitoring economic development, while 1.Maintainmacroeconomicstability section 2.2 provides an update on the poverty estimates for the country, using the 2002 Gross domestic Product (GDP) growth Household Budget Survey (HBS) data. Section increased by 11.2%in real terms (from 30,312.3 2.3 looks at available data on employment and bln.AZM in 2002 to 35,053.4 bln.AZM in 2003). unemployment. Section 2.4 summarisestrends This is the highest rate of GDP growth since in education indicators, and section 2.5 looks at 1996, the year in which positive growth rates health indicators (including those relating to were first registered.Percapita GDPgrowthwas maternalandchildwelfare).Section2.6 provides 10.2% in 2002 and 10.3% in 2003, reaching 4.3 an overview of environment-related indicators, mln. AZM (879.7 USD) in 2003. The deflator andsection2.7 looksat data relatingto the living indexwas 104.0%in2003 (100.7% in2002).The standardsof IDPsand Refugees.Finally,section statistical data thus confirm that overall 2.8 summarises available data on social macroeconomic stability has been maintained protection benefits and uses HBS data to do a for the periodunderreview. preliminary analysis of the targetingefficiency of someofthebenefits. 2.Soundmanagementofthe economy Due to time constraints, it was not possible this There was a considerable increase in both year to add a separate section on gender and budget revenues and in expenditure in 2002- MDG number 3 ("promote gender equality and 2003. Thus, in 2002 revenues of the State empowerwomen"). However,asfar as possible, Budget increased by 16% to 4,551 bln. AZM the data set out in the various sections below compared to 2001 (3,924 bln. AZM), and by have been disaggregated by gender, and this 34.7% to 6,131.9 blnAZM in 2003. Expenditure year morework will be carriedout on developing increased by 13.1% to 4,567 bln. AZM in 2002, more detailed analytical papers on gender and by32.5%(to6,173 bln.AZM) in2003. aspectsof poverty. The budget deficit decreased to 107.6 bln.AZM in 2002 (from 113.5 bln. AZM) and to 41.1 bln. 2.1. EconomicDevelopment AZM in 2003 (0.4% and 0.1% of GDP respectively). Both revenues and expenditure Within SPPRED, the main tasks of economic were inlinewithforecasts. policy are to: (i) maintain macro-economic stability (ii) build up local capacity in order to Expenditure is gradually being brought in line providesoundmanagementof the large-scaleoil with SPPRED priorities. 17.3% was spent on revenues expected over the coming years; (iii) social protection, 19% on education, 4.5% on take forward the structural reforms already health, and 19.4% on capital investments. The initiatedand promotedevelopmentof the non-oil share of expenditure for wages, pensions and sector; (iv) stimulate the development of benefits to the population paid increased entrepreneurship, investment and market considerably(by 16.2%)and accounted for 2301 infrastructure in the regions; (vi) and ensure bln.AZM in2002and2,676.3 bln.AZM in2003. Azerbaijan's integration into the world economic systemandencourageFDI.While success inthe The rate of inflation and exchange rate of the 12 national currency were maintained at an decreasedfrom 8.3% atthe beginningof 2003 to acceptable level, and money supply to the 6.5%attheendof 2003. economy improved. The average annual inflation rate was 2.2% in Azerbaijan in 2003 In 2003, improvements in money supply to the which is 0.6% lower than in 2002. The average economyand a decreaseinthe interestratesfor annual exchange rate of the national currency deposits also had an impact on dynamics of the (AZM) to USD was 4,860.8 AZM in 2002 and interest rates for credits. Thus, average interest 4,910.8AZM in2003. rates for credit in the national currency decreased from 15.6% at the beginningof 2003 Interventions by the National Bank (NB) in the to 14.9%attheendof2003. currency market were purchase-oriented(USD 122.4 mln.) in the reported period and made up The NBreduceditsdiscountratefrom 10%to 7% 3.5% of the total turnover. This purchase- since September, 2002, and in 2003 the rate oriented intervention helped to improve money remained unchanged. Compulsory reserve supply to the economy and to prevent normsfor short-termdepositswere 10%and for revaluation and symptoms of the "Dutch long-term deposits it was set at zero. Analysis disease". shows that following the reduction of the compulsoryreservenormsto zero, the long-term National currency reserves increased by 23.7% deposits began to increase. Thus, while short- in2003andwere 2,316 bln.AZM asofJanuary 1, term deposits increased 11.O%, long-term 2004. The money multiplier increased by 3.7%. depositsincreased3.2times. Measures undertaken to reform the banking system, to develop banking infrastructure and Capital investmentsincreasedby 71.2% to 17.8 especially, to improve the payment system, had trillion AZM. At the end of 2003 the country's a positive influence on this figure. In 2003, monetary reserves had increased by 14.4% in money mass inAZM (M-2) broadly increased by comparison with the previous year, from USD 28% and amounted to 2,592.2 bln. AZM. Since 1,374 mln.to USD1,572mln. this process took place in a condition of low inflation,the real growth rate of M2was higher- A rational foreign borrowing policy was 25.2%. continued in 2002-2003. The amount of the external debt paid off was USD 1,358 mln. The shareof cash inthe money massdecreased (22.3% of GDP) as of January 1, 2003, and by 3.7% in this period. The cash money mass 1,508.1 mln. USD(21.2%of GDP)by November increased 22.3%, while non-cash money mass 17,2003. The amountofexternaldebt percapita increased 54.4%. At the same time the level of was USD 182.5 (as of January 1, 2003 it was dollarizationalso decreased. Thus, the share of USD 166) as of 17 November, 2003. This is foreign currency savings and deposits in total considerably lower than in other transition savingsdecreasedby2.3%. countries. The volume of savings and deposits increased by 35.3%. The volume of the savings by Due to large scale investment programmes,it is expected that oil and gas production in the individuals increased by 64.2% to 1259.7 bln. AZM (comparedto an increase of 31% in2002). country will further increase in the near future, The share of private banks' savings in total andthat the exportofoil,oil productsand gaswill increase significantly. This can be expected to savings was 41.5% in 2003. More importantly, while short-termsavingsof individualsincreased lead to a large inflow of foreign currency to the country, what will in turn drive up growth rates 11.O%, long-term savings increased by 3.2 (which haveaveraged10%inrecentyears). times, showing increasing confidence in the banking system. The structure of savings and However, growth rates based on the rapid the national currency - manat. Thus, while deposits also suggests increasing confidence in exploitation of naturalmineralresourcessuch as oil and gas will have only a limited direct impact savings and deposits in foreign currency on poverty reduction and in fact complicate the increased by 31.7%, savings and deposits in management of the economy. Increases in the national currency increased by 54.4%. The realexchange rateof the nationalcurrency could average interest rates for manat deposits still lead to the "Dutch disease" in the mid-term, 13 i.e the "forcing out" non-oil sector by oil sector. an effective spending mechanism taking into Efforts to avoid this and maintain sound accountthe importanceof developingthe non-oil managementof the economywill therefore have sector. While the oil sector has the potential to to befurtherstrengthened. generate high incomefor some period, it will not lead to the creationof newjobs (currently, a total 3. Structural Reform and Non-Oil Sector 1-1.5% of the economicallyactive population in Development the country is employed in this sector and no considerable increase of this indicator is The share6f the productionand non-oilsector in expectedinthe nearfuture). GDP increased. Thus, while the share of production (including construction) was 57.3% In order to manage the revenues from the oil and share of service sectors and net taxes from sector, and ensure that they are used in the goods and imports,was 42.7% in GDP in 2001, interests of the future development of the thesefigureswere 59.9%and40.1o/o in2002and country, the State Oil Fund of the Republic of 63% and 37% in 2003 respectively.The share of Azerbaijan (SOFAR)was established under the the non-oilsector in GDP increasedfrom 68% in Presidential Decree of December 29, 1999. 2001to70.4%in2002andto71%in2003. There has beenan increaseof 65.8% (USD 692 mln. in 2002, USD 815 mln. in 2003) in the There were positive changes in the sectoral resourcesofthe Fund.The Oil Fundwas usedto breakdown of GDP in 2002-2003.The shares of finance the following in 2003: 99.8 bin. AZM for industry, construction, wholesale and retail and resettling the refugeesand IDPsdriven out from service sectors increased, while the shares of their homelands as a result of Armenian agriculture, transport and communication, hotel, aggression and financing measures to improve restaurant, social and informal service sectors their socialconditions;576 bln.AZMfor financing and net taxes from goods and imports the share of the Republic of Azerbaijan in the decreased. project of Baku-Tbilisi-Ceyhan (BTC) main export pipeline; 500 bln.AZM transferred to the The following information on differencies state budget. The expenditure related to the between the shares of sectors in GDP for 2002 managementof the Fundwas 4.3 bln.AZM and and2003visually reflectschangesinthesectoral the amount of the resources transferred to the breakdown of GDP: industry -37.8% (34.9%); statebudgetastaxwas 12bln.AZM. construction -12.1% (10.8%); wholesale and Agricultural reforms lead to a real growth rate of and private stuff -7.9% (7.5%); agriculture - retail, service sectors on repairing household 6.4% in 2002 and 5.6% in 2003. The share of 13.1% (14.2%); transport and communication - crop production in agricultural production was 9.5% (9.8%); hotel, restaurant, social and 60% and of livestock productionwas 40% in the reportedperiod. taxesfromgoodsandimport-7%(7.7%). informalservice sectors-12.6% (15.1%) and net The constructionsectorcontinuedto be bouyant. Privatizationledto afurtherincreaseinthe share This was partlydueto the start of construction of of the privatesectorinGDP. (from71.8%in2001 BTC oil and Baku-Tbilisi-Arzurum(BTA) major to 73% in 2002 and to 73.3% in 2003). By 2003, gas pipelines. Thus, while the volume of the private sector accounted for 53.4% in investments directed to fixed capital was 5.9 'industry, 99.7% in agriculture, 88.7% in trillion AZM in 2001, it amounted to 10.4 trillion construction, 70.5% in transport, 68.9% in AZM in2002and 17.8trillionAZM in2003. communication, 98.7% intrade and 71.2% inthe paidservicesectors. The average monthly salary of those working in the formal economy increased 17.2% in real While oil productionincreasedby 0.3% to 15.38 terms (nominal 21.4%) and reached 383,100 mln. tons in 2003, industrial growth rate in the AZM (USD78). non-oil sector was higher than that for the oil sector. However, oil production is expected to increase rapidly in the near future as a result of the big international oil contracts signed since 1994.Thus,atpresentthe keyissueisto prepare the economyfor largeoil revenuesand to create 14 4. FD/s and integration into the World rating of the country in some influential Economy international organizations and in the volume of foreign investments in the economy (see Table Liberalisation and the opening up of the 2.1). economyhaveresultedinan increaseinthe Table 2.1. Dynamicsof investmentsinthe economy in 2001-2003(mln. USD) Overall more than 17.5 bln USD has been in 2003. In other words, the volume of foreign invested in Azerbaijan's economy since trade turnover increased 2.3% in 2002 (export independence,of which 12.5 mln. USD (71.4%) decreased 6.3%, import increased 16.4%) and were in the 1994-2003. FDI account for more 36.1% (export-l9.6%, import-57.7%) in 2003 than 80% of all investments in the economy. comparedto 2001. Recently, investments in the non-oil sector, particularly to power, chemistry and Foreign trade relationscovered 124countries in petrochemistry, infrastructure and agriculture 2003 (128 countries in 2002), out of which 10 have been increasing. The amount of foreign were Commonwealth of Independent States investments increased by 46.5% in 2003, (CIS) countries. The share of CIS was 22.7% (3,273.3mlnUSD);93.5%was direct investment (23.3% in 2002), of the European Union (EU) and6.5%providedascredit. 48.7% (48.4%) and of other countries 28.6% (28.3%) in the foreign trade turnover. While the Creditprovidedtotheeconomyfurther increased share of CIS inexportwas 12.9%(11.3%), of the in 2002-2003. Credits of 2,600.8 bln. AZM EU 65.6% (67.5%) and of other countries21.5% (71.9%- short-term, 28.1% -long-term) were (21.2%) itwas 32.4%(39.1%), 32.0 (24.0%) and allocatedin2002andof3,339.1 bln.AZM in2003 35.6% (36.9%)inimportrespectively. (72.6% -short-term, 27.4% -long-term). This represents an increase of respectively 7% and The negative balance of USD 34.2 mln. in the 28.4% (5.7% in short-termcredits and 25.3% in country's foreign trade balance in 2003 was long-termcredits)for appropriateyears. connected with the increase in the import of investment-orientedgoods relatedto realization Foreign trade relations have expanded. Thus, ofoilcontracts. according to the State Statistical Committee (SSC), the volume of foreign trade turnover The share of the "mineral products" category increased from 3,745.2 mln. USD (61.8%- dominated in exports was 86.0% in 2003 and export,38.2%-import)in2001to 3,833 mln. USD 88.9% in 2002. The share of oil and oil products (56.5%-export, 43S%-import) in 2002 and prevailinginthis groupwas 85.4%in2003. 5,218.2 mln. USD(49.7%-export,50.3%-import) Table 2.2. Dynamicsof basic indicatorsof the foreign trade in 1995-2003(mln. USD) 15 ,- 2.2. Poverty Update: the results for 2002 Background approved,thesewill replacethe currentoutdated legal normatives for the minimum consumption The SPPRED document and strategy is based basket,which havebeeninforce since 1992. on an analysis of poverty in the country. The analysis was done on the basis of the results of Due to the above developments, this report monthly per capita consumption expenditure, providespovertyestimatesfor 2002 only based derivedfrom the 2001 HBS.Italso madeuseof a on the 2002 HBSdata -and by using the revised new absolute poverty line, which was discussed absolute poverty line. This implies that these andapproved bytheSWGonPovertyMonitoring results cannot be used to monitor poverty during the SPPRED formulation stage. It was changessince2001. estimated that 49% of the populationwas living below a poverty line of 120,000 AZM. In 2001 It is expected that the 2002 results will serve as usinga relative povertylineof72,000AZM, (60% the benchmark for all poverty monitoring of median per capita consumption expenditure exercises in the future. It is assumed that from level),thepovertylevelwasestimatedat 17%*. this year onwards, there will be no more substantial changes made in the survey The original intention was to monitor poverty methodology,and also there will be an officially levels in the country from 2001 onwards, using approvedpovertyline. the same data source (HBS); the same welfare indicator (per capita consumption expenditure Poverty Line levels): and the same poverty lines3.However, unfortunately this has not been possible, As mentioned above the new poverty line is principallyfor tworeasons. based on new normatives, and has been submitted to the CM for approval. It defines a Firstly,the2001 HBSwas thefirstyear of a newly minimum consumption basket not only for food designed survey. During this first year, the SSC products, but also for non-food products and receivedtechnical assistancefrom theADB and services. Minimum consumption norms are WB aimed at further improving the survey calculated for these three consumption methodology. As a result, a revised survey categories. The minimum consumption norms methodology was introduced in 2002, which are further calculated for working age males, affected the way in which information on females, the pension age population, young consumption expenditure levels was collected children and teenagers; the average minimum anddefined.Thus, althoughthewelfare indicator consumption norms are then calculated using used for ranking living standards of the the weight of these population categories in the population is the same for 2001 and 2002 overall population. (The poverty line used to (consumptionexpenditure),the estimatesfor the calculate the poverty levels reported for 2001 in two years are based on different definitions and SPPRED,onthe other hand, only usesminimum aretherefore notcomparable.This improvement consumptionnormsfor the food basket,which is in the quality of HBS data brings heightened taken to represent 70% of the overall value to the 2002 estimates of poverty in consumptionbasket.) Azerbaijan, but unfortunatelyat the cost of a loss ofcomparabilitywiththeresultsof2001. The prices used to calculate the cost of the minimumconsumption basket vary accordingto Secondly, the absolute poverty line, which was thetypeof product: elaborated by the Sector Working Group in the SPPRED formulation stage, has subsequently The value of the minimum food basket is priced been developed further. In accordance with the using the prices actually paid by the poor Presidential Decree on the 2003 Budget, a draft population(the lowest decile in the consumption version of new normativesfor the calculation of expenditure distribution range), and the prices the minimum consumption basket (the basis for aretakenfromthe HBS(thesame sourceaswas the poverty line) has been developed by the used in SPPRED). For 2002, the value of the SWG in 2003 and submitted to the CM. Once minimumfood basketwas 121,465AZM andthe 'seeabsolute SPPRED, Chapter 1:this result was consideredto be an estimate of extreme poverty. an poverty line as defined in SPPREDAppendix 3 and a relative poverty line set at 60% of the median per capita consumption expenditure level. 16 share of the food basket in the overall minimum overall poverty level is estimated as 46.7% for consumption basket is taken to be 69.4%. The 2002~. share of the various basketscorrespondstotheir share in the consumption expenditure pattern of A relative povertyline(70%of medianper capita the poor population, as reported in the HBS consumption expenditure) was set at 125134 results. AZM'. The overall poverty level using this line is estimated at 8.8%, and this will serve as the The value of the minimum basket for non-food revised estimate of extreme poverty in the products is priced using the minimum retail country. prices as recorded at the SSC, there are not enough observations in the HBS to use it as a Povertyprofile sourcefor prices of these products.For2002 the value of the non-food product basket is The conclusionsregardingthe povertyprofilefor estimated at 21,935 AZM and the share of this Azerbaijancanbesummarisedasfollows: basket in the overall minimum consumption As in2001,itisfoundthatthe povertyrate basketistakento be 12.5%. is only slightly higher in urban compared to rural areas (47.8% in urban areas and The value of the minimum basketfor servicesfor 45.4%inruralareas). 2002 is calculated at 31,600AZM and the share The highestpovertyincidence(62.9%) is of this basket in the overall consumptionbasket found in the Nakhchivan AR, although istakentobel8.1%. only6.1YOofthecountry'spoorpopulation live in this region. The poverty level of The value of the total minimum consumption 46.3% in Shaki-Zagatala region is closer basketfor 2002 iscalculatedas 175,000AZM. to averagelevel. In large cities the poverty level is PovertyEstimatesfor2002 noticeably less than in smaller towns: 44.5% compared to 53.5%. Despite the As explained above, results for 2002 are based fact that the poverty level in Baku is less on the revised 2002 HBS, and by using an than the average level (40%), the largest absolute povertyline of 175,000AZM (described shareofthe poorpopulation(21%)livesin in the appendix). Within this poverty line, the Baku. Table 2.3. Poverty Incidence by Categories of the Population (individuals) 'Aswiththepreviousyear'sresults,itwasdecidednottouseanequivalencescalewhencalculatingthepovertyestimates. See SPPRED. Appendix 3. The Poverty MonitoringGroup has decidedthat the relativepoverty linewill be set at 70% of the median per capita consumption expenditurelevel,whereas itwas set at 60% for the 2001 results, It is intendedto use 70% in the future for monitoring purposes. 17 0-15 years old 16-29 years old The above table refers to categories of individuals. We now look at data regarding household categories. Table 2.4. Poverty Incidence by Characteristics of the Householdand Head of Household The main results can be summarized as the household, the lower probability of the follows: household being poor. The poverty risk for The higher the education level of the head of households where the head of household has higherorsecondaryleveleducationislessthan among the population.The Gini coefficient is the theaveragepovertylevelinthecountry. most common measurement of inequality. Calculationsusingthisformula show, that in 2002 The poverty risk increases the the Gini coefficient was equal to 0.271 (using greater the number of household income distribution)and 0.276 using expenditure members. The poverty risk among (calculatedonthebasisofthe2002HBSresults). households with fewer than 4 members is relatively low. But the Furtherimprovementof the HBSmay be required poverty risk increases dramatically in order to ensure that we are capturing all once the number of members income/expenditure; including those from the reaches5or more. ' informal sector and self-employment, and that The poverty level is less than the incomes from the top deciles are not being average only among households underestimated. without children and with 1 child. There is much higher poverty level amonghouseholdswiththree,fouror more children. The poverty risk for 2.3 Employment householdswithout childrenis much As itwas showninSPPRED,the post 1995period less than the average; but only 1 differs from the initial transition period in that it child in a family increases this marks the beginning of economic growth, poverty level for 16.5%. Poverty stimulated in large part by oil-related activities. incidence increases to 34.8% for However, foreign investment in Azerbaijan's households with 3 children and petroleum wealth has so far created relatively 45.5%for householdswith 4 or more limitedjob opportunities. children. The povertylevelof householdswith Analysis of employment trends has so far been a male head of household is 4.8% complicatedbythefactthatthereisnolabourforce lessthanthatfor householdsheaded survey (LFS) carried out regularly, and byafemalehead. administrativedatacannotcapturethe effectofthe The poverty profile overall confirms informal sector on employment levels. However, the picture derived from the 2001 the situation is changingwith the introductionof a results,butthe rankingofthe regions LFS,carried out by the SSCwith supportfrom the by poverty incidence is slightly UNDP and International Labour Organization different, with Nakhchivan having a (ILO). Someresultsfromthe first roundofthe LFS higher incidence. However, it is too (spring2003)arereportedbelow. earlyto draw policyconclusionsfrom theaboveresults,astheywill haveto According to administrative data, there was a 0.6 be monitoredin the comingyears to Yo.increase in the annual average number of testtheirrobustness. employedpeopleintheworkingagegroupsduring 1998-2002 (3,701,500 3,726,000). At the same Povertygap time GDP in non oil sector increased by 26.8 % For policypurposes,it is usefulto look notjust which pointsto growth in labourproductivityinthe at the numbers below the poverty line, but at country. the depth of poverty, Le. how far below the poverty line the poor are. The poverty gap for Official statistics also show that in 1995-2002the the absolute poverty line is 0.0822. In other averagenumberofemployedpeopleincreasedby wordstheaverageconsumptionexpenditureof 35% (1,112,800 1,497,500) in the agricultural the poor population is 8.2% less than poverty sector, while decreasing by 8.2% (1,963,000 1,801,000)intheservicesectorand20%(537,200 line. 428,600) in the industry sector. It is importantto hequality note that growth in agricultural employment is directly related to the land reform, which has resultedintheallocationofsmalllandplotstomost hequality is measured by looking at the of the rural population who are considered to be distribution of income or expenditure levels employed6. see Law on Employment,article 3 19 Since output growth primarilyresultedfrom an Figure 2.2 increase in productivity, wages and salaries Growth rate of employment in public rose substantially, while employment And private sectors increased only marginally. The average (Per cent) reported monthly wage was 21.4% higher in nominal terms (22.2% in real terms) in 2003 than in 2002. The minimum wage was increased from 27500 to 60000 manat in January 20.04,leadingtowage increasesinthe public sector and increases in social benefits linkedtothe minimumwage. The labour force participationrate also varies 2 Figure 2.1 Source: SSC-50 -30 -10 10 30 50 Annual average wage (Per cent) 450 Due to the relatively favourable age structure of 400 the population, reflecting the high fertility rates in the past,declineindeath rates,and an increasein 350 =Nominal wage life expectancy, the number of working age 300 (AZM000) population in Azerbaijan increased from 3.973 mln. in 1990 to 4.988 mln. in 2002, or by 25%. In 250 2: ';Nominal the coming years, the greater number of new - 200 wage labour market entrants will have a significant 150 ( U W impacton labour supply. This growth in the young entrants especially reflects high birth rates in the 100 Indexof 1980s. 50 realwage (1998=100) Dataontheemployedand unemployedpopulation 0 have until now been derived from administrative 1998 1999 2000 2001 2002 2003 sourceswhich cannot provide a full picture of the Source: SSC economicallyactive and inactive populationin the country; they do not cover all the working population and cannot capture persons without work who are not registered with employment Structural changes in the economy have been offices. For example, according to state statistics accompanied by redundancies in the number there were 50,963 unemployed persons officially of people employed in the public sector. The registered at the employment offices in 2002, number of people employed in the public which is only 1.4percent of the total economically sector has decreased by approximately 2.1 active population. However, for the first time the times since 1990,andwas 1.192 mln. in 2002. resultsof the new (2003) LFS can be usedto give At the sametime, the numbersemployed inthe morerealisticestimates. non-state sector has increased by 2.3 times and was 2.535 mln. in 2002. Annual growth The results suggest that the labour force rates for public and private sectors show that participationrate' (LFPR)for thepopulationage 15 the decrease in employment in the public years and over was 62.9%, (75.6% for men and sector has been greater than the increase in 51,I %for women). By internationalstandardsthis the private sector since 1998 (see Figure 2.2) can beconsidereda highLFPR. Theseresultsare which suggests either an increase in consistentwiththose calculatedonthe basisofthe unregistered unemployment, or an increase in 1999 population census, which showed that the informalemployment. LFRP was 64.6%, (73% for men and 57.2% for women)'. The slight decrease in the LFPR can be explainedbythe higher inactivityratefor women in Figure2.3. 'Labourforce participation rate is calculatedby expressingthe numberof persons in the labourforce as a percentageof the population 15and over. Labourmarket developmentsinAzerbaijan, A.Kuddo ECSHD 20 Figure 2.3Labour force participation by urban and rural areas (per cent) 0 20 40 60 .80 100 Source:Labourforce survey, 2003, SSC The labour force participation rate also varies 56.2%, which means that almost half of the by urban and rural areas. Unemployment and population over 15 years depend on the income inactivity rates are higherand the employment generated by other employed people in that age rate is considerably lowerfor urbanareas.The group. Figure 2.3 also shows that women and highemployment rate inruralareas isthe main urban people seem to be more dependent on contributor to high labour force participation employedpeople. and employment in the country. But, as mentionedabove, this is closelyrelatedto land Employment and unemployment rates have reforminthesecond halfof 1990s. significant gender and age dimensions. Employmentto population rates for men exceeds The employment to population ratiogequalled thatforwomen by23.5% point(68.4%and44.9%). Figure 2.4 Labour force participation rate by gender and age groups (Der cent) 120 100 80 60 40 20 0 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-+ Source: LFS.2003, SSC 'Employmentto populationrate expresses the employed people as a percentage of the population 15 and over 21 The highest inactivity rate" for both genders is population censuses, which have been carried observed in the lowest and highest age groups, out every ten years since 1939, show that there which are the categories dominated by the has been a steady increase in the literacy rate, student, school-pupils and pensioner andthe latestcensusdata(from 1999)showthat population.However,it should bealso notedthat the literacy rate for the country is 99%. It is inactivityrateforwomen inthe25 59agegroups estimatedthat 97% of the adult populationhave yearsaresignificantlyhigherthanthatfor men. completed (at minimum) primary school education. There are no significant gender Figure 2.5Unemployment differences in literacy rates and completion of rate by the levels of education primaryeducation. (Per cent) The links between education and poverty are well documented.A better-educated population is interalia moreableto find employment,and is more likely to bring up a healthy young generation.The resultsof the latest HBS (2002; see charter2) confirmthatthe higherthe levelof education of the head of the household, the lower the probability that the household will be poor. However, the SPPRED document has pointed out that, despite its impressive educational 15-19 20-24 25-29 30.34 3539 4 W A 5 4 9 5&Y 55-59 6044 65-+ achievements, Azerbaijan is currently facing Source: Labourforce survey, SSC. 2003 serious problems in maintainingthe qualityof its education system, and in adapting it to the The overall unemploymentrate" is estimated at demands of a transition economy. There are 10.?O/0. The highest unemployment rate was signs that the younger generations are not 23.8% among youth in the 20-24 age group. investing in their education, that it is not being Figure2.5 suggeststhat the unemployment rate looked upon as a tool to defend them from among20-24age groupswith all education level poverty; i.e. the returns to education are not is higher than for any other age category. The consideredworth the investment required to go highestunemploymentratewas 53.6%atthe20- beyond the compulsory stages of education. 24 years with incomplete high education. The There is a danger that this will lead to a certain second highest unemployment rate was declineinthecountry'shumancapital. observedforthe 20-29yearsagegroupwith high education. The SPPRED document states clearly that one of the main strategic aims of the country is to The unemployment rate for the 20-29 year old maintainthe goodeducation indicators inherited agegroupwith highereducation(26%)suggests from the Soviet period, while also re-orientating that graduates from that age group are the country'seducationsystemto the needsof a particularly affected by the mismatch between market economy. One of the six key strategic qualifications and the skills in demand in the aims of SPPRED is "to improve the quality and labourmarket. equalityof accessto basic health and education services".Within the education sector, SPPRED stipulates 12 policy directions aimed at both 2.4 Education improvingthequalityof education andequalityof access. SPPRED also envisages a Background rationalisation of education expenditure, to be achieved through rationalisation of the teaching Azerbaijan has long shown an awareness of the staff (see MTEF).The rationalization measures need to invest in and maintain its human capital, are to be accompanied by a rise in teachers' and in particular the value of having a well- wagesanda newsystemfor linkingperformance educated population. The results of the to bonuspayments. '' Inactivity rate is defined as a proportion of the population that is not in the labour force " Unemploymentrateexpressesthe unemployedpeopleas a percentageofthe populationin the labour force 22 Education and the MDGs Comparison of the 1989 and 1999 census data shows that the share of the population over 15 MDGnumber2 isformulated at thegloballevel years oldwith secondaryeducation(completeand as "achieve universal primary education" (see incomplete) hasincreasedsignificantly.Thisfigure chapter 1).According to the 1999census data was 878 per 1000 in 1989,909 in 1999 and 909, for Azerbaijam.975 out of every 1000 persons 910, 910, 911 in 2000, 2001, 2002, and 2003 in the 15-24age group had completedat least respectively (seeTable 2.5). It may be appropriate primaryschooleducation. Inthis index,women for the country to aim to improve its enrolment are slight19 ahead of men (980 per 1000 rates for secondary education further, especially compared to 971 for men); and there are for upper secondary education. However, this will almost no urban and rural differences (975 be a viable goal for Azerbaijan only, if efforts are comparedto 976).Thus clearlyMDGnumber2 continued underSPPREDto improvethe qualityof will have to be adapted to reflect the fact that education in secondary schools. Participatory universal primary education is already a reality discussions carried out in 6 regions of Azerbaijan inAzerbaijan. have shown that the population considers improving quality of education and access to As mentioned above, one of SPPRED's key secondary educationas one of the main problems strategicobjectives, isto improvethequalityof, (see chapter 7 for details on the Regional and equity of access to, basic education Workshops held in6 regions). For this reasonthe services by 2005. Within this framework, goal of achieving universal primary and near-to- discussion has begun on identifyinga country universal secondary education (11 classes) is put specific MDG for Azerbaijan in the field of forward as a tentative proposal for a country- education. specific MDG. Table 2.5. The education levelof ages 15 and above. (1999censusdata) Source: SSC As mentioned above, the literacy rate of partly due to the disappearance of pre-schoolfacilities, population according to the 1999census data which were providedunder state enterprises and local is 99%. The literacy rate of 15-24 year olds government in the Soviet period, and partly due to the (MDG indicator 8) is not therefore considered priority given by the government to concentrating appropriate for Azerbaijan, however it should resources on maintaining basic/secondary education. still be monitored for the purpose of The numberof pre-school facilitiesdecreased steadily internationalcomparison. in the 1990-2002period (a total of 404 facilitiesclosed down). While arossenrolment ratesfor children in we- school instituconsdecreased by 5% in 1990-1995,'this Trendsin Education Indicators figure has increased by 1% annually from 1997 onwards. Despite this, overall gross enrolment rates (a)Pre-schooleducation(3-6years) remain relativelylow (19Y0in 2002; seeTable 2.6), and there are significant differences between urban and Pre-school education in Azerbaijan has suffered a ruralenrok"trates. considerable decline over the last decade. This is 23 Table 2.6. State Pre-schoolFacilities Urbanand ruralareas 1990 1995 1997 1998 1999 2000 2001 2002 Children's gross enrolment ratioin pre-school 20 15 14 15 16 17 18 19 institutions Source: SSC (b) Basic e.ducation ' education.The gross enrolmentratefor children in the 5-9 classes peaked in 1990 (90.2%). A Basic education covers primary education decrease in the gross enrolment ratio was (classes 1-4); middle secondary (classes 5-9); observed in 1998-99 (12% lower compared to anduppersecondary(classes 10-11). Enrolment 1990). Since 2000 this index increased and in inclasses 1-9isobligatory. 2001 and 2002 the gross enrolment ratio was close to the 1990 rate. Gender differences in the Gross enrolment rates for primary school net enrolment rates are again very slight. But (classes 1-4)were relativelylowin 1990(84.2%), since2000 gross enrolmentrates in urbanareas but have since increased to 98.8%. The have been higher than in rural areas: in 2000 by tendencies in middle secondary education in 5.4%,in2001 by8.7%,andin2002by 12%. 1990 - 2002 resemblethose reported in primary Table 2.7. Gross enrolment ratio for basic education (classes 5-9) x) State and private x) State and private Ruralenrolment rates x) State and private Source SSC In order to estimate the quality of and access to rates. Both the SSC and the Ministry of the basic educationit would be more relevant to Education (ME) do not provide such kind of compare the enrolment rates with attendance information. 24 (c) UpperSecondary education(classes 10- 11) were 43.2% in 2001, and 63.4% in 2002. This sharp increase is due to the school reforms of Unlike the previous stages of basic/secondary 1989, which introduced 11 years of schooling education, upper secondary education is not instead of the traditional 10 years. As can be obligatory. However, enrolment in these classes seen from Table 2.8, there are some gender hasa direct impactonthe numbersandquality of differences in enrolment rates. In 1990 female applicants for higher education. The results of enrolment rates were slightly higher than male the 1999 census showed that 41% of the urban onesinuppersecondaryeducation both inurban popu1ation:and 50% of the rural population had (6.1%higher)andruralareas (4.7%higher).This completed full secondary education. The gross tendency is still noted in urban areas. There has enrolment rate for 10th-I1th classes in 2002 been a small but consistent discrepancy (63.4%)almost reachedthe pre-transition(1990) between enrolment rates in urban and rural rateof66.7% (seeTable2.8). areas (65%for urbanareas in 2002 and 62%for rural areas). Again information on attendance The net enrolment rates for 1Oth-11th classes ratesisnotavailable. Table 2.8. Gross enrolment ratio for urmer secondarv education lclasses 10-111 x) State and private x) State and private Rural enrolment 1990 I995 1998 I999 2000 2001 2002x) Gross enrolment ratio 70.9 46.7 57.5 57.4 47.4 46.1 61.9 Male 68.6 44.3 56.2 56.4 47.0 46.4 63.4 Female 73.3 49.2 58.9 58.6 47.8 45.8 60.3 x) State and private Source SSC (d) Vocationaleducation in vocational education have declined considerably over the last years: from 1990 to One of the main strategic objectives of policy 1995 the gross enrolment rate decreased by measures in the education sector is to ensure 10.6%, and in 2002 this indicator was 12.6% that vocational education provides skills belowthe 1990level. appropriateto marketeconomy. Enrolment rates 25 Table 2.9. Gross enrolment rates invocational education 1990 1995 1998 1999 2000 2001 2002 Gross enrolmentratio 15.5 4.9 3.8 3.6 3.4 3.1 2.9 Netenrolmentratio 14.9 4.2 3.5 3.2 3.1 2.8 2.6 Source SSC (e) Highereducafion censuses from 1939 onwards show a steady increase in the number of people with higher Higher education hasalwaysoccupied a special education between 1939 and 1999. If in 1939 place in Azerbaijan. The first University in there were 10 persons (per 1000) with higher Azerbaijanwas founded in 1918,and at the time education, in 1999 the figure was 91. Female of the first Democratic Republic. Baku State enrolment rates also steadily increased in the University was also the first educational pre-transitionperiod, however,Table 2.10shows institution in the Moslem East. Many higher that female enrolment for higher education education institutes were established in the courses is still slightly lower than male Soviet period. The results of the population enrolment. Table 2.10. Gross enrolment rates in higher education (for 17-22year olds) Source SSC 2.5 Health Background to basichealthservices, and improvethe qualityof primary health care services. A total of 11 policy Poverty is closely connected with the directions were identified to address these population's health status. Poor health problems.The problemsof guaranteeingqualityof indicators affect individuals' well-being, their basic services have been compounded in the potentialto earn income, and children's ability transition period by the drop in the share of to attend and perform well at school. Poor governmentexpendituregoing to healthsector,as people sometimes do not have enough well as by the drop in real wages of health sector financial resources to use available health employees'*.The latter has contributedto the rise services, or just do not have access to basic in informal payments in the sector. The services. Individualswith poor health are more combination of formal (paid services and costs of likely to pass on their poverty to their children, medicine) and informal payments means that andthuscreateaviciouscycleof poverty. parts of the poor population cannot afford to use public health services. The 11 policy directions The availabledata onhealthindicatorssuggest also incorporate measures aimed at improving that in the first years of independence the child and maternal welfare, and combating health status of the population deteriorated. diseases such as HIV/AIDS, tuberculosis and However there are some signs that the malaria, which are most likely to affect the poorer negativetrends have been reversed since the sectionsofthe population. mid 1990s(seeSPPREDchapter 1). There are three MDGs which are linked to SPPRED envisages a series of policy SPPRED's objectives within the health sector, measureswhich will help ensure equal access namely reduction of child mortality (goal 4); '' Healthsectorwageswent upby50% inJuly2003 26 improving maternal health (goal 5); and 2002 the official infant mortality rate was 12.8 per combating HIV/ AIDS, malaria and other thousand live births. The under-five mortality diseases (goal 6).The links of these goals to (deathof childbeforereaching5 yearsof age)rate SPPRED, and the problem of setting country also increaseduntilthe mid 1990s (45.2 per 1000 specifictargets for thesearediscussedbelow. children in 1994),afterwhich it beganto decrease, reaching23.1 per 1,000in 2002. Morethan halfof Public Expenditure on Health under-fivemortalityiscausedbyinfantmortality. Publicexpenditure on healthcareasashare of GDP and a share of total budget expenditures has gradually decreased in the transition Figure 2.7.Infant and under-five mortality rates period (Figure 2.6). In 2002 public health expenditure totalled about 0.8% of GDP in comparisonto 2.8% in 1990.This isthe lowest level of expenditure among CIS countries, and isone of the lowest inthe (Theaverage levelfor low-income countries is about 1.2%of GDP)". SPPRED envisages a rise in public expenditures on health to 1.2% of GDP by 2005.The share of healthexpenditures intotal budget expenditures also dropped from 8.9% in 1990to4.8% in2002.Thedecreaseinpublic expenditure on health has contributed to the 1990 1995 1998 1999 2OW 2001 2002 deterioration in the quality of healthcare services and indirectly to the deterioration in Sourca SSC . - the population'shealthstatus. Figure 2.6.Publicexpendituresfrom the state budget These official statistics are based on on health care administrative data collected from medical facilities. However, evidence from survey data suggests that official statistics underestimate the real situation in the country. Two recent surveys have providedmuchhigherestimatesof infantand under 5mortality.Theresultsof UNICEF`sMultiple IndicatorClusterSurvey (MICS)" suggest that the infant mortality rate was close to 79 deaths per 1,000 infants and the child mortality rate (under 5 years old) was 102 in 1996. Infant mortality accounted for morethan 77% of under 5 mortality. 1990 1995 1998 1939 ZWO ZW1 ZW2 The results of the Reproductive Health Survey source ssc (RHS)16carriedout in2001, providean estimateof 80.8 for infant mortality and 92.2 for under 5 Child Welfare: Infant and Under Five mortalityfor the 1991-2000period. Infantmortality Mortality Rates rate accounts for 88% of under 5 mortality. The RHS results suggest that infant and under five According to official statistics, infant mortality mortality declined in the 1996-2001 period, (death of child before reaching 1 year of age) compared to the 1991-95 period (infant mortality rates peaked in 1993 (28.2 per thousand live from 74.4to85.9andunderfive mortalityfrom96.8 births) and have since graduallydecreased. In to 88.4). I' Forexample, the indicator is equalto 1.1 in Cameroon, 2.6 in Senegal, 1.0 inTajikistan, 3.4 in Georgia, 3.8 in Russia, 1.9 in Romania, 4.2 in Poland, 5.3 in Slovakia,0.6 inAfghanistan, 0.9 in Pakistan, 3.6 inTurkey, 5.1 in Israel, 0.8 in Germany and 5.0 in France. Source: United Nations Population Fund(UNFPA), State of world population 2003. Making 1 billioncount: investing in adolescents' healthand rights. Data referto the most recentestimates 1998-2001. '` Source:Schiller, Christian,GabrielalnchausteandJanWalliser, `Azerbaijan: ContinuingPublicExpenditureReforms". IMF,August 2000. ''Source:Azerbaijan j5 Source: RHS:Azerbaijan, 2001. Final Report. Editedby: Florina Serbanescu. Leo Morns, Shafag Rahimova,PaulW. Stupp. Adventist MICS, 2000. SSC, UNICEF, 2000. Developmentand ReliefAgency, AzerbaijanMOH, SSC, Mercy Corps: Baku, Azerbaijan. Division of ReproductiveHealth, Centers for Disease Controland Prevention, and others: Atlanta, Georgia USA; March, 2003. 27 Discrepancy between official and survey than l,OOOg, hada gestationalageof lessthan 28 results for infant and under five mortality weeks, or measured less than 35 cm and died within the first 7 days of life was classified as a Administrative data: There is some evidence miscarriage or stillbirth. (RHS p105) The WHO that infant mortality rates may be standard definitions include any infant born alive, underestimated due to the way in which irrespective of the duration of the pregnancy that administrativedata iscollected. breathes or shows any other signs of life after separationfromthe mother.Thisdifferencemeans 1. Registrationof infant deaths. Until recently that the survey is more likely to have higher official statistics were based on two sources: estimatesfor early neo-natalmortality(first 7 days one was administrativedata collected through of life). This cannot account for all the difference the MOH and the other source was between official data and survey estimates. administrativedata collectedthroughthe SSC. Under-reportingof births and infantdeaths to civil The MOH collects data from medical facilities registries, particularly those for infants not (monthlyfrom maternityhospitalsandannually delivered at medical facilities is likely to be the from pediatricwards andpolyclinics).However, mostimportantreason. medical facilities may misclassify very premature babies as miscarriages, and early To summarise:there are problemswith both of the neonatal births as stillborns, because infant sources of information on infant and under five mortality is often used as an indicator to mortality rates. However, both sources should be evaluate the performance of the facilities. usedfor monitoring,andeffortsshouldbe madeto Infant deaths following home deliveries may improve data collection using both survey and not always be reported. The SSC used to administrative methods. Measures are already collect the data from urban and rural civil being taken to improve the registration of infant registry bureaus (where relatives apply for andchilddeaths(seebelow). official death certificates). Infants who die before having birth certificates issued may Child Welfare: Malnutrition, Breastfeeding remain unregistered as either a live birth or an and lmmunization infant death. Infants delivered at home are most likely not to be registered. So, the data The country has no regular way of collecting given bySSCreflectedmorecases of mortality information on wasting and stunting of children, than MOH data. Now the SSC only publishes which is a goodway to monitorchildhealth status. the data from medical facilities in order to These indicatorsarethe directresultsof children's acceleratetheprocessofdatacollection. malnutrition.The RHS providedone-off estimates for 2001 and UNICEF'sMlCSsurveyfor 2000. Itis Survey data: The survey data is derived from planned to repeat the MlCS survey in 2004. samplesurveys.Inthe caseofAzerbaijan there Repetition of such surveys every 3-4 years would have been two sample surveys carried out in be extremely useful in monitoring poverty and recent years, namelythe MlCS carried out by living standards, and the effects of poverty on UNICEF and the SSC in 2000 and the children's healthanddevelopment. Reproductive Health Survey carried out in 2001.The samplesare designedinsuchaway According to the MlCS results, the proportion of as to ensurethat the resultscan be considered under-five stunting (height-for-age) children in representativefor the whole country.As withall 2000 in Azerbaijan was 19.6%, of underweight survey data, there are confidence intervals (weight-for-age) children 16.8% and of wasting within which we can estimate with 95% (weight for height) children 7.9%. The first two confidencewhere the true value lies. Thus for indicators were higher in rural than urban areas: infant mortality the estimate from the RHS is 21.7% to 17.2%and 18.5%to 14.9%,respectively. 80.8, but the rate could be within the range of Regionally, the highest levels of these indicators 72to 89.6(seeRHS,pplO3-I04). were found in Nakhchivan (23.7% and 19.6%, respectively) and Western & South-West regions 2. Definitions: Until 2001, Azerbaijan used the (25.1% and 22.4%). The estimates for the third Soviet definition of infant mortality, which did indicator for urban and rural areas were almost not count as live births premature and low- equal 8.0% to 7.9% and the highest level was birth-weightbabieswho die within seven days observed in Western & South-West (10.7%), and afterbirth.Any infantwithsignsof life presentat Central & Northern (8.3%)regions. According to the time of delivery butwhose weight was less the RHS, the prevalence of chronic malnutrition (height-for-age) among children aged 3-59 months was 13.3%, general malnutrition (weight-for-age) 6.8%, and acute malnutrition Figure2.8. Breast-feedingof infants (% of breast-fedinfants (weight-for-height) was 2.4% in 2001". to total numberof children at Iyear) Usually, a low weight-for-age is considered an M 45 indicator of chronic malnutrition when a low a prevalence of acute malnutrition exists. 35 Becausethetotalrateofacutemalnutritionwas M low among under-five (3-59 months) Azeri 25 children, the 6.8% rate of general malnutrition 20 is probably a reflection of the higher rate of 15 10 stunting inchildren". RHSalsoprovidedhigher 5 estimates for stunting (chronic malnutrition) 0 and underweight (general malnutrition) 1995 1998 1994 xxx) 2w1 MOZ children in rural areas 15.9% and 7.8%, source: ssc respectively (the indicators were 10.6% and 5.8% in urban areas). Regionally, children living in Southern (18.3%) and North & North- East (14.7%) regions hadthe highest levels of Immunizationprogramsare being implementedin chronic malnutrition, and the problem of the country to help prevent child diseases. The general malnutrition was greater among MOH carries out immunization programswith the children living in North & North-East (8.7%), assistance of World Health Organization (WHO) South-West (8.0%) and Southern (7.5%) and UNICEF. Under the National Program regions than in other regions of the country. "Expanded Program on Immunisation" (EPI), all The highest levels of acute malnutrition were children are immunized for BCG, DTP, DT, found inNorth& North-East(3.2%) and Central Measlesand Polio.In2002the proportionof under (3.1%) regions of Azerbaijan. Both MlCS and 1 year children covered with vaccination against RHS surveys revealed, that stunted and TBwas 99.1%andagainst measles98.8% (Figure underweight children are mostly among those 2.9). As a result of implemented measures, our aged 12-23 months. Height-for-age and country has succeeded in eliminating a range of weight-for-age data for this age group were childhood diseases. Thus, Azerbaijan received equal to 30.7% and28.0%inMlCSsurvey, and Certificate on Polio-Free Country in Europe in to 17.3%and8.9% inRHSsurvey. 2002 and further more immunization coverage against measles inAzerbaijan isone of the best in There are several initiatives being undertaken theworld. to improve the healthandwell-being of infants Figure2.9. _________ and young children. Breastfeeding plays a Proportionof under 1year children coveredwith significant role in the healthy development of prophylacticvaccination children. The WHO recommendations state '05 that "infantsshouldbefedexclusivelyon breast milk from birth to 4 months of age" (RHS, pp 100 101). According to the SSC, about 30% of all 95 infants are exclusively breast-fed until 3 months (see Figure 2.8). According to MICS, 90 only 9.4% of infantsunder4 monthsof age are exclusively breast-fed. According to RHS, 05 94.7% of all children born during 1996-2001 were breast fed for at least a short period of 80 time; the average duration of exclusive breast- feeding was 0.4 months, full breast-feedinglg 75 3.3 months, and any breast-feeding 11.6 1990 1995 1998 1999 2wO 2W1 2002 months. Same SSC " Both MlCS and RHS surveysused NCHSlCDCMlHO(U.S. National Centerfor HealthStatistics Centers for DiseaseControl and Prevention and WHO) as internationalreference (WHO, 1995). Onthe basis of this reference,children were Classifiedas malnourished if they hada score level lessthan 2 standarddeviations below the mean of the referencepopulation (i.e. 2.00 SD) for any indicator. I' Serbanescu F. et al. Azerbaijan RHS,2001. "Children with exclusive(only breast milk) or almost exclusive(breastmilk and other liquids excepting formula or other milk) breast-feeding. 29 Maternal Welfare: maternal mortality, reproductive health, abortion rates, use of Maternal mortality (deathsof pregnant womenduring pregnancy,childbirth and puerperium),per 100,000live births contraceptives According to official statistics, the maternal mortality ratio increasedfrom 9.3 per 100,000 live birthsin 1990to 19.9in2002 (Figure2.10). However,the mainincreaseswere inthe 1990- 99 period, when the indicator peaked at 43.4 per 100,000 live births. Since then there has been a steady and notableimprovement in the indicator. However, as with child and infant mortality, 1990 1995 1998 1999 2000 2001 2002 there is some evidence that official figures source. ssc underestimate the incidence of maternal mortality. Mothers who die from pregnancy increase in the number of childbirths not assisted and postpartum complications at home (after by skilled health personnel. According to the homedeliveries or after being dischargedfrom resultsofa surveycarriedout bySSCin2001,only hospital)are not usually recorded as maternal 79% of women complete pregnancywith delivery mortality.According to the results of UNICEF's in hospital. According to RHS, the proportion of MlCS survey, the maternal death rate was 79 births with skilled attendants present at delivery personsper 100,000birthsin 1988. was 89% in 1996-2001 period. According to the results of UNICEF's MlCS survey (2000) The official estimates of maternal mortality calculations,the share of women reportingskilled rates inAzerbaijan are close to those reported attendantatdelivery (i.e. attendanceby adoctor, a for high income countries (12 per 100,000 live nurse, or a midwife)was 87.5% in the year before births"), and survey data suggests that the the survef. This figure was 75% among poor estimates based on administrative data may household^^^. The percentageofwomen receiving lead to an underestimation of the indicator. prenatal care services from skilled health (Theaveragematernalmortalityrateisequalto personnelwas69% (52%amongpoorpeople). 118 per 100,000 live births in middle income countriesand463 indevelopingcountries2'). Figure 2.11.Proportionofmotherscompletingpregnancy Women sometimes deliver their children in with delivewin 1001: younger ages, which increases health risks for themselves and their children. According to Social Monitor 2003, the share of births to mothersunder age 20 increased from 4.7% of total live births in 1990 to 9.7 in 20Olz2. According to WB estimates, births per 1,000 women ages 15-19 in Azerbaijan was 44 in 200223(thereare noregularofficial statistics on teenage births). The figure was 104 in low incomeand24inhighincomecountries. One of the factors affecting maternal health is SWYN ssc ''Source: Human DevelopmentReport 2003. UNDP, N.Y., 2003. Source: Human DevelopmentReport 2003. UNDP, N.Y.. 2003. UNICEF(2003), "Social Monitor 2003, UNICEF lnnocenti Research Centre: Florence. " Source: World DevelopmentIndicators2003. The WB, 1818 H Street N. W., Washington D. C., 20433 USA. " Infact comparative figures suggest that the figures for childbirthsattended by skilled personnelinAzerbaijan are not below the world average.According to the WB estimates(source: World DevelopmentIndicators2003), the share of birthsattended by skilled persons in 2000 was 99% in Russia, 92% inAlgeria, 81% inTurkey, 71% in Paraguay and 20% in Pakistan. The WHO estimates that births attended by skilled health personnelwas 99 in high-, 84 in middle-and 40 in low income countriesin 1995-2001 period (source: Human Development Report2003. UNDP, N. Y., 2003). However,effortsare beingcontinuedto improvethe figures inAzerbaijan as part of the policy objective of improvingmaternaland child welfare. '5Source:Azerbaijan MICS, 2000. SSC, UNICEF, 2000. 30 There has been a reduction in abortions womenaged 15-44.The lifetimeabortionratewas compared to 1990, mostly due to the fact that also higher: 3.2 abortions per woman in 2001, in governmentwith theassistanceof international comparisonwith 0.3 abortions perwoman (official organizations has extended family planning data). Abortions are prevalent particularly among services to the population, but abortionis still a women in the 25-34 age group (55% of all common method of interruption of unwanted abortions). The difference between the official pregnancy.According to officialdata, abortions abortion rate and the survey result can be per 1,000 females aged 15-49 years has explained partlybythe differenceindatacollection decreased'from 13.3 in 1990 to 7 in 2002 (th.e survey data are based on information per (Figure 2.12). In comparisonto this, abortions 1,000 women aged 15-44, whereas the official per 100 births has increasedfrom 14.0 to 17.6 data per 1,000women aged 15-49"); but also by inthe same referenceperiod.This isdueto the data registration problems in state health care fact thatthere hasbeenasteepdecreaseinthe facilities; underreportingof abortions performedin birth rate, but not in the abortion rate. The the private sector; and abortions performed "lifetime"abortion rate(Le.theaveragenumber outsideclinics. of abortions perwoman inthefertileagegroup) also tended to decrease according to official The reduction in abortion rate is mirrored by an statistics. Statistics of the Union of Soviet increase in the use of contraceptives over the Socialist Republics (USSR) showed a pre- same period. Figure 2.13 shows that the use of independence lifetime abortion rate of 0.8 contraceptiveagents per 100women aged 15-49 abortionsperwoman aged15-49inAzerbaijan, has increased significantly in the post-Soviet the lowest level among former Soviet Union period, contributing to a reduction in the risk of countries(Brackett, 1993)26.The MOHgives an morbidity of people with venereal diseases and estimateof 0.3 lifetimeabortionsperwomanfor HIV/AIDS. Figure 2.14 shows the proportion of the 1998-2000periods". respondents using contraceptives disaggregated by age group. The survey carried out by SSC in Figure 2.12Abortions and births 2001 shows that the proportion of contraceptive 120 users is low among youth and adults in comparisonwiththe respondentsaged25-39. 100 Figure 2.13The use of contraceptive agents (per 100women of the age 15-49) 80 3,5 60 3 40 20 0 1990 1995 1998 1999 2000 2001 2002 1 Source: SSC Again, survey data produces different 0 estimatesfrom those producedon the basis of 1990 1995 1998 1999 2000 2001 2002 administrative data. The RHS results suggest Source: SSC that the general abortion rate (the number of inducedabortionsper1,000women inacertain To protectthe poorfrom the economicallynegative year) in the 3 years before the survey (May resultsof largefamilies and thecostsandsuffering 1998 April 2001) was 116abortions per 1,000 of abortions, modern methods of contraception " Source: Serbanescu F.et ai.Azerbaijan RHS. 2001. " `'The Source: Serbanescu F.et al.Azerbaijan RHS, 2001. lower estimates may be due to the fact that the upper limit of the age group is higher than that in the survey. and that fertility ratesdecrease with age 31 should be made available to them. The RHS the population's health.The official statistical data also notes the increase in contraceptive use, show that the prevalence of HIV/AIDS has which has accompanied the decrease in increased during the past period, but is still abortions.Before 1990,USSR healthstatistics relatively low.Accordingto the SSC the number of reported that the lowest use of contraception registered AIDS infected persons and HIV (7%)among the former Soviet Unioncountries infectors was 97 in 2002 (Figure 2.15). There is was in Azerbaijan (1993)*'. The results of the some discrepancybetweenthe data given by SSC RHS suggest that the current contraceptive and theAzerbaijan NationalCentre in Respond to prevalence.amongcurrently marriedwomenof AIDS. According to the latter, the number of HIV reproductiveage (15-44 years) is 55.4%. Only detected people was 105 in 2002 and the total 11.9% of women in this category use modern number of HIV infected people 556 by July 1, methods, the rest 43.5% traditional methods. 200330.However,the actualnumberof HIVcarriers According to MICS, 55.1% of all women of could be significantly higher than registered, reproductive age (15-49 years) are using any becausethe awarenessof peopleabout HIV/AIDS contraception (15.8% modern methods, is low,and only averysmall partof populationtake 39.3%-traditional methods). HIV tests (although efforts are being made to increase the amount of testing carried out; see Figure2.14 below). In most cases infectedpeople do not take Propotionmothers using contraceptive(by age groups) (per cent) (2001) the test for HIV/AIDSand remain unaware of their infection. For example, according to Azerbaijan National Centre in RespondtoAIDS, only 164170 HIV tests were carried out in 2002, and more than 3,600,000 in the period of 1987 2002. The low level of use of contraceptives and the low awareness of people of HIVIAIDS means that there is a relativelyhigh riskof being infected. The NationalAIDS Centrecarriedout a survey of HIV- infected citizens. The results suggest that about 90% of the respondentshad no idea about AIDS before being infected with HIV. According to the RHS, 74% of women in fertile age have heard of HIV/AIDS, but 72% of women could not spontaneously stateany mainway of avoiding HIV Total 15-18 19-24 25-34 35-39 40-49 infection. Lack of any preventive knowledge is IContraceptiveusers Noncontraceptiveusen " Source SSC, Basedon a survey of mothers higher among rural residents (84%), women during last pregnancyat maternityunits Maternalhealthdepends notonlyonthequality Figure 2.15Dynamics of HIV detection of maternalhealth services, butalsoon access loersonsl to these services. Officialfigures showthat the number of female consultation units, child polyclinics and ambulatories decreased from 1034 in 1990 to 879 in 1999 but increased again to 917 in 2002. The number of beds for womenwho arejust recoveringfrom deliveries and childbirth did not fluctuate significantly (between 7,300 and 7,600) in the post-Soviet period and in 2002 the number was the same as in1990 - 7,400. Disease Incidence: HIW AIDS, Malaria, and Tuberculosis (TB) ~ 1 9 9 61997 1998 1999 2000 2001 2002 Source: SSC The spreadof HIVIAIDSposesa serious risk to .Source. Azerbaijan NationalCentre in Respond to AIDS Source:AZRHS, 2001. 3o534 of the registeredcases are citizensofAzerbaijan;22 are foreigners. 32 younger thanage 20 (83%),never marriedand Figure 2.17 sexually inexperienced women (78%), Malaria incidences respondents with less than complete high (persons) school education (84%), women of low socioeconomic status (82%) and non-IDP women livinginIDPsettlements(83%). The HIVsurveillancesystemwas introducedin Azerbaijan in 1987, and the Azerbaijan National Center in Respond to AIDS was establishedin 1990as the only MOHinstitution responsible for the coordination and supervision of activities for the prevention of HIV in the Republic. The Center has 12 regional offices. The Center guarantees 1990 1995 1998 1999 2000 2001 2002 quality, confidentiality of consultations and Source: SSC tests aswell as keepsreceivedresults strongly confidential. There are services of 24 hours anonymous consultation and testing on AIDS incidencewas 505 persons in2002 in comparison and telephone of trust functional at the Center to 24 in 1990,however,therehasbeena decrease since May, 1997. Besides the National AIDS inthe latestperiod. Center,there isone NGO,"lmdad-SOS",which was set up in 1998,to provide moral, material, Country Specific MDGs social and psychological help to people with HIV/AIDS. It deals with more than 200 There are three MDGs, which relate to health HIV/AIDS patients,their close relatives as well issues and health indicators, namely: goal 4 as lawyers, psychologists, sociologists, (reducing child mortality), goal 5 (improving teachersandphysicians. maternal health), and goal 6 (combating HIV/AIDS,malariaandotherdiseases). MalariaandTB incidenceshavealso increased incomparisonwith 1990,partlydue to the drop Goal 4: ReduceChild Mortality in living standards experienced by large Target 5: Reduce by two-thirds between sectionsofthe populationinthe early transition 1990and 2015, the under-five period, and the drop in the quality of basic mortality rate health services. In2002the number of newTB Indicator 13: Under-fivemortality rate caseswas 54.5 per 100,000population.This is Indicator 14: Infant mortalityrate 1.5times higherthanthe level of 1990.Malaria Indicator 15: Proportionof 1year old children immunizedagainst measles Figure 2.16Tuberculosis incidences Under5mortalityrate: (per 100,000 population) Given the measures being introduced under SPPRED, it is hoped that child and infant health indicatorswill continueto improveoverthe coming years. Reducing under 5 mortality rates by two thirds by2015 would implya target of 14per 1000. Given that the SPPRED measureswill take some time to haveeffect, it mightbe possibleto aimfor a modestdecreaseto beachievedinthe 2002-2005 period(forexample,atarget of 21 by2006),andto reach 14 by 2015. (Current rates for Eastern Europeare20for malesand 16for female^^'). 1990 1995 1998 1999 2000 2001 2002 Number of newlyemergedcases Since under 1 mortality accounts for 80% of all 4Numberofpersonsregisleredbymedicainshtubonsunfidiagnosis childmortality,itisconsideredusefulalsoto havea Source.SSC country target for infant mortality. Reducing infant ''Source:UNFPA,State of world population2003. Making Ibillioncount; investing in adolescents' health and rights. 33 mortality by two thirds would imply decreasing Target based on official data: 1990 is not a good, from 23 to a target of 8 per 1,000 live births. base line, because it is much lower than the This is lower than the current average for following years, anddoes not reflect the problems Eastern Europe (14) and for Western Europe which the country is struggling to cope with in (13)32.As with under five mortality, it would be transition. Therefore it is suggested to take 1995 more appropriateto aim for the current rates in as the base year for official data. A reduction by Eastern Europe, and the target couldtherefore three quarters inthe maternalmortalityrate would besetat20for2006 and 14for 2015. implya reductionfrom 37 to circa 13for 2015.The target for 2006 could be 35, since itwill take some However, given the current discrepancies time for the improvements in maternal health between official data and survey data, and the servicesto haveeffect. ongoing efforts being made to improve the quality of the official data, it may be necessary Target based on survevdata: Ifwe take 79 deaths to review any targets as changes in data per 100,000 live births as the proxy baseline for collection and official estimates become 1990(thedata refersto 1988),a reductionbythree available. quarters implies a target of 27 for 2015. (Maternal mortality rates range very widely within Eastern It is also considered advisable to set targets and Western Europe and it is difficult to give one based on survey data, since this data will figure as a reference point (from 4 to 58)33. continue to provide a useful alternative source However a tentative target for 2006 could be 74 of estimates for infant and child mortality. The (94%of 79). next MlCS survey is scheduled to be carried out in 2004. A possible target could be to Goal6: CombatHIV/AIDS,malariaand reduce the under five mortality rate from 102 otherdiseases per 1,000 to 95 by 2006, and to 50 by 2015. Target7: Havehaltedby2015,and begunto Infant mortalitycould be reducedfrom 79 to 74 reverse,thespreadof HIV/AIDS by2006andto40 by2015(80%of 50). Indicator 18: HIVprevalenceamong 15-24year oldpregnantwomen However, discussion on setting concrete Indicator19: Contraceptiveprevalencerate targets isstilltaking place,andcountry-specific Indicator20: Numberofchildrenorphanedby MDG targets will be set in the context of HIV/AIDS SPPRED and will be in line with targets and indicatorsusedfor SPPREDimplementation. Target8: Havehaltedby2015,andbegunto reverse,the incidenceof malaria Goal5: ImproveMaternalHealth andother majordiseases Target6: Reducebythree-quarters, Indicator21: Prevalenceanddeathrates between 1990and2015,the associatedwith malaria maternalmortalityratio Indicator22: Proportionof populationinmalaria Indicator16: Maternalmortalityratio riskareasusingeffectivemalaria Indicator17: Proportionof birthsattended preventionandtreatment byskilledhealthpersonnel measures Indicator23: Prevalenceanddeathrates CountrySpecificMDG Targets associatedwithtuberculosis Indicator24: ProportionofTBcasesdetected Maternal mortality rates: SPPRED aims to andcuredunderDOTS(Directly improve maternal health through ObservedTreatmentShortCourse) improvementsin the quality of maternal health services and improving access to these Discussion of country-specific targets for the services. As with infant and under 5 mortality above so far have been inconclusive.Targets and rates, it is considered advisable to use two indicators for HIV/AIDS are particularly targets, one based on official data, and one problematic, due to the low number of tests based on survey data. (It is assumed that currentlycarried outinthecountry. efforts to improve data collection for official data will be continued, and that surveys will be repeated.) Source: UNFPA,State of world population 2003. Source: UNFPA, State of world population 2003. 34 2.6 Poverty Reduction,EconomicGrowth and Environmental Sustainability Background some circumstances lead to a worsening of ecologicalproblems,egtheover-loggingofforests Ensuring environmental sustainability is an for cheapfirewood;whilelandpollutioncanreduce important goal in itself, but it is also linked to the access of the poor in rural areas to land for other poverty goals, such as improving the cultivation. health status of the population, since land, air and water pollution have negative effects on The mainenvironmentalproblemscurrentlyfacing the population's health.It is now also generally Azerbaijancan besummarizedasfollows: accepted that economic growth has to be Ecological problems/pollutionarisingfrom environmentally sustainable: only wise and the previous Soviet industrial and prudent use of natural resources will ensure agricultural policies that future generations can continue to enjoy De-forestation which has accelerated in economicgrowthanddevelopment. some areas in recentyearsdue to the lack of reliable energy supplies (gas and Azerbaijan inherited serious ecological electricity)to regionsfor heating problems from the Soviet era. Industrial Lack of pipedwater in ruralareas, and the development was achieved at the expense of qualityof pipedwaterinurbanareas the damaging effects of pollution on people's Pollutionofthe CaspianSea health and on the natural environment. Some aspects of this pollutionhad a direct impact on Land the lives of the people,while others have hada long-term negative direct or indirect impact The territory of Azerbaijan covers an area of 86.6 throughthe pollutionof land,airandwater. thsd m2.The natural geographic territory of the republic is characterized by a predominantly There are many links between the natural moderate climatic zone and semi-desert plants environment and the living standards of the covering. 54.8% (2001) of the total area of the people. We have already pointed out that a republic consists of arable land. The average polluted environment affects the health of the population density is 94.7 persons per km2.The population, but low living standardscan also in arablelandpercapita is0.59hectares. Table 2.11. Distribution of land (percent of total) Source: SSC, 2002 most affected. Erosion, salinity and pollution of The land has suffered negative effects as a land mean that local populations have more result of industrial activity, natural disasters, restricted access to land and are thus more land erosion and salinity. Areas used for vulnerableto poverty. industrialand agriculturalpurposes have been 35 A total of 3.7 million ha of land is affected by estimated at 30,000 ha of which 14,000 ha is , erosion, andof these 3 million ha is affected by polluted by oil and chemical agents. By polluted water erosion. The latest figures suggest that land we understand land that is polluted by man- 1.2 millionha of land is affected by salinity.The made sources: transport, industry, over-use of main reasons behind salinity are irrational pesticidesetc. In general, the proportion of heavy methods of irrigation and damaged metals inpollutedlandisseveraltimes higherthan infrastructure. that in non-polluted land. Thus lead content is 8 times, nickelcontent is2times, zinc is50-60times The total area of land affected by pollution is andcopperis 10timeshigherinpollutedlands. Table 2.12. Land affected by harmful exogeneous factors Source: NationalProgram on EnvironmentallySustainableSocial EconomicalDevelopment,2002 - SPPRED envisages several measures to Airpollution tackle land pollution, namely land recultivation on the Apsheron peninsula, de-contamination Noticeable changes have taken place in both the of land from mercury and other harmful scope and origin of the harmful emissions in the substances and preparation of the waste republic over the last years. If under the Soviet managementproject. Union the harmful emissions were mainly of chemical and petrochemical origin, these have decreasedinthetransitionperiod. Table 2.13. Emissions of Harmful substances from stationary sources (thousand tons) Source: SSC, 2002 Figure2.18 As table 2.13 shows. the emissionsof harmful Air pollutionfrom stationary sources (perpenonyW substances from industrial enterprises, which 25 representthe main source of air pollution, has beendecreasing inall the large industrialcities 20 apart from Baku. However, it should be noted that economicrecoveryisnowunderway,and it 15 will be importantto monitorpollutionlevels over thecomingyears. 10 5 0 1990 1995 1998 1999 2000 2001 2002 Source: SSC Themainreasonsforairpollutioninthesecities canals and 2 water escape collectors. In the are the wear and tear of equipment and out- Republic, 4.1% of all permanently active canals dated technology, which have not been (38,900 km in length) have artificial coatings, and renewedfor the last40 years.At the sametime 95.9% have ground canal beds;this resultsin the there has been a rapiddecrease in the use of lossof2.5 - 3.0 billionm3ofwater.Thisalsocauses natural gas as a fuel for the thermal power theriseofgroundwater level,aswell assecondary stations, and the use of highly sulphurous salinity and the flooding associated with it. mazut, regular non-fulfilmentof planned and Inefficientirrigationanddrainagechannelsloseup necessary:protective measures and lack of to 50% of the water which they carry.At the same sufficient investment for environmental time half of the water supplied for the Absheron protection. peninsula is lost. This figure in the republic amountsto about 30%of allwater suppliesfor the Figure 2.19 Carbon Dioxide emissions per capita year2002. (metnctons) Figure 2.20Water availability and water losses 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 1990 1995 1998 1999 2000 2001 2002 -intake of water from natural water sources 1992 1993 1994 1995 1996 1997 1998 1999 3 r&Total water consumption +Water leakage during transportation +Discharge of swage water to surface water The 28th indicator of MDGs envisages Source: SSC monitoring the level of carbon dioxide per capita. Starting from 1992, with the financial The amount of national water resources, supportfromthe UNDP,the NationalCenterfor estimated on a per capita basis of per unit of the Climate Changes monitored this indicator. land area, is smaller in Azerbaijan than in There is no available information from 1999 neighboringcountries. onwards as the above-mentionedproject has finished. Currently SSC does not collect Estimationsshow that accordingto the amount of informationonthistopic. water resources per 1 km3 of land area and per capita,theworstsituationisinthe Mughan-Salyan Waterpollution zone (3and7),Absheron Peninsula(15and0.04), Araz lowland(19and 0.04), Mill-Garabaghregion There is a shortage of drinking water in (39 and OS), Gazakh region (74 and 1.3) and Azerbaijan. Overall water resources in the Nakhchivan(17and1.6). countryareestimatedat29.7bn.m3.Thewater sources of the country are not sufficient to Serious problems also remain in the supply of guaranteesupply at the required level. On top drinkingwater to households.Generally,the poor of this there is inefficient use of the available conditionof infrastructurerestrictsthe possibilities water resourcesandthis is madeworse due to for the population especially in the rural the losses which occur in the water supply settlementstogetaccesstopipedwater. systems. The irrigation system comprises of 10 main 5Limprovedwater sources include: householdconnection,public standpipe, borehole, protected dug well, protectedspring, rainwater collection.Availability of at least 20 liters ofwater per person per day from a source within one kilometer of the usets dwelling. Not improvedsources include:unprotectedwell, unprotectedspring, vendor-provided water, bottledwater, tanker truck-provided water. 37 Figure 2.21 distribution network in a number of cities of the Access of populationto the improved water sources34 republic Ganja, Shaki and etc. with support of donororganizations. However,the probleminAzerbaijan is notjust ttiat of guaranteeing the supply of piped water, it is improvingthequalityofthewater. A study carried out in 2002 by the Sanitary- Epidemiogical Center under MOH shows that thereare stillsomewater resourceswhich exceed the norms for bacterial,chemicaland radioactive content. Urban Rural Country level As it can beseenfromthe Figure2.20, the amount of waste water in ground water over the last 10 Source: HBS, 2002, SSC years decreasedfrom 5,098 mln m3,to 4,114 mln According to the results of the 2002 HBS, m3. 62.0% of the population has access to the improvedwatersourcesusingvarioussources. Forestry Due to the fact that Azerbaijan has semi-desert Accordingto another survey carriedout by the type of plants and limited water sources, a SSC35,84%of the housesinthe citiesand only relatively small area is covered by forest. The 11.2% of the houses in the villages were forest area has been reduced over the last years. provided with the piped water. The According to official statistics, only 11% of the administrative data shows that access of territory of Azerbaijan is covered by the forest. population to the improvedwater sources was However, it can beassumedthat there have been 94.2% in urban areas, 11.2% in rural areas. significantchangesas a resultof uncontrolleduse According to UNICEF's MlCS (carried out in of the forest resources by the population facing 2000), 76.3% of the population has access to with shortage of energy.Unreliablegas suppliesin pipedwater. certain territories of the republic have forced SPPREDisaddressingthe problembytackling the rehabilitation of the internal water Figure 2.22 Access of population to gas supplies Table 2.14. Quality of drinkingwater Urban Rural Source: HBS. 2002. SSC Source: Ministry of Health, 2002 'IThe survey was implementedwithinthe framework of the EU FoodSecurity Program(EU FSP) 38 peopletolookforalternativetypesoffuel. Azerbaijan. The program is designed to achieve forestrehabilitationintheregions. Obtainingthe wood in an unregulatedway as alternative energy source has caused serious Protected Areas3` and damage to the forest covering. Figure 2.22 shows that 92.4% of rural populationdoes not At present there are 20 protected areas in have access to the piped gas supply. Totally, Azerbaijanwith a total area of more than 260,000 46% of the populationin the republicdoes not hectares.thefirstofwhichwas establishedin 1923 havesustainablegassupply. SPPRED envisages measures to create new forestry areas along the Kur-ArazRiverand to Figure2.23 Re-lorestation (Thsd. Ha) 1990 1995 1998 1999 2000 2001 2002 (the Kara-Yaz-Agstafa),the lastin 1993(Gabala). Source: SSC. 2002 Protected areas considerably supplement the reservesystem providingthe preservationof flora extendexistingforestcovering. and fauna resources of the country and the As it can be seen from Figure2.23, the forest biodiversityofnaturalcommunities. rehabilitationwork hasbeenimplementedon 8 thousands ha of area during the year 2002. At present, 14 state reserveswith a total area of However, estimates suggest that large-scale 192.2thousand hectaresor 2.2%of the total area work will leadto an optimumforest covering in of the Republic are functioning in Azerbaijan, the republic (18-20%) in 2025-2030. "The which cover all the basic natural climatic NationalProgramon ForestRehabilitationand landscapes and contribute to the preservation of Extension" was adopted in 2002 on the the biodiversity of the Caucasus. It should be initiativeof the Ministryof Ecologyand Natural notedthat the functioningof the reservesis made Resources (MENR) of the Republic of difficultby a numberof problems, first of all those connectedwiththeeconomicsituation. Table 2.15. The scope of work envisaged For its geographical location Azerbaijan has various climatic zones with rich biodiversity. Poverty has contributed to the depletion of biodiversity. Unplannedand unregulated hunting and fishery, cutting of the rare types of the trees, collection of the traditionaltypes of plants are the sourcesof incomefor poorfamiliesinmanycases and these activities have a very serious negative impactonbiodiversity. Source: Ministry on Ecology and Natural Resources, 2003 SPPRED envisages measures to create new 38ProtectedArea is a temporarily protectednatural territoryor water area, in which certain species of animals and plants, geological objects, elementsof landscape, etc. are preserved. A reserve is a protected naturalterritory or water area inwhich the whole natural complex i.e. landscapeswhich are typical or rare for the given zone, rare and valuablespecies of animals and plants, etc. are preserved in natural conditions.The maintask of a reserve is the preservation and restorationof model natural ecosystems as well a6 a gene pool of organisms typicalfor the givenzone. 39 protected areas (ShahdaghNationalPark)and bedividedintofollowing types: reserves (in Ordubad, Shahbuz, Talish and - Chemical pollution brought by the rivers flowing other regions). intothe Caspian CaspianSea Industrialdischarges to waters were summarized by the PollutionControl,with additional inputfrom The Caspian Sea has a great significance for Iranian specialists. Sewage and river discharges the country. Being a landlocked reservoir, the were estimated based on questionnaires. There ecosystem of the Caspian Sea has a great are, however, considerable uncertainties in these impact on forming the ecosystems of the values. For instance, it is often said that 80% (or surroundingterritories. 85%) of the hydrocarbons (or total pollution) entering the Caspian Sea comes from the Volga Thepollution problems of the Caspian Sea can River. Table 2.16. Pollution and Discharge via Rivers Source. UnitedNations EnvironmentProgramme (UNEP). 2002 The Caspian Regional Thematic Center for PollutionControl in Bakuconducted studiesof the - Offshoreoil industry pollution loads of the major industries and activities in the region. The results have been Table 2.17. Estimated Pollution Discharges into the Caspian Sea from Industries Source: UNEP, 2002 supported by further rapid assessment methods inallfive Caspianlittoralstates. -Water levelrisinginthe rivers The most probable reasonfor the decrease in the Caspian sea-level is considered to be the AzERBAlJAN % changeofthefreshwaterflow intothe Caspian, PotentialInundatedareas of which about 75% (80.3%of the river flow) is from theVolga River.As, inthe beginningof the current century, the construction of flow regulating dams was started (8-on the Volga of floading river, 3-OntheAma river, 1-on the Ural river, 3- .IcaseCliles t onthe Kur river)andthe "irreversible"losses of 0-0 l m k m N Source ffansboundar UurgnosricAnaI sls~ofthe GaspranSea. 1he water for agricultural and industrial purposes Carp'rantnw'o'"e''tY.rwsmrc. '002' BiologicalOxygen Demand 40 increased (from 1950 to 1992 water dopted by the five states borderingthe Sea. The consumptionmadeupabout900km'), allthese plan will be developed through the agreed were regarded as the reasonsfor the sea-level technical analysis (Transboundary Diagnostic decline, Analysis -TDA) which will lead to the Strategic Action Plan (SAP). Contributions to the SAP by The pollution problems of the Caspian are eachstatewillbedefinedinthe NationalPlans. being tackled through the Caspian Environment Programme (CEP). This is a The specific goal of the present NationalCaspian regional programme developedfor and by the Action Plan is to improve the ecological status in five Caspian Littoral States, Azerbaijan, Iran, Azerbaijani part of the Caspian Sea and adjacent Kazakhstan,RussiaandTurkmenistan,aiming littoral territories, to reduce its negative impact on to halt the deterioration of environmental the health of the population, to maintain the life conditions of the Caspian Sea and to promote support functions of hydrosphere and biosphere sustainable development in the area. A major and effective participation of Azerbaijan in the outcome ofthe CEPwill betheactionplanto be regional and international nature-conservative a activity. Table 2.18. Sources of the Caspian Sea pollution (all countries) Source: UNEP. 2002 formulating and implementing policies aimed at Environmental Sustainability and the promotingenvironmentalsustainability.There is a MDGs need for cross-sectoral dialogue in designing environmental policies, and in developing an Goal7: Ensure Environmental effectiveregulatoryframework. Sustainability Attempts are being made to protect the landarea Target9: Integrate the principles of covered by forest, and to maintain biological sustainable development into diversity. However, the regulatory systems will c o u n t r y p o l i c i e s a n d have to be improved and local communities programmes and reverse the involved. Illegal logging has to be stopped, but loss of environmental accompanied by measures to ensure access to resources alternativefuelfor localcommunities. Indicators: Proportionoflandareacovered byforest Ratioofarea protected The indicator of land acreage covered by forest to maintainbiologicaldiversity may not be appropriate for Azerbaijan, since it to surfacearea does not capture problems with decline in forest Energyuseperunitof GDP quality, including reduced yields and reduced species mix. ForAzerbaijan, it may be appropriate C a r b o n d i o x i d e e m i s s i o n s ( p e r to useanindicatorconcerninglandsalinity. capita) and consumption of ozone-depleting chlorofluorocarbons. Azerbaijan inherited the Soviet system of One of the problems inAzerbaijan is the weak inefficientuseof energy. Energysubsidiestosome institutional capacity for monitoring extent still encourage inefficiencies in use of environmental problems, and therefore for energy by not penalizing wasteful use. On the 41 other hand, households in rural areas have sections of the IDPpopulationwhich are still living inadequate access to electricity3'. Carbon inunsanitaryconditions. dioxide emissions4'are declining. The carbon indicator is linked to policies to reduce greenhouse gases, and reductionswill lead to 2.7 RefugeesandIDPs lower incidence of respiratory and cardiovascularillnesses. Infroduction Target10: , Halve by 2015 the proportionof people without sustainable As it was stated in the SPPRED, currently there are circa 1 mln. refugeesand IDPs in the country, accesstosafe drinkingwater. which makes up approximately 12% of the Indicator: Proportion of population with country's overall population. 15 years passed sustainable access to an since the IDP problem emerged; children have improved water source, urban been born, have grown up in difficult situations, andrural new familiesformed. IDPson the whole still live in concentratedgroups, whereas refugees are more Circa 84% of the urban populationhas access dispersed,and have been integrated intothe local to piped drinking water, and 11% of the rural population. The IDP population has concentrated population. This huge difference in access in areas nearto the occupiedterritories and about between urban and rural areas has to be one third are living in Baku. Many lDPs are still addressed. However, the problem in living in special camps or in temporary Azerbaijan is not so muchaccess to improved accommodation such as hostels or unfinished water sources, although there may be some buildingsinBakuandotherbigcities. work to be done on this in rural areas. The problem is more ensuring the quality of the The politicalsituationsurroundingthe problemsof water. Drinking water should meet basic IDP'sandrefugeeshasnotbeenyet resolved.The biological and chemical standards. The main SPPRED objective of "returning the IDPsto Ministry of Health monitors the quality of their permanent place of residence" could not drinking water, but lacks modern equipment to therefore beachieved. Inthe meantime,inorderto carry out reliable monitoring. Infrastructure improve the living conditions of this group, the needsrepairand investment. government, in partnership with donor organizations, is accommodating some of the Targetll: Have achieved by 2020 a families in newlyconstructedcamps and providing significant improvement in the them with plots of land. The state is continuing to lives of at least 100millionslum resettle IDPhouseholds,especially those who are dwellers living in the most appalling conditions. New Indicator: Proportionofpopulationwith houses for IDPfamilies are being made available accessto improvedsanitation in Shamkir, Aghstafa, Yevlakh and other regions Proportionof householdswith within the framework of SPPRED. Some are accessto securetenure provided with plots of land, and repairs are being With regard to improved sanitation, the carried out in some of the living places where the problemis notso muchaccess, butthe state of IDPsaccommodated. repairof the current sewagesystems. Setting a target for Azerbaijan based on access alone is Nevertheless, according to official statistics, the inappropriate. Sewage water can leak and majorityofthe IDPsarestillliving inunsuitableand pollutewater resources. below standard conditions especially from a sanitary and health point of view. Unemployment The definition of slum is not clear, and the amongst IDP'sremainshigh. extent of the problem inAzerbaijan istherefore difficult to define. However, it may be worth Although one of the six main strategic goals of the considering setting a shorter term target for SPPRED program is to "improve the living improving the housing conditions of those conditions and opportunities of the refugee and IDP population", there are limited data sources '' Energy use per unit of PurchasingPower ParityGDP is commercialenergy use measured kilogrammesof oil equivalent per $1000 of GDP converted from nationalcurrencies using PPP conversion factors. Carbondioxide is a cotourless. odourless and non-poisonousgas formed by combustionof carbon an in the respirationof living organisms. It is considered to be a greenhousegas. 42 from which to monitor implementation of this there have been smaller one-off studies of overallaim.The State Committeefor Refugees sections of the IDP/ refugee population, which and IDPs (SCRIDP) collects administrative give, however,a somewhat fragmented pictureof data on the numbers and living places of this their situation. SPPRED envisaged the section of the population,and also on the type implementation of an annual survey on the IDP/ of accommodation in which the IDP Refugee population,butsofar there have been no households live. There is very little statistical stepstakentowardsimplementingthis measure. data available on the quality of their accommodation or their general living HousingandLivingconditions standards.There are noregularsurveyswhich allow us to monitor the living standards of The majorityof IDPsarestill livinginunsatisfactory refugees and IDPs; surveys that allow looking accommodation with insufficient access to at the differences inlivingstandardswithin this sanitation facilities.According to official statistics, group,inordertotargetsupport. one quarter of the IDP population has settledwith relatives. At the same time the remainder is living There is also no satisfactory regular source of intemporaryaccommodation,suchastent camps, information which allows us to look at the public buildings, etc.According to the results of a differences in income poverty between survey conducted by the World FoodProgram, up IDPslrefugees, and the rest of the population. to 2/3 of the households of the IDPs in the rural However, a one-off survey of IDPs/ Refugees areas are living in one-room apartments.Another was carried out in 2002 which allows some survey conducted with support of the WB has comparisonofthe livingstandardsofthisgroup revealed that the majorityof the IDPs in the cities andthe restof the population,andthe resultsof and rural areasare living inone-roomapartments, this survey are discussed in the sections 18% of them do not have direct access to water below4'.The other source of data is the SCC's (WB/UNDP2002). HBS. However, the refugee/ IDP population is representedinthis survey in proportionto their The state is continuing to resettle the IDPs representation in the total population, i.e. less especially those who are living in places not than 8%. This makes it a small sample size, suitable for habitation.There hasbeen a reduction which is not suitable for lookingat differentials of people living incamps and railway carriagesas within the group. Apart from these sources, can beseenfromthetablebelow. Table 2.19. Housingof IDPs '' The informationused inthissectionfor identificationof the povertylevelof the refugeesand IDPsisbased onthe resultsof the AzerbaijanSurvey of the IDPs(AIDPS)carriedout by the WB and the UNDP with the participationof the local consulting company. We also reportthe resultsfrom the SSC's HBS, where IDPs and Refugees are representedin proportion to their share in the overall population(less than 8%). In 2002 the sample size for IDPs and refugees was 3303 individuals. 43 According to the results of the IDP Survey generally assumed that IDPs are active in the conducted by the WB in 2002, approximately informalsector, seasonalactivityand street trade; 47% of the IDPs are unemployed (ILO i.e. activitieswhich may notbe captured by survey definition). The collected information shows questionsonemployment. that approximately 33% of the refugees and IDPs were mainly engaged in agricultural According to the present informationgiven by the activities before they changed their living SCRIDP, out of 292,771 persons, up to 30% places.AccordingtotheAlDPS results, 15%of (92,869) of the IDPs are working in the formal the IDPshaveaccessto land.The Government sector.AIDPS resultssuggest that most IDPsare has allocated temporary plots of land for the engaged in agricultural activities. However, they use of IDPs and it is planned to continue this areknownto havelimitedaccessto land.Whereas activity duringthe implementationperiodof the 94% of the population living in rural areas has SPPRED. accessto land,thefigurefor IDPsis35%. Employment Table 2.20 shows that there is a difference The level of employmentamong refugees and between the sources and structure of household IDPsis low.Accordingto asurvey carriedout in incomeof the local populationand IDPs/refugees. 2001, two thirds of the IDP population is TheTablehighlightsthefactthatthe percentageof unemployed4*.TheAIDPS estimates that 47% incomefrom agricultureamongrefugeesand IDPs of IDPs/ refugeeswere unemployed in 2002 - is 2.5 times less in comparison with local they were 2.6 times more likely to be population. The main sources of income of IDPs, unemployedcomparedto the local population. as shown,are privilegesandstate benefitsandthe Although there is no official information, it is mainsourceof incomeisnotfromemployment. Table 2.20. Structure of Income: Refugees, IDPs, and Resident Population Source: HBS,2002, SSC Inorderto resolvetheemployment problemsof Nutrition and Health IDPs, SPPRED has adopted as priority measures the extension of small loans and .Poverty and instability has had a negative impact encouragement of small entrepreneurship. on the health of IDPs. Psychological stresses, Provision of soft loans/micro credit for IDPs incomplete and unsatisfactory nutrition, limited dealing with agriculture and establishment of access to the health services meant that the small production units carpet-making and incidence of disease has been higher among the weavingareenvisaged. IDPs and that disease is more likely to spread among this section of the population.According to ~~~ '2 Figures are basedon the findings of the researchcarriedout by "Sigma: researchcenter. (2001) 44 the information collected by SCRIDP, operateon a 3-shift system. 94.8% of refugeeand underweight among refugees and IDPs is two IDP families have difficulties in obtaining school times more than the rest population.23.5% of material^^^. The number of the teenagers over 16 the children under 5-year old of the IDPs are with incomplete secondary education is 2 times sufferingfromdiphtheria. more (37.8%) than the national level. (SCRIDP, 2002). Enrolmentratesfor IDPshavedroppeddue Peoplewith disabilitiesamongthe IDPsare 30 to the difficulties inguaranteeingthemwith school per 1,000 persond3. Chronic diseases are buildings. Evenwhen theseare available,they are 152.8per 1;OOO personsofthe population.This oftenpoorlyheatedandequipped. indicatoris 199.6personsamongthe IDPs. As IDPs represent one of the most vulnerable Unsatisfactory infrastructure in IDP groups in SPPRED, a special package of settlements also increasesthe risk of disease. measures has been prepared to improve their In 56% of the temporary settlements built for involvement in education. These include the the IDPs, drinkingwater is taken from artesian construction of secondary schools in the new wells. 38% of the populationuses the river and settlements and improvement of physical and channelsastheirsourceofwater. technical infrastructure in the existing ones are envisaged. Education The level of literacy of IDPs does not 2.8 Social Protection4'. considerably differ from other social groups of population. (The level of literacy among Background refugees and IDPs is 97.1Y0.`~) But observations give us grounds to say that the The aim of social protection is the protection of refugee and IDP families living in unsuitable individualsand householdsagainst risks and lack condition have problems with access to of security. All individuals are confronted with education.According to the survey carried out certain risks, and risks come in many forms. The in 2001, only 62.4% of the school age children transitionperiodhasplacedparticulardemandson attended schools. 21.8% of them did not go to Azerbaijan's social protection system. Firstly schoolat because it has had to address the economic hardship and disruption faced by most of the populationespecially inthe initialtransitionperiod, Table 2.21. Education levels of Refugeel IDP and secondly because the previous system of population social protection was designed during the Soviet Levelof education Refugeeand period and has to go through a series of complex IDP reforms in order to function effectively in the new Illiterate 2.9 economic setting. SPPREDidentifiesas one of its Primary 4.2 main strategic objectives "the reform of the Incompletesecondary 30.7 existing system of social protection to give more Secondaryeducation 37.3 effectiveprotectiontothevulnerable". Incompletehigher 13.9 Higher I1 .o Pensions Source: SCRIDP, 2002 The average monthly pension in2002was 88,493 AZM. This comparestothe average monthlywage Lack of school facilities in the areas inhabited of 315,406AZM and average percapita incomeof by refugees and IDPs means that it is difficult 219,695AZM. for children to attend. In some areas, schools Informationtaken from a survey commissioned by International MedicalCorps ((IMC) and carried out by Curation International Foundation (CIF) in order to assess population health needs, utilizationof healthservices and the cost of treatment in Southern Azerbaijan:Sabirabad, Saatli, Bilasuvar, Fizuli, lmishli and Beylagan. ssc 2001 `'Figuresare are based on the findings of the research carried out by "Sigma"researchcenter (2001). Figures based on the findings of the research carriedout by "Sigma"researchcenter (2001) " Social Protection includessocial insurance benefits (paid from social insurance contributions)and social assistantbenefits (paid from the state budget) 45 Table 2.22. Average nominaland real pensions, wages and per capita income levels' 1999-2003 Source: SSC, 2003 Table 2.22 above shows that average nominal 109%. The increase has influenced the total pensions, wages, and per capita income amount of pensions and welfare payments. The amounts increased, butthat real pensions and additional welfare payments to unemployed per capita income decreased in 2000 in pensionersincreased 1.6times. comparison with 1999.The situation improved after2000 (seeFigure2.24). Despitethe lowlevelsof pensions,the HBSresults for 2002 suggest that only 4.9% of all pensioners Figure 2.24 were poor. However, this result appears to be Growth rate of real pensions,wages and income per capita explainedbythefactthat mostpensionerslivewith (per cent) larger families, and benefit from the support of other household members. But if we look at the HBS results for households (rather than individuals), we find that almost 40% of all householdscanbeconsideredpoor(Le. percapita householdexpenditure islessthan 175,000AZM); and of these (poor) households,41YOare headed Figure2.25 Nominaland real growth by different categoriesof pensions Ioer cent) 1999-2000 2000-2001 2001-2002 Source: SSC Using data from the SSC, we can look at the same information for different categories of pensions.As Figure2.25 shows, both nominal and real pensionshave increasedin the period 2001-2002. Nominal pensions increased by 120%; old age pensions48by 116% times; disability pensions4'by 135%;pensionsfor loss of head of householdM by 137%; service pensions" by 119%; and social pensionss2by ''OldAgepensions menof62withatleast25yearsofwork(insurance)experienceandwomenof57withatleast20yearsofwork ''(insurance)experience. Disabilitypensions for limitation of lifeactivitydue to havinggenetic illnesses or injures,physically or mentally or handicapped people sa Pensionsfor losing the breadwinner is for membersof the familieswhose family head has dies (regardless they are at his experience) 5' Pensionsfor length of work was experience are for pensionerswhose work was connectedwith losingcapacity to work totally ''orSocial partially before reachingretirement pensionsare paid to those who are disabled from birth (over 67 years for men. over 62 years for women): to mothers of 57 years who gave birthto 4 or morechildren; mothersof 57 years who brought up disabledchildren; childrenwho lostthe head of household(breadwinner);disabled childrenover 16years. 46 by a pensioner. This suggests that when differentcategoriesofthe population(eg.invalids), pensioners live alone (when they are head of ratherthan beingtargeted on those who are really households),or do nothavesupportfrom other in need. This means that the limited state funds adultfamily members,currentpensionlevels in which are available for social benefits are not manycasesdo not protectthemfrompoverty. beingefficientlyutilized. SocialAssistance The StateSocialProtectionFund's(SSPF)budget comes from two sources: social insurance The main 'social assistance allowances are contributionsand transfers from the state budget. one-off benefits for child birth, benefits for In 2003, 57.5% of the SSPF's budget came from children under 3, benefits for children under 16 social insurancecontributions,and42.5%fromthe years, and benefitsfor guardianship.There are state budget. The SSPF's 2003 budget included infactatotal of 35separatebenefits,andoneof 711.24 billionAZM for benefits, equal to 39.3% of the aims of social assistance reform is to the total SSPFbudget.Stateexpenditureonsocial gradually reduce this number and rationalize protection (through the SSPF) amounted to 768 the administration of the benefits, as well as bln mantas, of which 586 billion was spent on targeting them to the poorest sections of the social assistance benefits; 107 billion AZM for population.The currentwide range of benefits subsidiesfor transport, communaland other kinds are mainly "categorical", i.e. they are paid to of services,and75 billionfor social pensions. Table 2.23. SSPF Budget,2003 Source: SSPF Child benefits for children from low income from a SPC.The governmentspent circa 14billion families are especially important. UntilAugust AZMpermonthonchildbenefitsin2003, meaning 2003, Social ProtectionCenters providedchild that the approximateannual expenditure on these benefits for 1,320,172 children from 576,131 benefits was 168 billion mantas. This amounts to families.A further 302,312 child benefits were 9.3% of the total SSPF's expenditure and is equal paid through the parents' place of work. In to 23.6% of the total amount paid in benefitsfrom August 2003, a PresidentialDecree ruled that the SSPF; and 21.9% of the state budget's social every beneficiary should receive their benefit protectionexpenditure. Table 2.24. Number of childrenfrom low income families receivingchild benefits in 2003 - Source. MLSP 47 Unemployment benefits suggests that there is little incentiveto register as unemployed, either because of the level of the In 2002, employment centres registered benefit, or because of the lack of help offered by 50,963 people, including 23,088 (45.3%) men theemployment servicesinfindingjobs. and 27,875 (54.7%) women (the unemployment rate based on the registered Children unemployed was 1.4%; see chapter 2). 3,292 unemployed people, (6.5% of those The results of the HBSfor 2001 and 2002 suggest registered), received benefits from the that children have beenone of the groups most at government. Of these, 1,520 (46.1%) were risk in the years of transition. One indicator for men, 1S97 (54.9%)were women.The average monitoring the poverty risk for children is the size of the benefits was 129.800 AZM in number entering institutional care. This indicator September 2003. The minimum amount of hasbeen risinginrecentyears(seeTable2.25). benefit is 30,000 AZM, which is 9.5% of the average salary, 17.14% of poverty line and Studies have suggested that the main reason for 33.9% of the average pension. The average children.enteringinstitutionalcare isthe inabilityof benefitinSeptember2003, represented41.2% parents to feed and cloth their children due to of the averagesalary,74.2% of povertylineand poverty. (see for example the study done by the 146.7%of the average pension. However,the NGO"United HelptoAzerbaijan"in2000.) low level of the registered unemployed Table 2.25. Children in Institutions 1990 1995 1997 1998 1999 2000 2001 2002 Numberof nurseries 4 4 4 4 4 4 4 4 Numberof childreninthem 241 166 181 181 184 197 191 173 Numberof children'shomes 5 4 4 5 5 6 6 6 Numberof childreninthem 397 395 461 548 608 684 705 749 Numberof boardingschools for orphansand children 2 2 2 2 2 2 2 2 deprivedof parentalcare Numberofchildreninthem. 505 548 616 575 569 554 540 516 Numberof specialboarding schoolfor childrenwith 16 13 13 14 14 13 13 12 limitedhealth Numberof childreninthem 2,811 1,607 2,132 2,359 2,498 2,679 2,731 2,860 Numberof boardingschool for mentally retarded 2 2 2 2 2 2 2 2 children Numberof childreninthem 515 271 262' 302 300 300 348 359 Generaltype boarding schools 50 38 38 37 38 38 39 39 (thousands) 19.4 15.2 16.5 16.1 17.1 17.6 17.8 18.9 Source SSC Targeting of Social Benefits according to their average per capita expenditure levels (respondents are distributed into deciles, The HBS (conducted annually by the SSC), with the first decile representing those with the can be used to look at the extent to which lowest level of per capita expenditure), and we existing benefits are targeted to the most then look at the share of each decile group needy, and also at the effect of the benefits in receiving social benefits,which includespensions, protecting recipients from poverty. We divide state benefits53,and "privileges"". This gives some the respondents from the 2002 survey indication of the extent to which existing funds for State benefits includeone time allowances for child birth; allowance for childrenunder 3 years; allowance for funeral expenses, :llowance paidfrom the birthtill the child is 16 years. Privilegesinclude exemptionfrom educationfees, food, rent and utilitiespayment, electricity,telephone, vouchers for sanatoriaand recreationcenters, medicine,etc. 48 social protection are reaching the most needy. on protectingrecipientsfrompoverty. Secondly, we look at the effect of the benefits Table 2.26. Structure of income by deciles (deciles based on per capita expenditure) Source: HBS, 2002, SSC The table above shows that the share of social decile is not high: only 8.6%, compared to 4% for benefitsintotal incomeisslightlygreaterforthe the topdecile. bottomfour deciles.And the share of pensions is greaterfor the bottomdeciles.This suggests Below table shows the share of social benefits that overall some targeting is achieved, but it being received by the different expenditure should be noted that the share of income deciles. represented by social benefits for the bottom Table 2.27. Receipt of Social Benefits being Received by Deciles (2002) Source: HBS, 2002, SSC 49 The table above shows that state benefits are distributed more or less equally among the Figure2.26Influenceof socialbenefits to the poverty deciles. This shows that categorical benefits levels by regions (percent) (eg one time benefitsfor giving birth, benefits for children under 3, benefitsfor children under 16 years, benefitsfor guardianship and so on) Azerbaijan are not targeted to the poor. The situation Baku regarding privileges is worse, with larger shares going to the top deciles than to the Garabag-Mil poorer bottomdeciles.The first decile receives only 8.5% of all privileges, but the 8th decile's Shirvan share is 17.8% (more than double), and the 10thdecilegets 13.6%. Lankoran-Astara Sheki-Zagatala We now look at the influenceof social benefits (state benefits, pensions and privileges) in Ganja-Gazakh protecting peoplefrom poverty.As Figure 2.26 shows,despitethe low levelof benefits, they in Mughan-Salyan fact have a significant influence on protecting Absheron peoplefrom poverty.Ifwe subtract the value of the benefitsfrom the per capita income of the Nakhchivan recipients,we seethatpovertyincidencewould rise by 30-40% if these people did not receive 0 20 40 60 80 100 statesocialbenefits. I level(afterthebenefits) Poverty Poverty level (before the benefits) This result however cannot be interpreted as meaning that the benefit levels are definitely Source. HBS. 2002 high enough to protect people from risks. In fact, Figure 2.27 below shows that a large even a very slight increasein per capita incomeor number of the population are situated just expenditure results in large changes in the above the poverty line, and this means that numbers above the poverty line (taken here as 175,000AZM). Figure 2.27Distributionof populationby income and expenditure (per capita) 45 40 35 30 25 20 15 10 5 0 50 Chapter 3: Economic Developmentand EmploymentGrowth Fiscal Policy Introduction With a view to achieving this goal the following One of the main strategic goals of the objectiveshave been set in the Policy Matrix of SPPRED is to maintaineconomicstability. SPPRED within the framework of fiscal policy development: The implementation status of the policy Increasingmunicipalities'revenues measures within the above mentioned objectivesin2003isasfollows: Although in the 2003 State Budget envisaged to Increasing the effectivenessof the budget allocate subsidies of 25 billionAZM to municipal budgets, only 5 billionAZM were allocatedfor the process above-mentioned purpose. The amount of the statesubsidiesto beallocatedfromthe2004State Regulations on "Budget preparation and Budgetto local budgets (budgetof municipalities) implementation" have been prepared and is 10bln.AZM. submitted to the CM in order to strengthen enforcement of the Law on "Budget System". Improving tax and customs legislation This Law, which is in line with international standards, was approved in July 2, 2002 to Additions and amendmentsto the Tax Code (with improvebudgetforecastingand rationalization 127 additions and amendments including ofthe budgetexpenditure. consolidationand renumbering)was approvedby the`president ofthe RepublicofAzerbaijanon28th 312bln.AZM(301.4bln.AZMforecasted)were ofNovember,2003. transferredto the budgetto consolidateextra- budgetaryfunds covering about 3,000 budget Possibilities of moving from a 6-staged customs organizations into the State Budget in 2003. tariffs to a 4-staged customs tariffs are being Extra-budgetary spendings for 2003 were analyzed in order to simplifycustoms procedures. 293.1blnAZM. At thesametime, specificcustomsdutiesonsome types of importedgoods have been replacedwith Preparing mid-term consolidated budget ad valorem duties. In addition, the "Kyoto forecast Convention on Simplification and Harmonization of the Customs Procedures" was approved on MTEF for 2004-2007, which is in line with a December9,2003 bythe MilliMajlis. long-term outlook, has been prepared to ensure rationalization of poverty-focused Increasing tax collections and social expenditure. This was submitted to the Milli insurance collection Majlis(Parliament)withinthe BudgetEnvelope for2004thathasbeenapproved. Registration of non-recorded businesses has beenimprovedto increasecollectionsoftaxesand social insurance contributions through legalizing 51 non-registered economic activities. measures are being taken under these Administrative protocols have been drawn up agreements.Cooperationwith the Inter-European for 2,800 people, fines amountingto 240 mln. Organization of Tax Administrations, US AZM have been imposed and relevant Department of Treasury, IMF, WB and UN has measures have been taken for their beencontinued.Itis plannedthrough thetechnical registration. assistance of EU TACIS Programme to train tax employees and taxpayers, expand services to Reducing income tax taxpayers and introduce internal communication technologies. According to amendments to the Tax Code approved in November, 2003 free taxable About 700workshops, briefingsand 8,500 mobile monthly income level was raisedfrom 100,000 awareness campaigns have been delivered to AZM to 150,000 AZM with transition from 3- stagedtax system (12%; 25%; 35%- 100,000; taxpayers by tax administration bodies on tax legislation and its execution. About 30,000 1,000,000; 5,000,000 AZM) to a 2-staged tax taxpayers, intotal, participatedinthese events. 14 system (14%; 35% -150,000; 3,000,000AZM). "Tax News"informationbulletinswere publishedin ItcameintoforcefromtheJanuary,2004. the beginning of 2004 and distributed to local tax bodies in order to explainthe recent additions and Reducing taxes on business to promote amendments made to the Tax Code. A website private sector development (www.taxes.gov.az) of the Tax Ministry has been created. N broadcasts about the tax legislation Profit tax from enterprises, which has been and reformof the tax systemsuch as "Economics" reducedto 25% sinceJanuary,2003, hasbeen (on the Space TV Channel) and "Where does further reduced to 24% since January, 2004. income flow?" (ANS TV Channel) are regularly Agriculturalproducershasgotadditional5year produced and broadcasted. Many questions of exemptions from all the taxes (excluding land taxpayers find their answers in "Questions and tax) that came into force from January, 2004 Answers" column of the "Taxes" newspaper. In throughtherelevantPresidentialDecree. addition, a "hot line" service (195) has been recentlyestablishedandstartedoperating. Simplified tax turnover has been increased from 30 mln. AZM per quarter to 123.75 mln. Customs employees also attended training AZM (22,500 times of the nominal financial courses, workshops covering relevant areas in per quarter to expand coverage of the 2003.Thus newlyrecruitedemployeesofthe State simplified tax system. Rate of this tax is Customs Committee are involved in advanced presently4% in Baku and 2% in other regions. training intheTrainingCenterofthe Committee.All The tax is now applied also to physical the information,governmentdocuments relatedto individuals(alongsidelegalentities). customs, new legislative and regulatory framework on tax rates and duties are regularly Improving transparency of tax and published on the website (www.az-customsnet) customs systems and in "Customs News" Paper of the State Customs Committee. Draft customs agreements Capacity building and transparency in the have been prepared and submitted to relevant management of the tax system has been state agenciesinlinewith proceduresof preparing ensured through raising professional skills of them for signing with Turkey, Poland, Romania, the employees; study of the international United Arab Emirates, Pakistan and the Russian experience by expanding cooperation with Federation. A "Customs Agreement between foreign organizations and countriesand public GUUAM member states" was signed in the awareness measures. 280 tax inspectors Summit of heads of the states in Yalta, in July, attended training courses on various topics at 2003.At the same time, joined working is ongoing theTrainingCenteroftheTax Ministryandupto with Economic Cooperation Organization (ECO), 30 tax employees received training abroad in European Customs Organization, within the 2003. Cooperation agreements were signed framework of the TACIS Programme, Asian with Austria, Great Britain, Norway, Russia, Development Bank and other international Turkey, Ukraine, Moldova, Kazakhstan, organizations. Georgiaand Uzbekistanand currently relevant 55A nominalfinancial unit equals to 5,500AZM. 52 Reducing social insurance contributions Capital expendituresfor 2003 and 2004 has been to encourage employment considered 895.3 bln. AZM and 867.6 bln. AZM respectively. So, it has been increased According to the amendments to the Law on respectively 377.6 bln. AZM and 349.7 bln. AZM "Social Insurance" compulsory social comparedwith2002. insurancerateforemployers hasbeenreduced from 29% to 27% from January, 2003 to Improving control over use of budgetary encouragecreationof newjob places. resources Rationalising public expenditures Treasury is currently being computerized through thetechnical assistanceofWBand USAlD inorder Number of employees, wage fund, labor to strengthen control over the use of budget productivity and need for decompression of resources. wages in the budgetary organizations are being analysed in line with the Law on "Civil Improving mechanisms for debt Service" in order to rationalize public management expenditures. Thus, considerable efforts have been made to increase wages of those, who Improvement of the legal-normativeframework to work in the public sector. According to the ensure appropriatelevelof debt and debt services relevant Presidential decrees a 50% increase through upgrading mechanisms of debt was applied to monthly wages of the following management hascontinued. Inthis regard, a draft budget-funded sectors in line with the tariff Law on "State Debt and Guarantee" has been scheme in 2003: education, health, science, prepared and submitted to the Presidential Office, social security, sport, youth, culture, art, mass as well as draft Regulations of "External Loans media, agriculture, forestry, fishery, Registry in the Republic of Azerbaijan" submitted amelioration and water industry, ecology and tothe CMfor approval. hydrometeorology. Monetary Policy and Developmentof Banks Introduction Policy Matrix of SPPREDwithin the framework of monetary policyandbankingsectordevelopment: The following objectives have been set in the The implementation status of the policy been introduced (for example, pawn-shop and measures within the above mentioned overnight crediting). Work has continued on objectivesin2003isasfollows: implementing the strategy of transforming open market transactions into a principal tool of Maintaining inflation monetary policy. In this regard, a regulatory framework for a number of new tools (rediscount, The policy maintaining inflation at an depositetc.) hasbeencreated. acceptable level and not using the NB's loans to cover the budget deficit has continued. The Improvementinthe moneysupplyto the economy, inflation rate for 2003 was 2.2'30, which is over the recent years, without any detriment to relevanttotheforecasted rate(2-3%). financial stability, continued in 2003 and the increase in comparison with 2002, was 28%. To increase efficiency of the monetary policy Volume of credits into the economy increased tools and regulate the liquidity of the banking 28.4% in2003comparedwith 2002.As of January system, a number of new financial tools have 1, 2004 it was 3,339.1 bln. AZM. Share of the 53 money supply in GDP (in the non-oil sector) increased1%in2003 comparedwith2002. To encourage expansionof the bankingnetworkin the regions, the number of agent banks of the Improving exchange rate policy National Fundfor Supportto Entrepreneurshipfor allocation of the loans to the regions has been Recent practice of accumulating oil revenues increasedto 14.Availabilityof branchoffices inthe primarily in the SOFAR has continued and the regions has been determined as one of the main NB made purchase-oriented interventions in criteriainselectionoftheagent-banksofthe Fund. the currency market to prevent appreciationof the realexchange rate of the nationalcurrency 85 new branch offices of the commercial banks manat. This is continuation of a policy on received a license in 2003 in order to improve sterilizingoil revenuesthrough the SOFARand access to financial services in the regions. The other methods. At the same time, additional volume of loans allocatedto the agriculturalsector funds received to the State Budget from the increasedby57.3%in2003comparedto 2002. difference of higher oil prices in the world market than forecasted were allocated to a In order to expand the network of credit unions, special account. Thus, in 2003 the exchange increase their efficiency, and expand their access rateoftheAZMto USDchanged 30AZMthat is to financial resources, amendments have been nearly 0.6%, which increased the exchange made to the "Regulationson economic regulatory ratefrom4,893AZM to4,923AZM. normatives (prudential norms) of Credit Unions" and 13new credit unionshavebeen providedwith Currencyreserveshave been maintainedat an licenses. acceptable level and the volume of official monetary reserves, at the disposal of the NB, Within the framework of the project on was 757 mln. USDas of the end of 2003that is Development and Crediting of Agriculture equaltoapproximately5monthnon-oilimport. implemented through consessional loan of the WB, a license was given to a non-bank credit Moreliberalnormativedocumentson currency institution - Executive Credit Agency to provide supervision adopted by the NB including agricultural enterprises and farms with credits "Regulationon CurrencyTransactionsRegime since 2003. TheAgency allocated 8.8 bln.AZM to for Residents and Non-residents in the 308 groups of borrowers. Each of the groups Republic of Azerbaijan" according to the consisted of a minimum of 10 farms. In general, amendments to the Law on "Regulation of within the framework of this project it was Currency". At the same time possibilities for stipulated to set up 80 credit unions and 200 liberalization of the capital flow have been groupsof borrowerswithin2years period. investigated. Restructuring and privatizing state-owned Institutional development of fhe banking banks system The Presidential Decreewas issued inApril, 2003 A comprehensivestrategy development of the on privatization of the state-owned banks micro-financemarket(including regulatoryand (International Bank and BUS Bank). 20% of the legal framework, infrastructure, demand and package of shares of the InternationalBank, to be supply of the market etc.) has started last year sold to the EuropeanBankfor Reconstructionand with technical assistance of the ADB. The Development (EBRD), was evaluated by the process of registration of micro-finance KPMG.Arelevant Memorandumof Understanding institutions and credit unions has been concerning itssalewas signedwiththe EBRD. considerablysimplified and the licensefee has been reduced27.5 mln.AZM to 605,000AZM. Work on institutional building of the bank is being Micro-FinanceBankhasexpandeditsactivities conducted within the framework of technical and in 2003, the bank opened 2 new branch assistance to prepare BUS Bankfor privatization. offices and allocated credits of 18 bln.AZM to A tender commission has been set up to prepare 2,000 peopleintota1.A newdraft lawon"Micro- the Terms of Reference for hiring of the financial finance institutions"iscurrently being prepared consultant. in order to develop regulatory and legal frameworkofthe micro-financesector. 54 Developingprivately-owned banks nearlycompleted.At the sametime, preparationof a database design for users of the register has In connection with development of the private alreadystarted. banks, requirement for their minimum authorized capital has increased from 2 mln. Adjustmentofaccountingandfinancialreportingin USD to 2.5 mln. USDfor the banks, which are the banking systemto internationalstandards has already in operation and to 5 mln. USD for been finalized. This will enable potential newly established banks. Thus, the total depositors, customersand especially,foreign and amount of the authorized capital of the banks local investors to obtain transparent and precise increased 18.3%in2003. financial information about the banks. The introductionofthese standardsgivesanadditional Participation limits for foreign banking capital stimulusfor attracting potentialfinancial resources was fully eliminated by the NBfrom January 1, tothe bankingsystem. 2004. As a result, the conditions for competitiveness of the banking services A number of the normative acts have been market improved and in 2003 for the first time adopted to improve human resources foreign capital was invested in a local private management inthe banks.Corporativestandards bank(Uni Bank). of human resources management systems are being worked out in the banks through Increasing the regulatory capacity of the involvementtechnicalassistanceprojects. NB Encouragement of non-cash settlements was The newdraftLaw"Onthe NationalBankofthe further enhanced and the percentage of cash Republic of Azerbaijan" was submitted to the turnover was decreased by 3.4% in 2003 Presidential Office. Work for improving the comparedto 2002. quality of the bankingsupervisionand bringing evaluation of the banking supervision to Creation of a Clearing System for Small conform to international standards has Transactions as the secondstage of introducing a continued with technical assistance of the system of electronic payment was successfully USAID. completed and measures have been launched to setupa ProcessingCenteroncardpayments. Developingbankinginfrastructure In order to create and improve corporate The draft Law "on Banks"was adopted by the management and risks regulation systems in the Milli Majlison January 16,2003 with the aim to banks, the NB has prepared national corporate strengthen the normative framework and management standards in line with modern regulatory capacity, also to develop the requirementsforcommercialbanks. banking sector, as well as, to form a deposit insurancesystem. The new draft Law "On Collateral"reflecting more comprehensively the issues related to creating a Creation of a Credit Register that will keep a centralized and simplified register of collaterals credit history of legal entities and individuals is has been preparedbythe NBand submitted to the CM. Investment policy Introduction investment policy are in line with one of the strategy goals of the Program to create an Thefollowingobjectivesset inthe PolicyMatrix enabling environment for the growth of income- of SPPRED within the framework of the generating opportunities. Improvingthe legislativeframework; ,a Institutionalimprovementof the investment proces~; improvingmanagement ofthe investmentprocess; hcreasingeffectivenass ofthe privalisationprooesg; Developingentrepreneurship inthe Strengtheningthe competithnessofdomestk:praducUonandinaeasingthe country`sexport capacity. 55 The implementation status of the policy Regional investment maps reflecting socio- measures within the above mentioned economic growth potential and investment objectivesin2003 isasfollows: prioritiesofeachregionhavebeendesigned. Improving the legislative framework As a result of the reforms, both quantitative and qualitative changes occurred in the development Laws "On State Registrationof Legal Entities" of entrepreneurship: share of the privatesector in and "On Combating Corruption" have recently GDP increased by 74%; the number of private been adopted; international conventions "On individuals and legal entities engaged in Criminal Liability for Corruption"and "On Civil entrepreneurial activities increased dynamically: and LegalLiabilityfor Corruption"haverecently the number of registered companies with foreign been ratified by the MilliMajlis. Draft Laws "On investmentexceeded3,250. Investment Activities", "On Special economic zones and regulation of their activities", draft Improvingmanagement of the investment "Antimonopoly Code" and draft normative process documents on improvement of state financial support to enterpreneurship have also been A draft Public InvestmentProgram (PIP)for 2004- prepared. 2007 hasbeensubmittedto the CM.The PIPaims at improvingefficiencyof public investmentsinthe The system of licensing has been radically infrastructure that has essential importance for changedasthe numberofactivitiesthat require regionaldevelopment. a license was reduced from 240 to 30. Depending on specificities of activities the Increasing effectiveness of the privatisation number of documents requiredfor obtaining a license has been minimized:the amount of the process state duties for getting a license reduced 2.5 times and the term of licenses prolonged. A In2003six stateenterprises (Mughanhydropower single State Register has been created to get plant, Shaki hydropower plant, Diplomat Itd, Baku licenses. Steel Foundry, Azerelektoterm and Dashkasan Ore-DressingPlant) have been privatizedthrough Institutional improvement of the investmentcompetition. investment process State shares of four joint ventures have been privatizedin2003: Khazar-Ill, Diplomat,Azvirt and In order to improve the institutionalframework Bakcell. Three of them have been purchased of the investment climate through holding joint directly by a foreign partner, but the state shareof discussions on the problemswith participation Diplomat has been privatized through investment of public and private sectors and carrying-out competition.Applications have been made to the relevant actions to reduce barriers, a Council Ministryof Justiceof the Republic ofAzerbaijan to for Entrepreneurs was established in 2002. exclude joint ventures, which are non-active and The Council has held discussion processes in non-recorded in the tax bodies, from the state 2002 and 2004 with the President of the register and taking them off the registration. Draft RepublicofAzerbaijan. regulations have been prepared to regulate activity of state representatives with a view to The implementation of the "State Program on effectivelymanagestate sharesofjointventures. SmallandMediumEnterprisesDevelopment in the Republicof Azerbaijan" has continued and According to the Presidential Order in March, new "Azerbaijan Investment Promotion and 2003, severalenterprises of machine-buildingand Advisory Foundation"has been established in conversion sectors have been declared open to 2003 in a close consultation with the donor privatization.About 30,000 small enterpriseshave community. The First InternationalInvestment been privatized, over 1,500 medium and big Conference was organized in May, 2003 that enterprisesturned intojoint stock companiesover bought together over 600 business people thelast8years. representing foreign companies from 30 countries over the world, state organization Based on the experience gained from the and other stakeholders to discuss especially privatization of management of electricity non-oilinvestmentopportunitiesofthe country. distribution overall the country the technical 56 assistance project (WB`s Institutional Building SMEs information system, takes important role in Technical Assistance (IBTA project)) is under increasing sales capacity of the goods produced implementation for preparation of gas, water by local SMEs from the regions and finding new andsanitationsectors`restructuring. markets for them. There has been already organized several business meetings between Developing entrepreneurship in the local entrepreneurs and business delegations regions from a numberofcountriesintheCenter. As was mentioned in the monetary policy To improve business relations with potential section, the number of agent banks of the countries, local business people have attended National Fund for Support to Entrepreneurship several exhibitions, international trade-fair, for allocation of the loans to the regions has conferences and economic forums in several been increased to 14 and the relevant Budget countries duringthe lastyear.Also visits of foreign resources has been increased from 57 bln. business people to Azerbaijan from several AZM in 2002 to 100 bln. AZM in 2003. countries and their direct dialogue have being Availability of branch offices inthe regions has organized in2003. been determined as one of the main selection criteriaofthe agent-banksbythe Fund. Strengthening the competitiveness of domestic production Discussion process through round tables and seminars with broad involvement of all the In order to continue the process of admission to regions, have been regularlyorganized during World Trade Organization (WTO) through fair the past 2003. In order to increase public trade negotiations,a StateCommissionconsisting awareness of the business people, a website of high-rankedrepresentativesof the government on "State Care for Entrepreneurs" agencies has been formed by Resolution of the (www.sahibkar.biz) has been created, and a CM on August 22nd, 2003. The Commission is "hot line" service (971332) organized at the responsible on preparing of documents on the MED to respond to any business-related country'sadmissionto theWTO andthe proposals questions and prevent unnecessary agreed with the relevant government agencies as interventions in entrepreneurial activities. well as ensuringa commoneconomic policy inthe Effortsare being made recently to produce an negotiations with the WTO. In this regard, the economicN broadcastingwith a specialfocus Commission has established9 working groups in on development of entrepreneurship on the various areas (analysis of legislative changes; state TV. In addition, booklets on normative- preparation of commitments on subsidizing the legal documents enabling business planning agrarian sectors; issues related to intellectual have been published, a handbook entitled property: social issues; regulation of investments; "Deve1opment of Entrepreneurship in preparation of commitments on the service Azerbaijan" has been preparedand a series of sectors; trade technical obstacles and sanitary- booksentitled "Basics of entrepreneurialrights phytosanitary measures; conflict resolution and in Azerbaijan" have been published. An preparation of commitments on customs duty example of normative-legal documentation to rates), as well as, a Secretariat, which will establish professional-entrepreneurs effectively coordinateactivities of the Commission associations have been prepared and and working groups. A Concept Paper on deliveredtoentrepreneurs. Admission to the WTO and an Action Plan has beendraftedbytheSecretariat. There has been a strong focus on providing loans for production and processing industry Within the framework of the technical assistance with import-substituted industrial and project funded by United States Trade and agriculturalproducts,aswell asexportoriented DevelopmentAgency (USTDA)(signed in 2002) a products with high quality of international number of seminars have been held to discuss standards. Such loans have made 92% of the possible impact of Azerbaijan's admission to the total loans allocated to the entrepreneurs in WTO on the country's service market. It is 2003. expected to have the second meeting of the Azerbaijan Working Group on the WTO in 2004 A BakuBusiness Center has been established and a preparatory work for the meeting is being in the National Seaside Park in 2003 with coordinated by the Secretariat. Furthermore, a support of the UNDP. The Center, as part of study ofthe experienceof a numberof countries in 57 admission to the WTO has continued. A electricity, on customs duties, on education and delegation from the Republic of Azerbaijan healthcare services, on law enforcement attended WTO Cancun MinistersConference in authorities, on environment, natural resources September10-14,2003. and agriculture, on transport services, on communication services, on water and utilities, As mentioned in the fiscal policysection, the tax on inventory, leasing, pricing and related burdenhasbeen reduced,coverageofsimplified technical spheres, on patent, information and tax has been expanded and proposalsdesigned publicity services. In total, more than 150 for creation of bonded warehouses have been specialists from various ministries and submittedtothe CM. organizations have been involved in the working groups. In order to form an effective quality control system for goods and services, the guideline Inorderto increasecapacityof theTariffCouncil, documents of national certificationsystem have variousworkshops have been organized in2003 been adjusted according to requirementsof the within the WB IBTA project. Through the internationaI standard " IS0-9000". Draft workshops the international experience in regulations on "Import of Goods Subject to regulation of prices (tariffs) for energy carriers Obligatory Certification to the Republic of havealso beendiscussed. Azerbaijan" and "Recognition of Foreign Certificates" have been prepared to ensure In order to protect competitive domestic safety of goods imported to the Republic of production and to create enabling environment, Azerbaijanandsubjecttoobligatorycertification. the Tariff Council has prepared proposals to identify and change customs tariff rates and The Tariff Council functioning since January 31, duties, introduce customs tariff concessions, 2002hasorganizedseveralmeetingsontariffsof regulate list of goods exempted from VAT and various services during 2003: urban and rural investigatethe possiblenegative impact caused telecommunication services; services of the from import of goods. On the basis of the Department for Technical Inventory and proposals CM issued a Resolution in October, Registrationof Property Rights;wholesalewater 2003 to make amendments on the rate of price from Jeyranbatan reservoir; duties for customs dutiesfor importand export operations, goods and transport means in customs the amount of collections for customs warehouses and in temporary storage registration. warehouses and for customs control; for use of ambulances from FirstAid Motor Depot of Baku Based on proposals by the Tariff Council the HealthDepartment. Cabinet issued Resolution "On Regulation of Prices for Crude Oil and Oil Products in the According to the Regulation of the Council, the Republic" in February, 2003 in the framework of SecretariatisbasedintheMEDtoco-ordinatethe Program "On StrengtheningFinancial Discipline following working groups: on prices for oil and in the Energy Sector" approved by the gas products, on wholesale and retail tariffs for PresidentialOrderinMarch,2002. Energy policy Introduction and carry out institutional reforms in the energy sector, the following objectives has been set in In order to improve the energy supply of the the PolicyMatrixofSPPRED: population, increase existing energy potential Improvingenergysupply to the populationthroughstrengtheningfinancialdiscipline inthe fueknergysector; Implementingstructuralrefotms; Developing carbohydrate capacity; Introducingefficientpricepolw, Improvingthe energysupplysystem. 5a The implementation status of the policy Introducing efficientprice policy measures within the above mentioned objectivesin2003 isasfollows: According to the Presidential Decree issued in March, 2002, payment dynamics for energy Implementing structural reforms consumed by the state enterprises has been 2004-45%, 2005-65%,2006-80400%. preparedand approved: 2002 - 20%, 2003 - 30%, Within the framework of structural reforms in the energysector the PresidentialDecreewas issued in January, 2003 on restructuring of Regulation of energy prices have been regularly discussed betweenthe Governmentstructures of State Oil Company of Azerbaijan Republic (SOCAR). According to the Decree 3 the fuel and energy complex and Tariff Councilas departments of the Company have been is stated in the investment policy section of this declared open to privatization, 2 production chapter. units and 2 departments have been merged; previous 18 units has been structured to 8 To ensure elimination of negative impact of possible energy price increase to the poor units. Besides, enterprises within the SOCAR households,ajoint technical assistance projecton with thesame productionspecificityandprofile, which had been part of separate units before, Poverty and Social Impact Analysis (PSIA) has started in 2003 with technical assistance of the havebeenmergedundersamestructuralunits. As a result, previous 148units, enterprisesand WB. A working group has been established within the projectthat bringstogetherallthe stakeholders structures of the SOCAR have been restructuredto60. of the process. It isexpectedto havea first draft of the policydocumentbymidof2004. Improving energy supply to the population Developing carbohydrate capacity To ensure fiscal transparencyand efficiency in energy sector, the experience making implicit Loan agreements for around 1.2 bln. USD for subsidiesexplicitthroughrecordingintheState financing BTC main export oil pipeline have been Budget has been ensured. Thus, the 2004 finalized with the IFC, EBRD and other financial State Budget figures are 1,850 bln AZM for institutions. Approximately 40% of the planned Azenergy and 326.7 blnAZM forAzerigas. The pipe-laying activity was completed by the end of relevantfiguresfor 2003were 1,500.8bln.AZM 2003; the full constructionwill becompleted bythe and97.8 bln.AZMrespectively. endof 2005.The BTCprojectisbeingmanagedby BPon behalfof an internationalgroup of investors To improve management of energy supply, which includes SOCAR, TPAO, Statoil, Unocal, regional electricity distribution networks have Itochu,DeltaHessandENI. been transferred for long-term private management to "Barmek" and "Bayva" Development of the BTC pipeline is being electricitydistributioncompanies. coordinated with another project the South Caucasus Gas Pipeline which follows the same To improvecollection rates and ensure energy routethroughAzerbaijan and Georgia. Firstexport consumption efficiency, 97,270 (by Barmek) of the gas is expected to happen in 2006. Design and 29,000 (by Bayva) electricity meterswere engineering and logistic supply related to the purchased and installed for consumers in project is being continued on schedule and it is 2003. At the same time, 50,000 gas meters envisagedto start pipe-layingactivitybythe endof havebeenpurchasedandinstalledbyherigas 2004. lastyear. To ensure a stable increase of oil and gas Computerizedsystemhasbeenestablishedby exploration, to exploit the remaining reserves in Azerigas to enable automatic purchase and old fields through developing the geological- sale of natural gas. The system is now fully technical and technological measures, 1,020 operational in Baku, Sumgait, Ganja, Ali- geological measures (806 was planned) have Bairamly,Shamakhy,SiyazanandDavachi. been implementedand consequently, extra 489.7 thousand tons of oil (expected 266.4 thousand tons) has been produced by oil and gas extraction departmentsof SOCARin2003. 59 311 non-activewells (planned353 wells) by oil Shimal Power Plant and Garadagh compressor and gas extraction departments and 109 non- pump have been completed last year. Necessary activewells (planned64wells) byjoint ventures technical documents on construction of the II have been re-activated. Consequently, extra Steam-Boiler Unit with capacity of 400 MWt in 187.4 thousand tons of oil (expected 119.6 Shimal Power Plant and reconstructionof the 1st thousandtons)was produced. and 8th units ofAzDRES have beenpreparedand negotiationsare being conductedwith IFls on the By the end of 2003 total number of well possibleloanagreement. reserves of the SOCAR has been increasedto 6,793 (86 wells more compared with January, Project documentation on reconstruction of the 2003); the number of oil and gas extraction undergroundgas storages and expansion of their departments and joint ventures have became capacityhas been preparedand it is envisagedto 5,567for and1,226 respectively. increasegas storageswithcapacityof 3.5 bln.m3. 5.4 mln.m3water has been pumped into the Withintheframeworkofthe secondstageof power layers in 2003 that made extra 232 thousand transmission sector reconstruction, a loan tons of extra oil produced from the facilities agreement was signed with KfW for the under pressure by oil and gas extraction reconstructionof 9 power substationsand the first departments of SOCAR. Extra 47.4 thousand phase of Azenergy's control-dispatcher point. tons of oilhasbeenproducedaswell as aresult Consultingcompanyhasalso beenselectedinthis of introducing other techniques (111 pressure regard. methods)toincreaseoil productionof layers. The National Academy of Sciences together with Improving the energy supply system relevant central executive bodies has drafted the "National Program on use of alternative energy Constructionsofgas pipelinefrom Garadaghto sources"submittedtotheCMlastyear. Labor Marketand Employment lntroduction generating opportunities.Although informationon implemented policy actions are reported in the Thefollowingobjectivesset inthe Policy Matrix investment policy section of this chapter main of SPPRED within labor market and focus in this part is made on measures employmentsectionthat are in line with one of implemented within the framework of active and the SPPRED's strategis goals to create an passivelabormarket: enablingenvironmentforthe growthof income- The implementation status of the policy Program is to create 600,000 new job places for measures within the above mentioned the mentioned period through promoting non-oil objectivesin2003isasfollows: sectordevelopmentinthe regions. Stimulating the demand for labour Furthermore, comprehensive regional development plans of Guba-Gusar-Khachmaz Within the framework of SPPRED a new State (northern part) through technical assistance by Program on social and economic development Israeli Government (MASHAV) and Lankaran- of the regions for 2004-2008 was prepared in Astara(southern)regionswere preparedlastyear. 2003 and was approved by the Presidential Decree in February,2004.The maingoal of the As is mentioned both in monetaryand investment 60 policies sections of this chapter micro-finance within the framework of the EU TACIS National environment was fully analyzed within the Indicative Program for 2004-2006 approved in framework of micro-finance sector 2003. development project through the technical support ofADB. The objectiveof the project to Regulartraining courses on dressmaking,carpet developcredit schemes for various sectionsof weaving, hairdressing,confectionaryandweaving the population intending to set up business. were organizedfor women in the differentregions Based on analysis micro-finance sector by the State EmploymentService (SES) in 2003. development strategy (including regulatory More than 50% of the women, who completed and legal framework, infrastructure, demand these courses, were provided with appropriate and supplyofthe marketetc.)isexpectedto be jobs. Also, 70 new jobs were created for prepared by mid of 2004. The process of unemployed with a special need for social registration of micro-finance institutions and protectionin2003. credit unions has been simplified and the licensefee has been reducedlastyear. Micro- Ensuring civil service wage reform Finance Bank has expanded its activities and increasedcreditportfolio. As is given in the fiscal policy section of this chapter the several measures have been In order to improve access to SME loans the implemented in 2003. Wages of the following Government is continuously increasing the public sectors employees has been increased budget resources through the agent banks of 50%: education, health, science, social security, the National Fund for Support to sport, youth, culture,art, mass media,agriculture, Entrepreneurship:from 13bln.AZM in 2001 to forestry, fishery, amelioration and water industry, 57bln.AZMin2002to100bln.AZMin2003. ecology and hydrometeorology. Minimum wage level has been increased from 27,500 AZM to As is mentioned in the investment policy 45,000AZMsinceSeptember,2003andto 60,000 section above the Baku BusinessCenter has AZM since January, 2004. Wage co-coefficients been established in the NationalSeaside Park started to be applied for the regions with difficult in 2003 to support entrepreneurship working and climatic conditions since August, development in the regions through regular 2002accordingtothe ResolutionofCM. exhibitions, conferences and bilaterai meetings with foreign business people. This In November, the President of the Republic of projecthasbeensupportedbythe UNDP. Azerbaijan issued a Decree "On Measures to speedupthesocialandeconomicdevelopmentin Helping to match labour supply with the RepublicofAzerbaijan".The Decreealongside demand with important measures on socio-economic developmentalso envisagesfurther development In order to redesign the system of vocational of the wage system and instructs CM to submit education,the situationanalysisonthe system proposals on further increase of the wage level was made in 2003 and the proposals were basedonthefirsthalfof2004results. submitted to the CM on their profile change according to the market demand, their Facilitating re-entry of the unemployedinto restructuringthrough closingdown or merging thejob market the relevant schools, improve the physical infrastructure to meet modern standards, Preparation process of employmentstrategy has selecting the vocational schools with better startedin2003throughtechnicalassistanceofthe physical infrastructure to transfer them to UNDP and ILO. In this regard, a working group vocational lyceum, organizing general with participation of relevant ministries and education classes within the lyceums and international organizations has been set up and amendments to the "Classification of various discussions have been organized. The specialties and specialization in vocational sector and situationanalysis has been made that education". includes social and economic situation, employmentand labor market, education as well Technical assistance to develop a strategy to as mutual impacts with the social protection improve the systems of career counseling, system.The preparationprocessofthe strategy is vocationaltrainingandre-trainingisenvisaged 61 expectedto becompletedby midof2004. Accordingtothe PresidentialOrderissuedinJune, In order to improve SES's management, staff 2003, the State Coordination Commission on the numberwas reduced141personsaccordingto population development has been established. the Resolution of CM in November, 2003, a The Commission has formed a working group special program for vocational training of job- throughwhich State Programfor demographyand seekers and the unemployed has been population development was drafted out. approved and preparation of an action plan to ResearchCenterfor PopulationDevelopmentwas further develop a social dialogue between the established under the Scientific Research and employees, employers and trade-unions has Training Center on Labor and Social Problems beenstartedlastyear. withsupportofthe UNFPAin2003. The Labor Exchanges in Baku and Sumgait expanded its activities in 2003 and it is expected to have new Labor Exchange Office openedinGanjafor2004. Regulating labour relations Sector and collective agreements, which are essential parts of the social dialogue, were concluded last year andwere registered at the relevant structural divisions of State Labor Inspection. The Main Collective Agreement between the CM, Trade-Union Confederation and the National Confederation of Entrepreneurs (Employers) for 2001-2003 approved by the Resolution of CM in June, 2001was inforce in2003aswell. Monitoring the labour market Within the framework of the WB IBTA-Iproject component on labor deployment, the terms of reference for consultancy was prepared together with the relevant structures of the MED,the companywas selectedthrough open internationaltender. In order to organize regular analysis of unemployment situation in the country and institutionalizethis process, labor force survey has started to be implemented by the SSC since 2003. In 2003 this initiative was supportedby ILOandUNDP. Adraft of ConceptPaperonthe State Migration ManagementPolicywas prepared in 2003 and submitted to the CM. In order to establish a Migration Information Center, several discussionswere organizedwith the experts of the relevant ministries and the organizational structure of the center was designed. In addition, draft projectdocumentation has been preparedand submittedto the potential donors for theirpossiblefinancialsupport. 62 Chapter 4: Social Policy and Human Capital Development Education Policy Introduction servicesand equalaccessto them. With aview to achieving this goal the following objectives have Oneofthe mainstrategicgoalsofthe SPPRED beenidentifiedinthe PolicyMatrixoftheSPPRED: is to improve the quality of basic education The implementation status of the policy "Literature" text-books for the V-VI grades of measures within the above mentioned selected pilot schools, "Russian language" and objectivesin2003isasfollows: "Literature" for the Russian schools, have been published and distributed to schools. These sets New Reforms Project also included working papers and teaching support methods for teachers. This is part of the In order to continue the Education Reform Education Reform Project, using soft loans from Project a new 10-year, 3 staged Education the WB. New courseson reproductivehealthand Reform Program covering 2003-2013 was life skills in the education system have started, in prepared jointly with experts from the WB, order to promotea healthylife style among adults within the framework of the SPPRED. Thus, I andyouth. stage of the Program will cover 2003-2007, II stage- 2007-2010andIllstage 2010-2013. 25 Newstrategicinitiativeshavebeenidentifiedfor re-qualificationand retraining of teachers and an Providing free text books to school appropriateactionplan has beendevelopedto be children implemented over the next period. The plan identifies11setsofactionsfor2004.Theseinclude About 15.2bln.AZM havebeenallocatedfrom activities such as: prior needs assessment; thestatebudgetto provideallchildreninthe I-V upgrading advanced teacher training institutions; grades, as well as refugeeand IDPchildrenin assessment of changes; introduction of regular the VI-XI grades with free textbooks for the self-monitoring and self-assessment: special academic year of 2003-2004. The textbooks advanced training for lecturers; introduction of havebeenpublishedanddistributed. supporthesource centers; creation of equal conditionsforteachers;re-qualificationofteaching Improving the quality of teaching staff in vocational institutions and academic teaching material for re-qualification and In order to upgrade teaching resources to retraining. Plans and instructions, covering 105 improvethe qualityof education,newteaching objectives, havebeen prepared.These areaimed plans have been designed. These are for at improving efficiency of teacher training in the institutions, regional education departments, "Azerbaijani Ianguage", "Mathematics", "Geography"fortheV-XIgrades,"Physics"and schools, suppodresource centers, the Education "Astronomy"for the VII-XIgrades,"Biology"for Coordinating Council, the Institute on Education the VI-XI grades, "Literature"for the V-XI and Problems, and also management staff in "Mother tongue" for the I-IV grades of education. The Plans and Instructionshave been minorities. For the first time, complete sets of tailoredtothe needsofeachorganization. 63 Targeted seminars have been held. The Nakhchivan AR, Baku, Ganja, Sumgait and following topics were addressed: "Preparation Lankaranwere providedwith computer equipment of curriculums for retraining institutions", and other training-related technical support in "Active and interactive teachingltraining 2003. 3 Pilot regions Ali-Bairamly, Ujar and methods". These seminars were attended by lsmailly were selected for improving information 1,200 employees from advanced teaching technology intheschools. institutions, Institute on Education Problems, as well as teachers from pilot schools. In Promotion of ECCD addition, training courses consisting of 3 stages based on "Train the trainers" model International experience in creating community- have been delivered to 66 teachers from 20 based preschool facilities is explored in order to pilot schools, trainers from regional education expand pre-school facilities and introduce new departments, as well as 62 trainers from re- models in pre-schooling. In addition, a Charter on qualification institutions. Certificates were establishing family-based preschool facilities is awarded during May-August, 2003. The currently being prepared. In parallel different teachers and methodologists (educational structuresstartedoperatingbasedonthe interests advisors), who attended these courses, will of children and parents' wishes in pre-school start teaching their colleagues in active and facilities in severaldistrictsof Baku.Currently,with interactive methods from the beginning of the the help of UNICEF, the Project on "Parent and new academic year. Special workshops Child Development"is being implemented. 3 Pilot devoted to the introduction of active and preschool facilities of Narimanov district, Sumgait interactivemethodswere organizedat the pilot and Khyzy region, included in the project have schools of Baku, Sumgait, Nakhchivan and been provided with necessary equipment, Sharurfromthe midstoflastyear. technical support, stationary, toys and teaching aids. Besides, 29 childdevelopmentcenters in 13 According to the PresidentialOrder dated May regions of Azerbaijan and 5 in Mingachevir have 15,2003, from 1"of June2003, monthlywages beenestablishedfor thechildrenfrom refugeeand of 320,000 teaching staff in public educational IDPfamilies and providedwith stationary,toys and institutions in line with the Single Tariff Board some literature. The World Food Program (WFP) criteria have been increased by 50%. regularly provides nurses and children of these Additional amount of 230.8 bln.AZM has been development centers with food supplies. Regular allocatedfor educationfor2003. training covering nurses and parents are organized in the child development centers and Improving the material and technical base preschool facilities selectedwithin the framework of education ofthe stated project. 6 schoolbuildingswith 2418 seats were built in A theoretical and practical conference on the 2003. The construction of 12 school buildings subject of "Trainingcenteras a new service sector with 4,328 seats is currently under way.At the in education" was held at nursery No257 in Khatai same time 89 extra classrooms with 1,780 District with technical assistance from the Open seats were built and put in commission at 12 Society Institute Support Fund inApril 2003 and a schools and 34 extra classrooms with 680 new training center was opened. Within the seats are being built at 4 schools. Major repair framework of "Step by step" technology project work was carried out at one school. supported by the Open Society Institute Support Construction of 5 school buildings with 5,576 Fund, introduction of modern, as well as seats, meeting modern requirements, in interactive methods in the teaching and Khatai, Nasimi, Surakhany, Yasamal and educational process has started at 53 preschool BinagadiDistrictsof Bakuhas been postponed and primary education facilities (including about till 2004. This will be supported by soft credits 160 groups). 4 preschool and primary training allocatedfromthe SaudiFundfor Development centers (Salyan, Gakh, Aghjabadi regions and (SFD);tenderdocumentsarebeingprepared. Ganja) have beenestablished,repaired, provided with necessary equipment and funds for training lntroducing new educational technologies within theframeworkofthesame projectin2003. Within the framework of Education Reform Improving the material and technical base of Project funded by the WB, 20 pilot schools in school libraries 64 The President of the Republic of Azerbaijan With a view to improving budget rationalization signed an Order inJanuary 12,2004 to ensure andfinancial managementintheeducationsector, mass re-print of the publications in the within the framework of IBTA Project an Azerbaijani-Latin alphabet, which previously international consultant has been involved to were published in the Azerbaijani-Cyrillic analyze financing of education, education alphabet. A list of publicationsto be re-printed expenditure, its effectiveness and education in the Latin alphabet in 2004 was approved in prioritiesfor theGovernment.Trainingsessionson the Annex to the Order.About 160dictionaries the methods of analyzing expenditure have been and encyctopedias, works of world literature, held and work on analysis of education Azerbaijan's folk literature and classics and expenditureis presentlygoingon inthe Ministryof modernAzerbaijani literature will be published Finance. in the Latin alphabet within 2004. In line with this Order a list of publicationsto be re-printed Monitoring quality and access to education in the Latin alphabet in 2005-2008 will be prepared. For the first time, a national assessment, in line with internationalstandards, has been heldwithin Following this Order (January 12, 2004) the framework of Education Reform Program, to preparations have started to publish a new review teaching conditions and quality of National Encyclopedia consisting of many educationat 11schoolsinBaku,5inLankaran,2in volumes in 2004-2008 in the Latin alphabet. Ganja and 2 in Sumgait (8 pilot and 12 non-pilot The first volume of this encyclopedia,which is schools). Thus, approximately 1,900 children of entitled "Republic of Azerbaijan", will be the V grade were tested with participation of the published in the Latin alphabet and distributed international consultants, on the subjects of bytheendof2004. "Mother tongue" and "Mathematics", as well questionnaireandsurveys have been heldamong lntroducing more flexible budget pupilsandteachers. managementsystems for schools Culture lntroduction heritage, improve the existing facilities and widen access to culture of Azerbaijan. To achieve this, As part of SPPRED several activities are now thefollowingobjectiveshavebeenset: being carried out to preserve the rich cultural 0 Improvingequityolaccesstoculturalandartcenters; 0 Stimulatingart wwkedsandimpmvingtheir Swlls; 0 Protectingthe adturalheritage. The implementation status of the policy at Baku ChoreographicSchool, aswell as schools measures within the above mentioned of music, art and painting for children, to improve objectivesin2003isasfollows: theirfacilities. lmproving equity of access to cultural and Stimulating art workers and improving their art centers skills The State Philarmonic named after M. According to the Decree of the President of the Magomayev was refurbished and work has Republic of Azerbaijan dated June 5, 2003, from started on improving the State Art Museum in the 1"`ofJune of the same year, monthlywages of 2003. An electronic catalogue is being the state-funded employees of culture, art and compiled as part of modernizing the museum. mass media (total number is 30,100), as fixed by Refurbishment of the Central State Library, the Single TariffScheme, have been increased by named after M.F.Akhundov, has started to be 50% as mentioned. Thus, additional funds of 12 completed in 2004. Measures have continued bln.AZMwereallocatedfor 2003. 65 Protectingtheculturalheritage computerizeandrepairculturalobjects.As a result of this, quality repairs have been made and a Within the framework of "Cultural heritage computerized Cultural HeritageArchive has been preservation"conservationof MomunaKhatun establishedforthefirsttimeinAzerbaijan. and Garabaghlar tombs were completed in September 2003. This project was A "New Development Program" has been implementedwith a soft loan from the WB.The introduced by the Government of the Republic of reconstruction of the second storey of Azerbaijan and the WB in order to use the saved Shirvanshahlar Palace has been mainly funds (1.2 mln. USD) within the framework of the completed and issues related to the purchase Cultural Heritage Preservation. The Program and the installationofequipmentfor the Palace envisages directing the saved funds to the iscurrentlybeingsettled.Atechnicalinspection development of the community and infrastructure to refurbish Shaki Khan Palace, which is around the monuments, in particular in the poor another part of the project, has been areas. Therefore, the following activities are completed.At present,repair is continuingand planned:to establisha Centerfor Cultural Service the construction of supporting buildings and and Information in Ichari-Shahar, hold a holiday- units has started. The aim is to restore the festival "Day of Ichari-Shahar" and improve the unique internal mural paintingsand ornaments environment; organizetraining intourism; support of the Palace.As agreed, all rehabilitationwork establishment of tour-operator companies (to be in Shaki Khan Palace is expected to be created by the participantsof a training course in completedin2004. Nakhchivan); establish an Association of Craftsmen and Family RecreationAssociation, as Within the same program additional work has wellas developtourisminShaki. been carried to make an inventory, to Health Policy Introduction health care services and to provide equal access to them. Thefollowingobjectiveshavebeensetfor One of the strategic goals envisaged in the this purpose: SPPRED is to improve the quality of basic The implementation status of the policy reducing the number of beds, establishing measures within the above mentioned community drug funds and community health objectivesin2003 isasfollows: councils in 5 pilot regions (Salyan, Khachmaz, Sharur, Goychay and Shamkir) in order to Strengthening the Primary Health Care strengthen primary health care and rationalize System medical services within the framework of the WB funded Health Reform Program. Thus, 45 Work has been launched with regard to CO"unity health COUnCilS have been Set UP, 5 66 medical storehouses and 10 training centers Promoting safe motherhood and essential refurbished, and a RationalizationPlan of the care for the newborn pilot regions has been prepared.These plans include reduction of beds, redundancy of Inorder to encourage breastfeeding,185medical medical staff, opening of new posts, employees attended training courses in 37 professional training and other plans. 15 locations: surveys have been conducted among different training courses have been held in pregnantwomen inthe same areas. Monitoringof each selected pilot region for developing the breastfeeding is taking place in 9 babyclinics.To skills of the medical staff. 914 Medical increasebirth safety and enhance basic newborn employees and 105 community members care, trainingcoursestook placewithsupportfrom attended training courses, workshops and UNICEFin25 areas(with5 doctors in eacharea). conferences. To promote and protect breastfeeding of infants and young children, a Law on "Nutritionof Infants Strengthening the material and technical and Young Children" was adopted on July 17, base of health sector 2003. May 1-2, 2003 was celebrated as the "NationalDays"for healthynutritionof thechildren 8 hospitalsinthe BakuCity isconsideredto be inAzerbaijan. refurbished through EU technical support (Instituteof Traumatology, Scientific-Research Improving management of childhood Institute named after Topchubashov, Hospital diseases named after Mirgasymov, OncologicalCenter, Institute of Obstetrics and Gynaecology, Essentialdrugsof 19types have beensuppliedto Instituteof Pediatrics,ClinicsNo4 of the Baku 30regionsinordertoimprovemedicaltreatmentof City, Centre for Combating AIDS). child diseases and 49 medical employees Refurbishmentof the Instituteof Traumatology has already been launched and the tender pediatricians - have been trained on medical treatment of acute respiratory diseases and documentation has been prepared for the diarrheain7 regions(Absheron, Sumgait,Ismailly, others. Tovuz, Guba, Mingachevir and Ganja). At the same time, 1,500 posters on acute respiratory Expanding program on immunization diseasesand1,500postersondiarrheahavebeen publishedand distributed to all the regions of the Various types of vaccines have been country for publicawareness.Monitoringof these purchased by the Government in order to diseases hasbeenconductedin 20 regionsof the implementthe ImmunizationProgram.98% of country and public awareness measures have childrenhavebeenvaccinatedwith HepatitisB; beenimplemented. MMR vaccines and disposable syringes have been purchased for 30,000 children in 2003. Preventing malaria and reducing malaria 900 dozes of A vitamins for strengtheningthe incidence immune system, have been purchased and distributed to all the regions. In addition, training courses and public awareness work Monitoring of malaria has been conducted in 16 regions in order to prevent malariaand reduce its was implemented. About 2.1 bln. AZM were incidence. The relevant disinfection measures allocated from the State Budget for the have been made against malaria transmitters in Immunization Program in 2003 which is the Sabirabad region. 30 persons have been approximately 40% of the overall vaccination involvedintrainingcoursesonmalariain2 regions costs. Hardwarefor disposalof used syringes (Sabirabadand Bilasuvar)andinformationleaflets in line with safe immunization have been for increasing public awareness on malaria purchased and distributed to 10 regions. preventionhavebeenpublishedanddistributed. Refrigerators and generators have been purchased to strengthen and maintain a cold chain system to cover 20 regions. Monitoring Reducing incidence of TB has beenimplementedin30 regionswithin the frameworkoftheEPI. In order to introduce and expand a new anti-TB strategy DOTS, an interagency coordination committeehasbeenestablishedwith participation of the central executive bodies and donor organizations. The initiative was supported by 67 WHOand GTZ.5-dayseminarswere heldin 19 equipmentinstalled.A Nationalconferenceon the pilot regions for doctors and laboratory Prevention of Mulnutrition was held. The training assistants. The medicine against TB was courses on prevention of iron deficiency anemia purchasedfrom the Global MedicineFundand were arranged for 120 educational and medical distributed free of charge to 3,500 diseased employees in 5 pilot regions (Aghjabadi, Saatly, persons. At the same time, international Sabirabad, Bilasuvar and Imishli). Furthermore, recommendations and training materials on the employeesof 14customs pointswere trained; combating TB have been translated and their 360civil society representativesattendedcourses simplified :versions, adapted to the local in 18regionsandcities.The Decreeof September conditions have been published. Advice on 27, 2003 was signed by the President of the purchase, storageanddistributionof drugs has Republic of Azerbaijan in order to ensure been providedand a healtheducation program enforcement of the Law of the Republic of delivered. In parallel, bacterioscopy has been Azerbaijan"OnSalt lodizationfor MassPrevention adaptedto the program,and informationin line of the Iodine Deficiency Disorders" adopted in with the new strategy was prepared.Site visits December27,2001. were organisedto 36areasin2003and 20 new pilotareaswere selectedinordertoexpandthe Promoting healthy lifestyle and health coverage of DOTS program. Medical education to prevent substance abuse employeesparticipatedina numberof regional (tobacco, alcohol, drugs) and reduce sexually conferences and seminars (in Georgia, Poland, Kyrgyzstan and etc.) to learn transmittedinfectionsand HIWAIDS international experience of combating TB in 2003. The TB treatment clinic (consisting of A Commission for Combating AIDS and its 115 beds) in Bina prisonwas refurbished and Preventionwassetupto promotehealtheducation providedwith furniture and equipment through in order to reduce potential health risks such as EUassistance. sexuallytransmitteddiseases, includingAIDSHIV (Order, CM, 16.08.2003). According to the Providing access to contraceptives from National Strategy Plan on Prevention of AIDS, approvedbythe CMon September25,2002 since ` reliable supply systems July epidemiologicalobservations have startedto be carried out amongst people who take drugs In order to provide the population with through injections and women who deliver sex contraceptives from reliable suppliers, services. Thus, in the framework of this Plan, Reproductive Health and Family Planning surveys have been conducted among 400 drug Centers have been established in Saatly, addicts (who participated voluntarily in the Imishli, Khyzy, Bilasuvar and Sabirabad surveys) in Baku and Lankaran and 200 women regionswith supportof the UNFPA.One centre delivering sex services in various regions. Their has been reconstructed in Shaki and provided blood has been tested against HIV and virus with equipmentinGusar,Gabala,Aghdash and hepatite" C at the Centerfor CombatingAIDS. 12 Jalilabad.All these Centerswere providedwith regional laboratories were supplied with modern brochures and contraceptives. 215 diagnostic equipment in 2003 for determining Obstetriciansandgynecologistshaveattended infections, 184,000 blood samples have been relevant training courses. 1,100 Training tested (1.9% of the whole population). Facilities materials on childlessness, family planning, havebeenmadeavailablefor anonymousandfree tumors, were prepared for gynecologists and blood test for HIV for the urban and rural obstetriciansand distributed among them and population. As a result of this, to date 6,588 6 training packages were prepared in 2003 anonymous calls were received and 264 people throughassistanceof UNFPA. tested at the Center for Combating AIDS. This representsanincreaseintests by 1.5. Reducing iodine deficiency disorders and iron deficiency anemia The Center for Combating AIDS has presented 279 articles and interviewsto raisethe awareness Equipment has been installed for iodization of of the populationof HIV/AIDS.A mobile show and the salt and iron fortification of flour through examinationteam (MPET) againstAIDS hasbeen ADB assistance. 5 flour-producing plants in established by the Center. The MPETis providing Absheron peninsula and 3 salt producing informationagainstAIDS inthestreetsof Bakuand plants(2 in Bakuand 1in Nakhchivan) hadthis Sumgait. Densely populated areas receive 68 information via audio and video equipment. System have been arranged in `Sumgait, The first caricature competition has been Absheron, Gobustan, Siyazan, Davachi, Khyzy, organized in the Republic on the following lmishli and Sabirabad regions and 80 health topics: Azerbaijani caricaturists against " employeesprovidedwith relevanttrainings. AIDS!", "We love the life" and "Mutants are unable to kill mankind". The Government Improving budget rationalizationand providedcarefor 56 peoplebydefiningthemas financial management in health sector disabled and allocating benefitsto them.At the same time; the Head Employment Office has As mentioned in labor market section of the instructed all regional employment offices to previous chapter, monthly wages of the state- ' provide unemployed people, who are infected funded health employees (total number is app. with HIVwithjobs. 143,400), as fixed by the Single Tariff Scheme, have been increased 50% since the 1"of June of Improving health informationsystem the same year according to the Order of the Presidentofthe RepublicofAzerbaijandatedJune Preparation of the Azeri version of the 10, 2003. Thus, additionalfunds of 30.1 bln.AZM international statistical classification on wereallocatedfor2003. diseases and health problems continued last year and publication of the first and second In order to improve budget rationalization and volumes of the X review of the ICD was financial management,an internationalconsulting completed. Guidelines on the introduction of company has been selected and preparationof a the new registration documentson birth, natal draft report covering the current system of and prenatal mortalities have been prepared financing Health and draft action plan has been and published and 60 people provided with produced within the framework of the WB IBTA trainings. Trainings on the Health Information project. Social Protection System and Pension Reforms Introduction protection system for more effective protection of vulnerable groups. The below-mentioned OneofthebasicstrategicgoalsoftheSPPRED objectiveshavebeensetto achievethis goal: isto carryout relevantreformsinexistingsocial Creatinga systemof targetedsocialassistance; Reformingthe pensionand s d a l insurancesystem; 0 Improvingthe legislativeframework; . 0 Soda1integrationofthemostvulnerablegoupsofthepopulation. The implementation status of the policy the number of people in this category, identified. measures within the above mentioned These proposals have been agreed with relevant objectivesin2003isasfollows: ministriesandsubmittedtothe CM. Creatinga system of targeted social In order to improve targeting of social policy, a assistance "Draft Conceptof SocialAssistance Reform inthe Republic of Azerbaijan" has been prepared and To improve targeting of social policy and to submitted to the CM. In addition, a process has replace privileges with benefits, non-tax been launched to analyze the structure of social privileges, covering 1.5 million persons of 25 assistance and other related social protection categories, were abolished from January 1, programs.Thisisundertakenwithintheframework 2002.The benefitswere fixed for 10categories of IBTA-2 project, financed by the WB in 2003. In and starting from January 1, 2003 monthly addition, preparation of a Mid-term Social benefits were fixed for 7 more categories. Assistance Strategy has been launched. At the Proposals to compensate veterans of the sametime pilotprojectshavebeenimplementedin Karabakh War, (following the abolishment of Guba region and Nizamidistrict of Bakuwithin the non-tax privileges) have been prepared and framework of the Project on Social Protectionand 69 Pension Reforms inAzerbaijan"with technical taken to establish a system of individual accounts assistance from the EU (TACIS Programme), for those insured. To create this system, with full in order to identify the income of the families coverage of all the regions, a concept document receivingchild benefit. was prepared in 2003, with technical assistance from the WB and relevanttechnical and economic A Draft Law on Targeted State Social estimates made. In line with the concept, a joint Assistance was recently prepared and project of the WB and UNDP was launched in submitted to the CM. At the same time, a November 2003 to implement this system. A working group was established within the working group was established and there were Ministry of Labour and Social Protection visits to the Ukraineand Georgia for exchange of (MLSP) in November 2003 in order to identify experience. A pilot project is currently being underprivileged groups. Inaddition,visits have introduced in the Northern regions of the country been madeto the Ukraineand Bulgariafor the (Absheron, Khyzy, Siyazan, Guba, Gusar, staff of the localsocial protectioncentres of the Khachmaz and Davachi regions) to create a MLSP so that they would get familiarized with systemof individualaccounts. the mechanismsof targetingsocialassistance. Pensions (for a total of 1,087,000 people), were Reforming the pension and social increased in August 1, 2003. Additional funds of insurance system 89.4 bln.AZMwereallocatedfrom thestate budget in 2003. The minimumwage level increased from Effortsare being madeto speedupthe pension 27,500AZM to45,000 AZM in September 1,2003 reforms. This is done within the framework of andto60,000AZMfromJanuary 1,2004. the Decree on "Measures to Improvethe State System of Pensions in the Republic of Improving the legislative framework Azerbaijan" issued by the President of the RepublicofAzerbaijan inAugust4,2003. Thus, Measures have been implemented for joining the separation of insurance and pension system European Social Charter. (This is within the from the state social assistance system was framework of "the State Programme on basicly completed by the end of 2003. The introduction of the norms stipulated in the functions of local offices of the MLSPon fixing European Social Charter" approved by the pensionsand benefits (addedtothe pensions), Resolution of the President of the Republic of as well as financing, supervisionand payment Azerbaijan of April 7, 2003) Thus, the Charter's of pensions, have been fully transferredto the articles, to be ratified,have been analysed SSPF and changes to handle this have been comprehensively and the national regulatory and introduced. In order to improve the speed of legislative documents related to monitoring and delivery of pensions and benefits added to improvement of the legal framework of the labour pensions, work started last year to create and social legislation has been adjusted to the facilities for transition to the card payment norms of the European Social Charter. This system of the pensions and benefits, through includes remunerationof labour, labour relations, the banks in Baku and Sumgait. This will be employment, migration, social security and social completed byApril 1,2004; inthe other towns assistance. Relevant proposals have been and regional centres of the country this will be submitted to the Milli Majlis and 18 articles out of completed by the end of 2004. The tender 31 of the European Social Charter (1,4,5- process for selecting the banks to arrange 9,11,14,16,20-22,24,26-29) have been ratified by pensions payment system by plastic cards the MilliMajlisinJanuary2004. throughtheATMshasalreadybeencompleted. Legal-normative documents for determining the In line with the "Concept on reformof pension minimum living standards were submitted to the system in the Republic of Azerbaijan", CM in 2003. In addition, proposals to adjust the approved by the Resolutionof the President of minimumwage levelona step bystep basis,tothe the RepublicofAzerbaijandatedJuly 17,2001, minimum living standards were submitted for appropriatechanges were madeto the Law on consideration. A new Law on "Minimum Living "Social Insurance".The revised version of the Standards" of the RepublicofAzerbaijan has now draft Law on "Pension Provision to Citizens" beendrafted. was preparedandrelevantmeasuresare being 70 Social integration of the most vulnerable The work towards preparation of rehabilitation groups of the population consisting of medical, social and professional rehabilitation is currently being implemented by Repairswere carried out to a rest-homefor the the MLSP in order to rehabilitatethe social status War and Labour disabled in Bilgah, boarding of the disabled, ensure their financial house No 7 in Saray, boarding school No 9 in independenceandtheir re-integrationtosociety. Buzovna, boarding house No 1 in Shamakhy and boarding house No3 in Mardakan, using Instructionshavebeenpreparedbythe Institute of both domestic funds and various types of Aesthetics and approved for installing equipment assistance. in transport and public places, that will enable improvementsinthe lifeandworkingconditionsfor For the treatment of the disabled,serveral the disabled. medical centres are now functioning. These are the Medical Treatment Centre with 250 Blocks offlats are beingbuiltto cover the needsof places inShaghansettlement,Ganjabranchof the disabledinapartments(mainly,disabledofthe Prosthetic and Orthopedic Rehabilitation Karabakhwar, the disabledof 20 JanuaryTragedy Centre, and the Medical Treatment Centre for andthefamiliesofthe martyrs).Sofar, 15blocksof the Disabled of the War.. Construction of the flats and 140individualapartmentshavebeenbuilt Child Rehabilitation Centre in Baku City, and more than 720 disabled have been provided rehabilitation centres for the disabled with 20 with apartments. Thus, block of flats with 18 beds in Nakhchivan and with 14 beds in Ali- apartments in Ali-Bairamly city, block of flats with Bairamly,havebeencompleted. 27 apartments in lsmailly region,blockof flatswith 36 apartmentsin Sumgayitand block of flats with In line with the Law of the Republic of 48 apartments in Ganja have been built and all Azerbaijan "On social service to the elderly these blocksof flats havebeen made availablefor people", a special uniform for the social use by the disabled .A block of flats with 36 employees and rules of money compensation apartments is being constructed in Sabunchi for their transport costs were approved under District and the construction is expected to be the relevant Resolution issued by the CM in completedin2004. February6,2003. At the presenttime, Headsof 74 Regional Departments under the MLSP in Preparations are being made to create a single 74 regionsandcities, 38 senior specialists and system of information for the disabled This will 1,621 social employees provide 15,289 lone cover many issues pertinent to the disabled and elderly citizens and disabled persons with their families.,the initialsources of informationon social services in their houses, at least twice a the disabled and families of the martyrs, ways to week. At the same time in the first half-year of obtain information, as well as, structure of 2003, 509 mln. AZM was spent as a one off informaiton on social status of the disabled have payment to 610 people,for amongst other been identified.A special questionnaire has been things, medicaltreatment,repairof apartments prepared with 73 questions. Furthermore, a and arrangementof mourning ceremonies All database, general guidelines on how its software these measures aim to improve social works, includingguidelinesfor providing complete protectionofthedisabled. and accurate information, have been designed and relevant software has been prepared. The draft law "On targeting state social Informationonabout270,000 registereddisabled, assistance"was preparedandsubmitted to the as well as, on privilegesand assistance that they CM within the last period of time. At the same receive, informationon about 30,000 families with time the relevant working group was 2 and more disabled has been collected, established under the MLSP since November systematized and included in the database. A 2003 inorderto identifyunderprivilegedpartof website of the disabled has been designed and the population.Inadditionto it,visits havebeen launched to identifythe disabled, who need more organized to the Ukraine and Bulgaria for the assistance, who are intellectual, craftsmen and to staffof the localsocial protectioncenters of the help disabled peopleto find jobs, set up unions of MLSP so that they would get familiarized with mutual interest and covering various measures thetargetingmechanismsofsocialassistance. and activitiesrelatedtothe boardinghouses. 71 Refugees and IDPs Introduction improve living conditions and opportunities of refugees and IDPs. With a view to achieving this One of the strategic goals of the SPPRED isto goalthefollowingobjectiveshavebeenset: The implementation status of the policy publicbuildingsin Mingachevirto newsettlements measures within the above mentioned with the credits allocated by the Asian objectivesin2003 isasfollows: Development Bank is underway and construction work is envisaged to be completed in the first Improving the social living conditions of quarterof2004. refugees and IDPs 25 micro-projects have been implemented to 826 families of refugees driven out from their repair 25 units, which are temporarily densely nativelandsas aresultofArmenian aggression inhabited by the refugee and IDPs' families in have been providedwith houses (see the table Baku, Sumgait, Mingachevir and Gabala cities. below) and also 320 houses for refugees, Micro-projects have been financed with soft construction of which were unfinished since credits allocated by the WB andwith contributions 1995hasbeencompleted: madebycommunities. Upgrading the infrastructure in IDP camps consisting of prefab houses For the purpose of improving the infrastructure in the settlementsconsistingof prefabs, inhabitedby the IDPs, the WB, Islamic Development Bank (IsDB), EU and other donor agencies havejointly impjementedthe below-mentionedmeasures: In addition, construction of a settlement for 50 families in Mehtiabadsettlement, a settlement 40,000 metres of cable unfit for operation with 65 houses in the Yevlakh region and 51 and 83,000 metres of electricity lines have dwelling houses in the lsmailly region has been replaced and 70 power transformers started and it is planned to complete these replacedwith newones; constructionsinthe Iquarterof2004. 56 water pumps have been installed, 308 artesian wells rehabilitated in Aghdam, -274; Fuzuli - newsettlementshavebeenset up (Aghdam Tartar,GoranboyandAghjabadi regionsand I O ; Bilasuvar 6) for housing of 153extra wells are beingrehabilitatedusing 5,081 IDP families (22,841 persons) settled in thesavedfunds; tent camps and at the railway wagons. Khyndyrystan pumping-station and 18 km Necessary infrastructure has been created in all the settlements.Rehabilitationof 17houses length of the pressure pipeline have been has been launched in the Gadabay region built inAghdam region, Gazakhlarpumping- station and 7.2 km length of the pressure within the framework of rehabilitation of 1000 pipelinebuiltin Fuzuliregion.2,000 Families housesdamagedduringthewar. benefitedfromthis; Resettlement of 412 IDP families (1,895 74.2 km of the roads in the settlement have persons)from several publicschools and other beenrepaired; The kerosene supplies to 92,000 IDP Improving health care services to refugees families in autumnandwinter seasons is and IDPs carried out by Executive Powers of the Regions; 15 new health institutions (13 health stations, 2 3.27 km of the effluent disposal lines out-patientfacilities)have been built at the newly have been rehabilitated in Baku and established settlements and provided with 10.05 km of collector and drainage necessaryequipment. networkrehabilitatedinBeylaganregion; 6.35 km distributionpipelineshave been Improving food provision to IDPs installed in Baku and Gazakh regions and 4 units of gas control points have Replacement of the privileges provided to the beeninstalled; refugeesand IDPsin68regionsofthecountrywith Restorationoftheenergy supply is being benefits has started and IDPs are currently conducted in Tartar, Goranboy, providedwith monthly food benefits.At the same Aghjabadi, Gazakh and Gadabay time, monthly food assistance is rendered to regionsand itisplannedto becompleted 136,000 IDPswithin the framework of the United in the first quarter of the next year. As a NationsWorld FoodProgram. resultof this, energysupplies to 120,000 peoplewillbeimproved. 214,258 IDPs were deprived of food assistance renderedbeforeby the internationalhumanitarian Addressing the employmentproblems of organizationsin50regionsofthecountrybecause IDPs these organizations had suspended their activity over the last years. The process of providingthe The work aimed at solution of employment above-mentioned IDPs with necessary monthly problems of the IDPs resettled in new products is currently being implementedwith the settlements has been launched: it includes fundsallocatedfromtheSOFAR. allocation of the plots of land (1ha) to 5,081 families for farming purposes and grant assistance (1 mln. AZM) and for this purpose 4909 mln.AZM (coveringabout 5,000families) have been spent in 2003. Furthermore,with a view to provide soft loans to the farms established by IDPs, 593 families have been given micro-credits as legal entitiesand 4920 personsasprivateindividualsfromtheWB. Providingeducationto IDPs'children 15schools and 18pre-schoolinstitutionshave beenbuiltatthe newlyestablishedsettlements andprovidedwithnecessaryequipment. IDP and refugee students studying on a paid basis in the State Universities and schools of general education have been exempted from tuition fees starting from academic year of 2002-2003till the end of their educationperiod according to relevant Order issued by President of the Republic of Azerbaijan in August 4, 2003. This state support has been provided to IDP and refugee students, taking intoaccountsocialandeconomicstatusoftheir families, in order to enable them to continue their educationin the Universitiesand schools ofvocationaleducation. . 73 Chapter 5: Regional Policy and Infrastructure Development Public investments in utilities and infrastructure Introduction to the developmentof non-oil sector and regions themselves. In this regard following objectives As is stated in SPPRED, development of havebeensetinthe PolicyMatrixoftheStrategy: infrastructureinthe regionswillgiveanimpetus The implementation status of the policy nearlycompletedandWB hasallocated additional measures within the above mentioned funds of 12 mln. USD to eliminate impact of objectivesin2003 isasfollows: earthquakeonthesystem. Rehabilitating transport infrastructure Reconstruction of lmishli region water supply system has been completed through KfW Baku-Alathighwayfunded bythe State Budget resources of 14.8 mln. euro and saved resources and Alat-Gazimammad highway funded by have been directed to improve water supply Kuwait Fund and the IsDB are under systemsofGanjaandShaki. constructionandareexpectedto becompleted in 2004. In addition, negotiations related to Reconstruction of Baku sewerage system has financing the construction of Gazimammad- been started since 2003 and is expected to be Kurdamir, Kurdamir-Ujar, Ujar-Yevlakh, continuedin2004aswell. Yevlakh-Ganja, Ganja-Gazakh, Alat-Astara and Gusar-Samurpartsof the highwaysystem Developing melioration and irrigation sector have been concluded. Their construction are expectedto be startedin2004.Within the rural Within the WB project on reconstruction and roads development project the relevant rehabilitation of irrigation and drainage measures have been implemented and infrastructuresystem,rehabilitationof Samurmain additional 1.2 mln. USD including new headwork and construction of siphon at an components has been approved from the intersection of main Mil-Mughan Collector and remaining resources.At the same time, Trans- Araz Riverhavebeencompletedin2003. Caucasus railway rehabilitation has been continued. AMemorandum of Understandingonfinancingthe construction of VaIvaIachay-Takhtakorpu section Reconstructionof Nakhchivanairporthasbeen of Samur-Absheron canal has been signed with started since 2003 and expected to be IsDB,SFDandOPECFundin2003. completed in 2004. The State Budgetfor 2004 envisagesallocatingadditionalresourcesof 15 Following the construction of the first part of bln.AZM. Khanarkhcanal(37.5 km) in 2003, water supply of 18,500haof area inGusarand Khachmazregions Construction of "Hazi Aslanov" underground has been improved. Construction of the second station has been completed in the first quarter partof the canal hasalso started and 1.8 bln.AZM of 2003 through support of EU. Fleet of havebeenallocatedinthis regard. underground carriages has been repaired in 2003 and 2004 State Budget also envisages Construction of 4.7 km of reinforced concrete relevantresourcesinthis regard. canal line, 2 bridges, hydraulic units and 950 m of tunnel have completed as well as construction of Rehabilitating water and sewerage Vaykhir water reservoir has been started in 2003 systems within the framework of Shamkir-Mashin canal construction.60 bln.AZM is envisaged to allocate Great Baku water system rehabilitation is from the 2004 State Budget to continue the 74 constructionof the Vaykhirwater reservoiralso BTC pipeline, the South Caucasus Gas Pipeline, inthisyear. Gas Pipeline from Garadagh to Shimal Power Plant, Garadagh compressor pump, II Unit of Developing energy infrastructure Shimal Power Plant, reconstructionof the 1stand 8th units of AzDRES, as well as second stage of Report on deveIopment of energy power transmissionsector reconstructionis given infrastructure includingdevelopment status of intheenergysectionofthe chapter3. Agriculture, irrigationsystem, land protectionand water resources Introduction of non-oil sector in rural areas will be achieved through implementation of the objectives This sector is of great importancefor ensuring stipulated in the SPPRED. The objectivesare the regional development. A stable development following: The implementation status of the policy Strengthening national veterinary and plant measures within the above mentioned control services objectivesin2003isasfollows: 400 mln.AZMwere allocated in2002and 150mln. Preparing Rural Development Strategy AZM in 2003 for reconstruction and repair of Khanlarbiologicalenterprise.A partof repairwork In order to ensure sustainable and integrated at the vaccine and serum workshops has been development of the rural areas the long-term completed and repair and construction work is development strategy of agriculture has been currentlyunderway. preparedandsubmittedtotheCMin2003. 9.5 bln. AZM were allocated for preventive Ensuring access to credit facilities measures against infections through which biological and other preventive medicines were 4,629 farmers has received 40.9 bln. AZM purchasedin 2003. 9.1 bln. AZM are expected to credit resources in 2003. Additionally 329 BorrowersGroups (total numberof members - bespentinthisregardin2004. 6,045) have received 94 bln. AZM as well as In order to improve epizootic and phitosanitary 217.6 mln. AZM were allocated to the credit supervision measures in the public health and unionsin2003. manufacturing, the relevant equipment has been installed at the Plants Quarantine Examination In order to develop the land market that could Laboratory through the assistance by TlKA in furhter develop loan colateral system in the 2003. It is envisaged to build new laboratories at regions 10 regional land registration centres Astara andSamurborder points. have been set up and 1,427, land users provided with the certificate of the right of its temporaryuse. 75 Improvingirrigation among 103,500 landowners and farmers by the InformationServiceGroup.Morethan 250types of 522 Water Users Associations have been booklets, leaflets and articles were issued at the established. The associations cover 622,000 Regional Advisory Centres and 375,000 ha of the irrigated plots of land and render landowners and farmers benefited from them. services to 380,000 legal entities and 380,000 farmers and landowners received individuals. However, the difficulties in money information on market prices on a regular basis collection do not enable them to increasetheir and video films aboutthe experienceof advanced opportunities. Since the late 2003 new project entrepreneurswere preparedanddemonstrated. has been lunched funded by WB soft loanson irrigation-distributingsystemand improvement More than 20 information days were held in the its management regarding to repair and regions covered by Nakhchivan and Ganja construction of in-farm irrigation units through advisory centres. The farmers and landowners of thepublicfunds. Guba-Khachmaz, Lankaran-Astara, Mughan- Salyan and Ganja-Gazakhregionswere provided Flood protection with addresses of the companies selling the mineral fertilizers and plant protection chemicals. A Memorandumof Understandingonfinancing They were also provided with knowledge on the construction of protection dams for flood setting norms for using the fertilizers, new plants preventionthroughADB softloanwassignedin protection chemicals and the rules of their use; December,2003. visual demonstrations were arranged. Furthermore,tobaccoproducersof Gabala, Shaki, Animal husbandry and poultry Zagatala and the neighbouring regions were provided with information concerning the new In order to improve cattle-breeding services sorts of tobacco, arrangingseed-farming, planting 5,000 heads of cattle were brought to the of the seedlings usinga new method and ways of country from abroad in 2003; 2,500 heads of caringfor them. cattle were sold by the state to private stock- breeding farms. 5,500 heads of cow and A workshop-training was held jointly with the heiferswere artificially inseminatedwith seeds farmers to meet the needsof the private sector in ofthe highqualitybreed. agricultural machinery. Over the last period of time, usingthegrantoftheJapaneseGovernment, A meat processing line has been launched at 46 combine harvesters were purchased from "Qafqaz" tinned food factory of Khachmaz German company "Glaas" and 22 from Finland. regionand50 personswere providedwithjobs. These combine harvesterswere given for leaseto "Milk Pro" Ltd company was the first to get an 66 farmers in 33 regions. The seminar was international quality certificate ISO-9001 organized last year together with Russian among the producers in our country.The daily "Rostselmash" Open Joint-stock Company. milkprocessinglevelhasbeenbroughtupto50 Furthermore, a seedling planting machine tons. produced in Turkey has been purchased to plant tobacco and other vegetable seedlings. The 16 chicken poultry farms are currently seedling planting machine was given to Gabala operatinginthe country.Imishli-BroilerLtdwith TobaccoEnterprise. thecapacityof200tonsof chickenmeatstarted operating in 2003 and 150 persons were In order to address the needs of farmers, a joint providedwithjobs. vegetable seed-farm has beenset up in Lankaran to produce high-quality and seeds at affordable Increasingfarmers'managerial and price. Itwas implementedjointly with the TIKA.An technical skills Azerbaijani-Turkish seed-growing research initiative (joint-venture) started operating in 207 types of booklets, leaflets, articles and Khachmaz. other materialswere published and distributed 76 Environmentalsafety Introduction and social status. The following objectives have beenidentifiedtosolvetheenvironmentalproblem General condition of environmental safety of withintheframeworkoftheProgram: the country directly depends on its economic The implementation status of the policy implemented within the framework of the measures within the above mentioned Ecologically Urgent Investment Projects (EUIP) objectivesin2003 isasfollows: fundedbyWB. Environmentalprotection Pilot project on oil sludge clean-up component of the EUIP, has been implemented at a Polygon A National Caspian Action Plan has been near Buzovna-MashtaghasettlementThis project. developed to strengthen environmental dealtwiththe selectionof optionsfor re-cultivation protection of the Caspian Sea within the of 1haof areaofoil pollutedlandintheterritory. In frameworkof CEPwith technical assistanceof theAbsheron region, approximately30 ha of area the UNDP, UNEP,WB, EUTACIS Programand has been selectedfor treatment of pollution.The Global EnvironmentalFacility(GEF).This plan tender proceduresfor treatingthe area is about to has been submitted to the CM in November, becompleted. 2003. Work related to reconstruction and expansion of Construction of a fence of 25 km length for isotope center for storage and treatment of environmental protection of Jeyranbatan radioactivewaste, as well as decontamination of reservoir has been completed; a new forest radioactive wastes in Ramany .and New- area planted in 70 ha of area and currently, Surakhanyplantsisbeingcontinued. improvementsand maintenancework is being carried out in 1,275 ha of forest area in that Biodiversity territory. Fof the purpose of protecting biodiversity and Preparation of relevant project papers ensuring ecological balance, forests have been (feasibility study) on reconstruction and plantedby a sowing methodin 275.5 ha area and expansion of purifying facilities in Baku and with perennial plants in 1,279.5 ha area on the Sumgait, including, the sewerage system in banks of the Kur and Araz rivers. Appropriate Sumgait,hasbeencompleted. documentsarebeingpreparedto createbiological stations and nurseries for rare and endangered Radioacfive pollution species of animals and plants.At the same time, accordingto the decrees issued by the President A Polygon for toxic wastes has been of the Republicof Azerbaijan, Ordubad, Shahbuz constructed in 50 ha of area of the Absheron reserves and Gakh State Natural ProtectedArea districtinorderto removethe mercurywasteof have been established.The areas of Turyanchay, the Surface-ActiveSubstancesPlant;the road Pirgulu, Ismailly,llisuand Garayazireserveshave leadingto the Polygon has been covered with been expanded. Presently, preparatory work crushedstone-gravels;the bridge inthe partof related to establishmentof Shahdagh, Ordubad, the road crossing over Samur-Absheron Samur-Yalamaand Hirkannational parks, as well channel reconstructed and preparatory work as Talysh reserve and expansion of Goy-Gol, for putting the Polygon into operation is Absheron, and Altyaghaj reserves is going on. currently underway. This project has been Neftchala sturgeon hatchery with capacity of 15 77 mln. sturgeons, has been put into operation transport and other sources. An Agency for following the preparatory work enabling Management of Toxic Wastes has also been protection of traditional sturgeon hatchery established for effective waste management. areas in the Kur andAraz rivers. These areas Provision of regional laboratorieswith equipment will have the status of official protected areas within the framework of institutionaldevelopment withintheframeworkofthe EUIP. hasbeencontinuedand80%ofthework relatedto preparationof 1:500000scalemapthatwill reflect Institutional development dislocation of Organizations subordinated to the MENR by areas, physical-geographical Within the MENR a National Monitoring information about regions completed towards Department has started operating to create a improvinggeographical-informationsystems. system of monitoring air pollutants from Tourism lntroduction to the development of the regions and the opportunities for employment in the regions will Geographical location of Azerbaijan promises increase. The below-mentioned objectives have wide perspectivesfor development of tourism. been determined for the development of tourism Developmentof this sectorwill give an impetus withintheframeworkofthe Programme: Creatingan enabling investmentenvironmentfor developmentof tourist businesses; Improvingthe advertisingand publicityinthe tourismsector; Trainingand upgradingintourismskills; Developmentof tourismin regions The implementation status of the policy be established from the beginning of 2004. measures within the above mentioned Besides, i: is envisaged to establish Tourism objectivesin2003 isasfollows: InformationCenter in Shaki and Lahijand conduct relevanttrainingsthroughthe Centerin2004-2005 Creating and enabling investment within the framework of Trans-CaucasusTourism environment for development of tourism Initiative with financial support of the Swiss business Government. Licensing period for companies engaged in Trainingand upgrading in tourism skills tourist activitieshas been prolonged from 2 up to 5 years and license fee has been reduced The following specializations have been set up to from 8mln.AZMto 2.75 mln.AZM. The pricefor prepare tourism specialists and improve single entry visa for tourists was reduced from qualifications: "Sport tourism" at the Azerbaijan USD40 to USD20. These initiatives are aimed State Academy on Physical Training and Sport: at reducing poverty and speeding up new job "Hotel management", "Tourism management" at creation and development of tourism in the BakuPhysicalTrainingandTourismCollege. regions. As a result of this the number of companies engaged in tourism was 100 as of Development of tourism in regions beginningof2004. A Project and business plan have been designed Improving the advertising and publicity in towards developing ecotourism and rural tourism the sector inthe regions (Gusar, Guba, Shamakhy, Ismayilly, Lankaran, Ganja, Khyzy, Lerik, Masally, Zagatala, An agreement was signed with UNDP to Khachmaz, Gazakh, Gabala, Oghuz and support the establishment of tourism Nakhchivan) and submitted to the interested information centers for publicity and foreign investors. coordinationin Baku, Shaki, Ganja, Lankaran, Shamakhy,Nakhchivan,Gubaand Khachmaz. Accordingto theAgreement,these centers will Chapter 6: Institutional Reforms and Capacity Building Judicial and legal reforms Introduction poverty in the country. The following objectives havebeensettoachievethegoal: As partof SPPRED,juridicaland legalreforms are considered very important to reducing The implementation status of the policy protection" as well as lectures on Human Rights measures within the above mentioned Convention, independenceof the judicial system, objectivesin2003isasfollows: publicprosecutorsin Germanyand other relevant subjects have been organized for approximately Increasing the awareness of the poor 120 participants.Assessment of quantitative and regarding their civil rights qualitative needs of 21 courts has been implementedto improve the court administration Within the framework of "Legal Assistance withintheframeworkofthe Project.Theirprovision Service" project, which was implementedwith with equipment and legal literature, as well as OXFAM's support, 23 information and preparation of the training module for the consulting centres were set up in Barda, administrative staff have started. Besides, Aghdam, Aghjabadi, Tartar, Yevlakh and preparation of the electronic catalogue- Goranboy regions, in Mingachevir and Ganja registration-search system of the library of the cities.Thesecentreswere providedwith allthe LegalTraining Centre has beenlaunchedand the necessaryequipment.The centreswere set up public awareness strategy has been prepared in order to provide high quality legal advice to withintheframeworkoftheproject. the poor population and raise awareness of theirlegalrights.1,100-1,300clientspermonth The seminars "How the comments should be are currently benefiting from the legal written?", which concerned interpretationof laws assistanceservicewithinthe framework of the havebeenorganized; a concept paper identifying project. the rulesof writingcomments has been prepared; aworkinggrouponCommitmentsoftheCivilCode Upgradingand capacity building of legal and CriminalCode hasbeenestablishedand start profession has been made on writing comments.A study trip to Germany has been organized within the A number of important measures were framework of the project for the delegation implemented in 2003 within the framework of consisting of representatives of the Ministry of EU TACIS funded project "Improvement and Justice, Main Prosecutor'sOfficeandjudges.The reformof thejudicial systeminthe Republicof aim of the trip is to get familiarized with the Azerbaijan".The projectisaimedatorganizing experienceofjudicial systeminGermany. relevanttrainingseminarsfor the employeesof the judicial system, improving the court In order to strengthen the physical and technical administrative system, legal enlightenment of infrastructureof the Legal Training Centre major the population and commenting on the laws. repairs were carried out to the building and the Thus, training seminarson Criminal Code and working rooms. The rooms were provided with Civil Code have been organized in Baku and computers and other necessary equipment and the northern regions of the country with access to the internet was created in 2003. The participationofjudges and public prosecutors. Centre heldtrainingcoursesfor 417judges, court Theconferenceson"Legalandjudicialreforms and juridical employees with consideration of in Azerbaijan" and the "Human rights gender equality. The training courses were also 79 held for the members of municipalities to other relevantissues. explain the legislation, legal awareness and Decentralization (Municipalities) Introduction municipalitieswithfinancial supportfrom the Open Society InstituteSupport Fundin order to improve Decentralization was started through creation financial opportunities of municipalities and train of municipalities in the country in 1999. them on rulesof preparingthe local budget.At the Municipalitiesare recentdemocraticstructures same time, Training on Financing and Budget in Azerbaijan. As an important aspect of the Processof Municipalitieshas been delivered to 16 democratization process in Azerbaijan, municipalitiesinBakuandAbsheron. municipalities play a key role in facilitating the articulation of local and community aspirations Relevantwork isbeingimplementedwith aviewto regarding poverty reduction. The role of ensure close involvement of municipalities in municipalities therefore, is crucial in the poverty reduction. Thus municipalities were successful implementation of SPPRED and closely involved in the RegionalWorkshops, held sustainable regional development. Municipal by the SPPRED Secretariat in 6 regions (Guba, capacity needs to be strengthened to enable Nakhchivan, Shaki, Masally, Shamakhy, and them to play an effective role in the Ganja) in order to get views of the civil society implementation of the SPPRED and Public about poverty and its reasons in the country. The Investment Plans. The following measures above-mentionedWorkshops were supported by were taken to encourage active involvementof technical assistance from the United States municipalities. Agency for International Development, United Nations Development Programme, Asian Subsidies from the State Budget Development Bank and the Government of Germany. During the Workshops, municipalities Though the State Budget for 2003 envisaged were informed about the contribution they can allocating subsidies of 25 billion AZM to make to poverty reduction and their problems, Municipalities,they receivedonly 5 billionAZM views andcommentswere received. of this amount. It is also envisagedto allocate subsidies of 10 bln. AZM to the budgets of Training has been delivered in Aghstafa, Tovuz, municipalitiesin2004. Gadabay, Khyzy, Siyazan and Davachi regions with financialsupportfromthe GTZinorder tobuild Legislative framework a capacity and to empower municipalities. This training consequentlybenefitedto heads of about Law "about Approval of the Charter on Tax 210 municipalities.Aswell as, two-daily workshop Body of Municipalities" of the Republic of has beenorganizedfor membersof municipalities Azerbaijan came into force following the in each of Khyzy, Siyazan and Davachi regions. Decreeissuedbythe Presidentofthe Republic The workshops, which were supported by Save ofAzerbaijan inOctober23,2003. Currentlytax the Children, were devoted to elucidation of the bodies are being established within "Charter on SeIf-governance Coordinating municipalities. Councils in the Republic of Azerbaijan" and possible advantages that municipalities may Proposals have been prepared to develop an derivefromthisCharter. action plan for increasing local budget revenues in order to decrease dependence of Activity area of municipalities local self-governing organizations from the StateBudget. There are 2,669 municipalitiesin the country and the budget expenditure of municipalities for the Capacitybuilding of municipalities last yearwere mainlyusedto support thefollowing areas: repair of roads within residential areas, CenterTowards Civil Society published a book repair of schools, health centers, provision of on "Financing and Budget Process of schools with fuel, single financial aid to Municipalities" and distributed it among underprivileged families, assistance in maintenance of household and utilities, 80 environmental protection, supply with electric credits allocated by the WB. The Project is aimed and heating power, covering of losses in bills at reducing poverty and encouraging community for gas,transport,waterandsewerage. development inthe ruralareas.The Projectwill be launched in 2004 and cover municipalities based New Rural Investment Projecl in30regions. A project is being prepared by the Agency for Support to Agricultural Development through Poverty Monitoring Introduction SPPRED, it is planned to carry out poverty monitoring in the country on a regular basis. The Forthe purposeof evaluatingthe impactof the following objectives have been set to achieve the poverty reduction measures envisaged in the goal: The implementation status of the policy and also various researchinstitutesin the country measures within the above mentioned havebenefitedfroma numberoftraining initiatives objectivesin2003isasfollows: which were organized in 2003. These included a training course on Poverty Measurement and Increasing capacity for monitoring poverty Diagnostics,organized by the WB Institute,which provideda mixof lecturesand hands-ontrainingin PMU was set up under the SPPRED the useofSPSSfor analyzingsurveydata.The EU Secretariat (with financial and technical FSP together with the Food and Agriculture support from the UNDP) in order to improve Organization (FAO) organized a training seminar monitoring of different aspects of living on Monitoringof FoodSecurity.TheWB supported standardsinthecountry.Enhancingcapacityin the SSC inthe preparationof the HBSannualdata this area is consideredvital in order to be able base for outside users, and as part of a regional to monitor the future impact of the policy initiative,providedsupervisionandsupportto local measures being taken under SPPRED. The researchers in the use of the data base for PMUbeganitsactivities in February2003,and analyzingvariousaspectsof poverty. since then has been working closely with the SSC and the SWGs in order to identify and Preparing annualdatabasefromHBSforuse define the gaps in the country's data collection system,andto makerecommendationson how The SSC has taken measures to further improve theycanbefilledinorderto improve monitoring data collection through its HBS. This survey was oflivingstandards. completely re-designed in 2001, and since then has continued to be improved with technical Effortshave been made to build up capacity in assistance from the WB and ADB. The SSC povertyanalysis.The staffofthe PMU,the SSC published bulletins with results from the HBS in table form and also provided access to administrative data interested parties to them, by making this available on CD-Rom, and placing it on the The SSC has also improvedthe content and lay- SSC'swebsite. out of its annual bulletin "Women and Men in Azerbaijan". This represents a further Integration of information from the FSlS improvement in the development of gender- Unit at the SSC into the regular poverty disaggregated statistics, and it is planned to monitoring publish such a bulletin annually. Another annual bulletin "Children in Azerbaijan-2003" has also The SSC is also cooperatingwith the EU FSP beenpublished. in carrying out surveys on vulnerability to food security and evaluating of food security in the Carrying out regular qualitative/participatory country.The results of this work are published work on population's perceptions of the inquarterlybulletins. definition of and reasons for poverty in the country Publishing and improving poverty indicatorsonan annualbasis It is recognizedthat quantitative indicatorsare not always sufficient to build up a full picture of the Over the past year, the PMU has worked on extent and causesof poverty,andfor this reasona creating a data base using those living qualitativesurveywas carriedout inthesummerof standard indicators currently available in the 2003. The survey was conducted under the country, and documenting their strengths and supervision of the PMU within the SPPRED limitations.The PMUexpertshavealsotakena Secretariat, and with support from the UNDP. lead in examining the possible options for Focusgroupdiscussionsand individualinterviews country-specific MDG targets and indicators, were carried out in 11 regions of Azerbaijan and in establishing poverty estimates for the (Sumgait, Guba, Gusar, Shaki, Gabala, Jalilabad, countryusingtheSSC'sHBSdata. Yardimly, Mingachevir, Barda, Imishli, Aghstafa). The results of the survey are being used by the Carrying out a regular LFS to monitor PMU to supplement the quantitative information employment in the formal and informal available on living standards, and to make sectorsoftheeconomy informedrecommendationsonhowto improvethe questionnairesofthe HBS. As was mentioned in the labour market and employment section, a national labour force As part of the participatory approach followed by surveywas carriedout for the first time in2003 the SPPRED Secretariat, a series of regional withtechnical assistancefromthe International workshops were oganised in 6 regions of the Labour Office (ILO) and UNDP. The SSC is country (Guba , Nakhchivan, Shaki, Masally, currentlypreparing bulletinswith summariesof Ganja and Shamakhy). These workshops were thesurveyresults. organized with technical assistance from the USAID, UNDP, ADB and German Government. Carrying out an annual survey of the The purpose of the workshops is to listen to the refugees and IDPs to monitor changes in perceptions of the local populationon the reasons theirlivingconditions for poverty and their proposalsfor improving local living standards. The workshops also provide a A survey was carried out during September- forum for discussingthe purposeand effect of the December2003amongthe refugeesand IDPs policy measures being introduced under in Saatly, Sabirabad, Bilasuvar and Barda SPPRED. Discussionsduring the workshops are regions to analyze their current living very lively, and a report summarizing the conditions. The report is expected to be discussions is available from the SPPRED publishedbytheendoffirstquarterof2004. Secretariat. Developing gender disaggregated Monitoring and improving the legislative base statistics and publication of annual bulletin onminimumlivingstandard with focus on gender disaggregated statistics derived from survey and Work on improving the legislative basis for the country's minimumsubsistencelevelhas begun.A 02 draft lawon the "MinimumSubsistenceLevel", with proposals for a clear methodologyto be used for the calculation of the minimum subsistencelevel inthe RepublicofAzerbaijan has been submitted to the CM. A proposal to makethe minimumwageequaltothe minimum subsistence level has also been submitted to theCM. a3 Chapter 7: The Participatory Process Introduction the positiveexperience inthis type of activityinthe formulation period, when workshops were held in The SPPRED formulation phase was five regions56.These workshops provide a forum characterisedbya participatoryapproach.This where government officials and civil society approach had the aim of encouraging and representatives can exchange views on the facilitating the involvementof decision makers, measures most appropriate for having a poverty civil society, and the international donor impact at the national and local level. community in concentrated efforts to combat Representatives from the national government poverty. meet with local government officials, NGOs, municipalities and members of the local Activities were undertakenin 2003 to re-launch communities.The local populationhasthe chance an extensive and inclusive participatory to gain more information on SPPRED's aims and process, to be continued throughout the progress, but also to put forward their own SPPRED implementation stage. The perceptions on the priorities for impacting living participatory approach has been vital in taking standardsintheir specific region. forward the process of consultation with civil society. Ithas helpedto inform policy makersof The second type of activity took the form of the actual and potential impact of poverty discussions with representatives of the mass reduction measuresat the local level, and has media, in order to develop their understandingof raised awarenessamong broad sections of the SPPRED and to widen the dissemination of. community on the aims of SPPRED and how information by using the media. These activities they can play an effective role in the have served to raise public awareness of implementationperiod. SPPRED, but also to open up the debate on povertyandthewaystocombat it. The broad objectives of the participatory process in the implementation period can be Thirdly, a series of activities were undertaken, summarizedas: often in partnership with NGO's, aimed at promoting the participation of certain target Tocontinuethedialoquewith the civil groups.These included various training initiatives society to increasethe effective and active participationof To increase public awareness of the local communities in the debate on poverty SPPREDimplementationprocess; reduction and economic development in the To exchange views concerning the regions. impact of the measures set out in the Policy Matrix on improving the living Other activities include organization of displays of standardsofthepopulation: SPPRED materials, CDs and audio tapes of To make policy recommendations for SPPRED in libraries, posters on challenging changes in the policy measures and people to fight poverty, information leaflets and actions based on the proposals presentationsatvariousforums. receivedfrommembersof civilsociety: To strengthen the poverty reduction Details on these different forms of activities are strategy by improved prioritization giveninthefollowing sections. based on information obtained from variousgroupsofcivilsociety; Regional Workshops To ensure that the most vulnerable groups are involved and consulted in FromJuly onwards the SPPRED Secretariat held theimplementationprocess. a series of regional workshops in Guba, Nakhichevan, Shaki, Masally, Shamaky and The activities undertaken in 2003 to achieve Ganja in 2003. The aim of these meetingswas to these six objectivestook various forms. Firstly, provideinformation and to exchangeviews on the a series of regionalworkshopswere held in six appropriateness and effectiveness of the different regionsofthe Republic.These builton implementation of SPPRED measures, and to %Theseworkshops were held in 2002 with support from USAID,the EU FSP,and UNDP. They were sometimes referredto as Town Hall Meetings",althoughthe venue was not necessarilythe town hall. 84 facilitate fruitful dialogues with civil society, for the organisation of the workshops, and they centralexecutive bodiesandmunicipalities. were attended by representatives from the WB, USAID, UNDP, UNFPA, ADB and other As mentioned above, such workshops had organizations. Overall, 88 international experts, been held in the formulation phase, and the representatives of international and local NGOs Secretariatwas able to buildon theexperience participatedintheregionalworkshops. gained, during the first round of workshops in 2002. However, in 2003, coverage was So far a total of 257 representativesfrom various extended slightly to include Shamaky.Another strataofthe civilsocietyfrom 23 districtsand cities innovative aspect in 2003 was the active haveparticipatedindiscussionsattheworkshops. involvement of local NGOs in the organization Representatives from national government and of the regional workshops. Whereas the from 11SectorWorkingGroupshaveattendedthe organization of the workshops in 2002 had meetings.Discussionsfocussed on the measures been largely carried out by international which are being implemented and will be bodies, in 2003, the local NGOs "Umid" and implemented within the framework of the "Simurg" carried out all the preparation work, SPPRED. Participants put forward a total of 187 and worked to ensure the widest possible proposals, which are important for future revision community representation and active of the SPPRED. Full reports concerning these partipationatthe meetings. meetings can be obtained from the SPPRED Secretariat. The table below provides the Financial support was provided by the USAID schedule,topicsandvenuesofthe meetings. Table 7.1. List of regionalworkshops on SPPRED in2003 Dissemination of information through the of "MDG and poverty reduction in Mass Media Azerbaijan". 5 press-releases on the regional In an effort to publicisethe SPPREDas widely workshops were sent to Trend, Turan, as possible, work with respresentatives from SharqandAzerTajagencies. the mass media has resulted in an excellent coverage of the implementation process in (11) Radiobroadcastsandinterviews: manynewspaperarticles,films, and interviews 3 reportsof the mediacompetitionon "MDG and presentationson RadioandN.A brief list and Poverty Reduction in Azerbaijan"were isgivenbelow: broadcasted via Azerbaijan State Radio1 andRadioAntenne FM. (I) Newspaper articles, interviews with the Interviews with the heads of the Sector press: Working Groups of Social protection and 32 articles on the SPPRED were Tourism on the activities of these sectors published by various journalists in within the framework of the SPPRED were various newspapers, including"Khalq", broadcast on Azerbaijan State radio and "Respublika"and"Ayna". Arazradio. 74 articles were published in various newspapersandjournals inthe context (Ill)Televisionbroadcastsandinterviews: 1 report and 1 documentary film 05 werebroadcastedonSpaceTV; Gabala,ShamkirandGubaregions. 1 report on STV and 2 reports were broadcasted on Azad Azerbaijan TV in A presentation on "Community development the context of "MDG and poverty within the framework of the SPPRED" was made reductioninAzerbaijan"; atthe regionalseminar"Studying communitytype 1TVfilm on the implementationprocess development experience" organized by Save the of the Programme was broadcasted on Children with financial support from the WB in Az.TV; Ganja. The seminar was attended by 55 1TVfilm and5shortTV spotsonpoverty community representatives from 5 regions, 21 inruralareaswere prepared; representatives from local, international Interviews on SPPRED implementation organizationsandmediarepresentatives. status were given on ANS, STV and LiderTVchannels; Work with Target Groups Programmes on various measures implementedwithintheframeworkof the As mentionedabove, mostof thework doneunder SPPRED were broadcasted on AzTV, this category took the form of training and ANS, Lider,ATV,Space,NakhchivanTV, awareness campaigns for various groups. The SumgaitTVand KhayalTV(Guba). objectiveof these activitiesis to help increasethe ability of key groups to participate actively and Trainingin participatory methods influence the implementation process. They also serve to facilitate broader participation in the Various training initiativeswere undertakento debate on poverty and its causes. A summary of help promote effectiveand active participation theseactivitiesisgivenbelow: of a broad section of society in the debate on poverty reduction and economicdevelopment With supportfrom Save the Children International inthe regions.Theseincluded: organisation and SPPRED Municipality Sector WorkingGroup,a training-seminarwas organised A conference "National community leadef, on "The role of municipalities in SPPRED". organized in lmishly by the Azerbaijan Seminars were organised for the Khyzy, Davachi Community Development Research Training andSiyazanmunicipalities.LocalNGOs,women's and Resource Center local NGO and councils, and was also attended by local supportedbythe USAIDandCHF international communitymembers. organization. More than 150 community heads, municipal and state representatives, The SPPRED Secretariat arranged discussions representatives of local and international on poverty and ways to combat it for the pupils of NGOsfrom 14regionsofthe Republictook part the secondary school in Barda with support from in this conference and a presentation "Active the localNGO "Aran". participation role of the communities in the SPPRED" was made by a member of the With support from the UNDP, OXFAM and SPPREDSecretariat. International Press Center, the SPPRED Secretariat arranged a seminar on "MDG and A presentation entitled "The SPPRED and Poverty Reduction" for a more than 50 Community Development" was given at the representatives of mass media and held a seminar on Inter-agency Community competition forthe"Bestarticlesandreportage." Development,organized by MercyCorps, and attended by representativesof 11various local With support from the UNDP, the local NGO andinternationalNGOs. "Ruzgar" together with SPPRED Secretariat organised discussions on poverty and ways to Apresentation on"The roleofcivil societyinthe combat it at the Technical University, Slavonic SPPRED implementationprocess" was made University, Teachers Advanced Training Institute, at the Community Development conference. PedagigicalUniversity,StateUniversity,University 59 representatives from the communities, of Languages, University of Architecture and municipalities and local NGOs participated in Construction, Academy of Public Adminstration this conference,which was organized by Save and University of Economics.The process is still the Children within the framework of the on-going. "Community Strengthening Network project, With support from OXFAM, and the local NGO supportedbytheWB inNakhchivan,Lankaran, "Potensial", a drawing competition "Poverty and 86 future" was organised for pupils of the part in the SPPRED implementation processfor a secondary schools of Sumgait, Khyzy, number of reasons. This is the case especially in Davachi,Gubaand Khachmazregions. the regions where regional workshops were not heldandwherecommunitydevelopment isweak. OtherActivities For this reason, the following recommendationsare SPPRED publicity stands were organized in put forward for the purpose of further expansion of Baku, Barda, Ganja, Nakhchivan, Sumgait, participatory process, and the involvement of more Astara, Shaki, MasallyandGubaregionsof the members of the civil society in the SPPRED Republic for the purpose of providing the implementationprocess: population with more detailed information on Seminars should be organised in selected SPPRED and thus encouraging more active regions of the country to discuss gaps and participationinthe implementationprocess. weaknesses which impede the active participation of civil society in the CDs and audio tapes of SPPRED have been implementationprocess. producedwith financialsupportfrom0XFAM.A Moretrainingseminars should be held, and variety of literature on the areas of the projects designed, aimed at developing Programme have been placed at the stands those skills and knowledgewhich can serve mentionedabove. Inaddition,"proposalbooks" to strengthen the active participation of have been placed at the stands in order to find government and the civil society outthe reactions andviews of the populationto organizations and attract more representatives of the civil society to the the measures envisaged under the participatoryprocess. Programme. Qualitativesurvey methods should be used to tap the potential of civil society to define With financial support from OXFAM, the the main determinantsof poverty and ways SPPRED Secretariat produced 1000 posters ofimprovinglivingstandards; on challenging people to fight poverty and Activitiesshouldbe continuedto encourage disseminationofthe postershasbegun. civil society organizations to become partners in the SPPRED implementation Main results process; Further efforts should be made to interact The results of the various activitiesundertaken with representativesof the media,inorderto as part of the participatory process have so far establishaneffectivedialoguewiththe mass been positive in terms of creating a clearer media. There should be more articles and understanding of the government and civil broadcasts on SPPRED in the nationaland society concerning SPPRED's goals. Apart regional press reporting on the measures from providing representatives from civil being implementedwithin the framework of society with more details on SPPRED, the thestrategyprogramme; activities have served to highlight local Training courses and seminars should be potential and resources; have facilitated the organized to increase the skills and transfer of information and experience; and knowledge of the municipalities, promote have given rise to new ideas on future their involvementand understanding of the SPPRED implementation process, while measures. also supporting the decentralization process; One of the positive aspectswhich has come to Furtherefforts should be made to ensure a light during the participatory process is the high level of participation of women in the increased confidence and competence of implementationprocessand inthe reviewof participantsto effectivelyengageinthe debate. the policy measures envisaged under In contrast to the first year (during the SPPRED; formulation phase), the members of the Efforts should be made to involve as many population do not only enumerate their localNGOsas possibleinthe projectsbeing problems, but also put forward proposals for implemented within the framework of the their solution and make suggestions on how programme; theycancontributetothis process. Training courses should be designed to develop the skillsof membersof civil society However, certain parts of the population of the to do independent research, collect countryhavenotyet beenabletotake anactive qualitative information and analyze the povertyindicators. a7 g g - $ 0 2 2 4 =I < (D ag h 0, 73 P. C m 2 a, 2. 3 (D 3a (D 2 s 5 0 za, 0 5 a C (D B c 0, 2 ul rc, P Y : (D 2 fn Q r: a338 8 4 __L ul rb P Y (D 50 Q fn _. 2 6' c a, siif m Q 3. 2. 3z Z' m m 3 c Q 3 m P i VI m 3 a 0- (0 (D c 3 I B I 5 (D mrn 8% 2 3 2 P m E. c - m P (D 3 ac (0 5 v) c 3 Y!i 3 2 P 0 Y 2 h 7J I (I) i B E d 2. R 0 5 5 D v) 8 0 (D < 8D R % 5 -.fn C c 3 " Q c c c t. 8 2F g G 4 m< E. E E (D m Q 1 8' 3 8' 0 0 a u) P i? 3 -0 0 2 1 e w a Appendix2 Mid-term Expenditure Framework for 2003-2005 (MTEF) and State Budget for 2003-2004 Introduction Mid-term Expenditure Framework (MTEF) is one of the integral parts of the State Programme on Poverty Reduction and Economic Development for 2003-2005 in the Republic of Azerbaijan (SPPRED), which was approved by the relevant Decree of Presidentof the Republic of Azerbaijan in February 20, 2003. Prudent expenditure policy and non-inflationary budget deficit financing did not only ensure economic stability, it is also directed at strengthening economic growth and reducing poverty through measures relatedto tax policy and expenditure prioritization. MTEF includes projections of Government resources available for 2002-2005, calculated on the bases of macroeconomic forecasts, the expenditure strategy and explanation of detailed expenditure plans. It is envisaged that MTEF will be reviewed annually in the process of budget approval. This report presents all the achievements in implementation of the MTEF from the date of approval of the SPPRED up to now (in particular, the latest legal and institutional development in budget management, changes in the tax system and expenditure). The report deals with reflection of policy measures stipulated in the SPPRED in the approved budgets for 2003 and 2004. The budget figures in SPPRED have been replaced by actual figures for 2002. Neither revenue sources nor budget breakdown by functional and economic classifications were presentedfor 2005-2007, therefore SPPRED for 2005 is not discussed here. Legaland institutionalchangesin the budget management The Government has achieved considerable progress in development of a legal and institutional framework for budget management since the SPPRED was approved. The major step in enhancing efficiency, transparency and accountability in the budget management was the approval of the new "Budget System" Law in 2002. Additions and changes were made to the "Budget System" Law in May 2003 in order to bring it in accordance with international standards. Unlikethe old law, the new law covers all elements of the budget system, including budgets of the local self-governments and extra-budgetary funds, and sets out the below-mentioned measures: (i) , publication of the draft annual budget law in the press prior to submission to the Milli Majlis (Parliament); (ii) approval of the state budget following more detailed discussion of each sub-item within functional classification paragraphs by the Milli Majlis for the first time; (iii) submission of three-year economic and budget forecasts to the Milli Majlis along with a draft annual budget law for the next year; and (iv) publication of the quarterly reports on the execution of the consolidated budget in the press. Additions and changes to this law, which were made in May 2003 provide the Milli Majlis with the authority to approve expenditure and deficit ceilings for the consolidated budget, excluding SOFAR ... revenues.These additionsand changes envisage the below-mentioned: All operations of the consolidated budget (except SOFAR revenues, operational expenses and foreign investments) should be carried out by the Treasury; All capital expenditure should be included in the Public Investment Program; Extra-budgetary funds, including SOFAR, can not make investments in domestic commercial activities or issue loans or loan guarantees; 1 . SOFAR should hold equity positions abroad only through rated professional portfolio managers. As a result of economic reforms programme, which has been implemented by the Government since 1995, public funds have undergone substantial structural changes. Thus, the following important measures have been undertaken in this regard: a treasury system has been established, transperancy and accountability in the public funds have been brought to the forefront, municipalities have been established and their financing sources identified. Now with huge investments in BTC pipeline and Azeri-Chirag-Guneshli (ACG) development it is expected that oil and gas production,as well their export will increase sharply startingfrom 2006-2007. It should be noted that the challenge for the government is not only the very rapid growth of resources available for expenditure but ensuring rationale use of the revenues, which will flow in the country in 2006 and 2008. Even under a very conservative scenario of economic development, this will bring to an increase of more than 50% of the existing government revenues between 2006 and 2008. The government will refrain from spending all available resources on a year-by-year basis, and pursuea fiscal policythat recognizesthe needfor sustainability in a long-termoutlook. MTEF included into the SPPRED was the first step towards multi-year fiscal forecasting. Then in accordance with new Budget System Law by April 15th MoF prepared and submitted to the Cabinet of Ministers the draft Mid-term Budget Forecast for the next year and Mid-term Consolidated Budget Forecast for the next three years, which included total expenditure for the parts of consolidated budget. In October 2003 draft state budget for 2004 and draft consolidated budgetsfor the nextthree years were submittedto the Milli Majlis. A number of measures had been taken to ensure transparency, accountabilityand efficiency in the public finances and to strengthen expenditure control. Starting with the 2003 budget, all extra- budgetaryfunds of budgetary organizations were included in the State Budget. In 2002 the State Budget started to allocate implicit subsidies to electricity and gas sectors for nonpayment of fuel provided by the SOCAR and in 2003 a mechanism was identified to deliver implicit subsidies. Furthermore, the state budget for 2004 envisages allocating implicit subsidies to the chemical sector. New budget classification was developed and submitted to the Cabinet of Ministers. Draft Law on State Debt and State Guarantees was prepared, Regulations on the register of State Foreign Debt of Azerbaijan Republic was developed. Program on transition to the international accounting standards has been approved. Treasury computerization process has started: a tender has been announced by the World Bank to equip pilot areas. Resource envelope and performance As revenue is largelya function of growth in economy it is necessaryto look at the overall economic performance. In total, growth of the real gross domestic product is expected to average about 11% annually in real terms for the period 2003 - 2005'. The oil sector is forecast to grow very strongly, averaging 11% annually. The non-oil economy is also forecast to perform well, averaging 12% growth annually. It is necessary to note that these growth rates will not be evenly spread throughout the 2003 - 2005 period.Major spending on oil developments will not begin until 2005. * A 'Unlessotherwise noted, as here, all figures are nominal. nominalfinancialunitis 5,500 AZM. 2 Table 1:Economic Growth Forecast 2002 2003 2004 2005 Average actual actual forecast forecast 2003 2005 - Real GDP 10.6% 11.2% 15.3% 11.5% 11.O% Oil GDP 5.7% 3.0% 7.7% 22.2% 11.O% Nonoil GDP 13.0% 12.6% 11.2% 11.5% 11.8% Nominal GDP 12.6% 13.6% 9.7 % 16.6% 13.3% Oil GDP 12.7% 5.1% 0.2 % 22.2% 9.2% Nonoil GDP 12.5% 17.6% 13.6% 14.6% 15.3% On the basis of this growth forecast, an estimate of tax and non-tax revenues has been prepared. These estimates show that the increase in tax and non-tax revenues will be average 12% per annum. The Government envisages a number of measures consistent with the MTEF while identifyingthe revenue sources. Thus revenue collections are forecastedto increase at the Ministry of Taxes and State Customs Committee by virtue of better administration. In order to encourage entrepreneurship and to increase the level of employment, the following changes in the tax system were approved. It mainly covers the following: Enterprise profit tax was lowered from January 1, 2003 from 27% to 25% and at the same time government introduced a regional differentiated taxation principle on profit tax with the aim of encouraging development of the regions. Following discussions with the IMF, which argued that regionally differentiated tax policies are not effective and that these prevent the government's efforts to improve the tax administration, the profit tax was determined at the level of 24% and approved by the Milli Majlis on January 16, 2004 startingfrom 2004. The area of introductionof simplified tax was extended from January 1, 2003 and its rates for the regions were determined. Simplified tax turnover has been increased from 300 times of the non- taxable monthly income by 22,500 times of the nominalfinancial unit2 (Le. 123,750 thousand AZM) in order to expand coverage of the simplified tax system. Now, this tax is also applied to private individuals doing business without creating a legal entity. Moreover, in order to give an impetus to the development of entrepreneuarialactivities in the regions of the country and reduce poverty and open newjobs, the following rates of the simplified tax were introduced:4% - in Baku City and 2% - in the regions. Furthermore, liability for private property, subject to simplified tax has been increased from 5 bln. AZM to 5.5 bln. since 2004. The amount of property tax imposed since 2004 has been increased from 50,000 times of the non-taxable monthly income, i.e. from 5 bln. AZM of nominalfinancial unit to 1,000,000times, i.e. 5.5 bln. AZM. The relevant work has been done to study the possibilities to reduce income tax from individuals. The Law on the "State Budget of the Republic of Azerbaijan for 2004 envisages to increase non- taxable monthlyincomefrom 100,000 AZM to 150,000 AZM and to move from 3-staged tax system (12; 25; 35% - 100,000; 1,000,000; 5,000,000 AZM) and 2-staged tax system (14; 35% 150,000;- 3,000,000 AZM). Social contributionrate has been decreased from 29% to 27% since 2003. In 2003 some extra-budgetary funds of budgetary organizations were eliminated and those that remain were included into the state budget. It is forecasted that SOFAR'S financing of pro-poor capital projects will increase substantially and SOFAR will transfer to the State budget around USD mln. 380 for this purpose during 2003-2005 (USD mln. 100 - in 2003, 130 - in 2004 and 150 - in 2005). Starting from 2003 implicit subsidies to the energy sector was included into the Consolidated Budget and subsidies per annum are approved by the Parliament with the annual Budget Law. In 2003 budget amount of subsidies approved made up 1,559 bln. AZM, in 2004 budget - 2,332 bln. AZM. The government remains committed to honouring its limit on contracting external debt. New external debt is limited to USD 200 millions per year during 2003-2005 and all borrowings will be on concessional terms. WB PRSC credit is under discussion with the Government. With existing loans, funds will be disbursed as follows: Table 2: External Financing(USD millions) 2002 2003 2004 2005 Average actual budget budget forecast 2003 2005 - Foreignloansfor deficit financing (SAC II, PRSP) 30 34 20 15 23 Net project loans (1)=(2)+(3) 127 128 97 97 107 Loansto the government (2) 14 34 49 59 47 Netcredits to budgetary organizations (3)=(4)-( 5) 113 93 48 38 60 Disbursements(4) 122 103 60 50 71 Contracted 122 105 35 28 56 New 0 0 0 0 0 Repayments(5) 9 10 12 12 11 Contracted 9 10 12 12 11 New 0 0 0 0 0 Total externalfinancing (bln.AZM) 762 788 590 525 634 Memo: new loans contracted 70 148 200 200 183 The capacities for additional domestic borrowing remain limited. Table 3: Domestic Financing(AZM billions) 2002 2003 2004 2005 Average Average actual budget budget forecast 2000 2002 - 2003 2005 - T-bills -47.4 -30 50 40 19 20 State Lottery Bonds 3 3 5 5 2 4 PrivatizationReceipts 108 98 160 90 110 116 Total Domestic 63 71 215 134 131 140 Financina 4 The "resource envelope" with the sum of the government`s tax and non-tax revenues, flows from the SOFAR, and financing, is as follows: Table 4: Resource Envelope (AZM bln.) 2002 2003 2004 2005 Average actual budget budget forecast 2003 -2005 Tax and Non-tax Revenues 5564 6310 7200 7913 7141 SOCARtax credit 1603 1599 2332 1842 1924 Transfers from State Oil Fund 434 1218 889 750 952 Domesticand ExternalFinancing 825 894 805 659 737 Total 8426 10021 11226 11164 10804 excluding implicitsubsidies 6823 8422 8894 9322 8880 Annual change 18.9% 12.0% -0.1% 10.3% excludingimplicitsubsidies 23.4% 5.6% 4.8% 11.3% Expenditure strategy The government's mid-termexpenditure strategy for 2003-2004 is based around several principles. Maintaining macroeconomicstability remains as a main policy target and furthermore inthe face of anticipated rapid growth in oil related revenues in the coming years government will pay crucial attention to the increase of oil related revenues and the expenditure rise. Large-scale reforms in public sector pay system are not envisaged during 2002-2003 and in the approved 2004 budget.A partialcivil servants pay reform started in 2003 and expected to continue in 2004. The unification of pay scales for employees, rationalizationof public sector workforce and decompression outlines in the SPPRED has not been addressed. Instead, Government as a continuation of previous years experience in 2003 implemented selective raise of wages for education, health, science, social security, sport, youth, culture, art, mass media, agriculture, forestry, fishery, amelioration and water industry, ecology and hydrometeorology employees by 50%. Decree of the President of the Republic of Azerbaijan of November 24, 2004 "On measures to accelerate social and economic development in the Republic of Azerbaijan" could be considered as an impulseto public sector pay reform. Regarding the policy of rationalization of expenditure on health care, education, and social assistance announced in the SPPRED, the following measures were undertaken by the Government. Due to salary increase in 2003 from the middle of year education expenditure increase in 2004 budgetwill be 20.6% instead of 10.1%envisaged in the SPPRED. Opposite to education health expenditure in 2004 will only increase by 16.6% instead of 29.5% outlined in SPPRED. Salary increase for the employees in this sector in 2003 was at the same (50%) level as for the other selected groups. Low average monthly wage, which after increase made up to around 76 thousand AZM (for comparison in education after increase average wage made up to 237 thousand AZM), was not encouraging for health care workers to render higher quality medical services. No further increase for healthcare workers was envisaged in 2004 budget. At the same time to ensure that there is universal access to basic health care in 2003 Government eliminated all payments for the services provided by the out-patients' clinic. At the same time in 2003-2004 budgets there were less provisions made for primary health care (which is the main component of structural reform and will result in more cost-effective delivery of basic health services) than was intended in the SPPRED. Pensions of pensioners in all categories increased approximately 40% starting from August 1, 2003. Decision was not taken on the provision of compensation to households in line with the increases in utility collection rate envisaged in the energy sector reform program is not made. 5 Government identified reduction of unemployment as one of the main tasks of the State Programme in the social and economic developmentof the regions and intends to create 600, 000 newjobs for the next five years. The government has started preparing mid-term social assistance strategy. In order to support economic growth, the government has started to pay more attention to and intends substantially increase expenditure on economic services (expenditure on housing and utility: fuel and energy; agriculture, forestry and fisheries; industry and construction; transport and communications). Much of this expenditure will be by its nature pro-poor, being either capital expenditure on building or rehabilitating infrastructure, or spending on programs to support the poor, such as provisionof subsidisedcredits to farmers andentrepreneurs. Government prepared Public Investment Program for 2003 -2005 and for 2004-2007. Most of PIP projects are relatedto infrastructure rehabilitationand investments in social sector. It is intended to include all capital expenditure into the PIP which in accordance with the new Budget System Law will be presentedto the Milli Majlis. Expenditures on operational costs w r e increased, in order to allow for increased payment for utilities by budgetary organizations, as well as to implement SPPRED measures in education, health and other sectors. In 2002 actual goods and services expenditure were 13% more than in 2001 and within the next two years they are expected to increase 68%. Utility payments by the budgetary organizations for 2002-2004 will be more than doubled. While about 30% of consolidated expenditure was directed towards households as transfers, for example, while 17% was used for new capital expenses and maintenance of existing facilities, fully 50% of the consolidated budget was spent on health, education, and social protection, 10% was spent on defense, in 2001, the following key changes were made in 2002 and approved to be implemented by the end of 2004 (structure of 2002-2004 budgets are considered without quasi- fiscal subsidies). Capital expenditure, which includes major rehabilitation of existing infrastructure, and building new infrastructure,increased to 21.3% of total spending in2004 and will fall backto 2001 level in 2004. Wages and salaries fell from 22% to 19% in 2002, but as a result of salary increase in 2004 they will reach24% of total expenditure reflecting mainly 2003 pay increase. Health expenditure dropped 4% to 3% of total expenditure in 2002, but it is forecasted to be maintainedat the same level by the end of 2004. Taking into consideration lack of financing over the last years, health spending rise will be continued in 2005. Education expenditure fell from 17% to 15% of total expenditure in 2002, but is going to be compensated in 2004 and will be at 2001 level. Within the education sector, despite of the measures, mentioned in the SPPRED, there will be no change in the expenditure structure, what means there are no serious reforms planned to be implemented within this period in the education sector. Government continued its expansionary policy on social insurance and social assistance and in 2002 directed 30% (29% in 2001) and in 2004 around 28% of total expenditure to this area. No reform measureswere considered in the budgets of 2002-2004. This rise in capital expenditure is also reflected by a change in the share of expenditure on economic services, which in 2002 increased from 22% to 26% of total expenditure, in 2004 due to fall in foreign financed project loans they will be only 23% of total government spending without implicitsubsidies. 6 Table 5: Structure of Consolidated Expenditure (excluding implicit ~ubsidies)~ 2001 2002 2003 2004 2001 2002 2003 2004 Growth(2001-2003) % in % in % in % in bln. % total total total total AZM nominal nominal real Total 5467 6843 8303 8949 100% 100% 100% 100% 2836 52% 49% Economic items PersonnelEmolumentsand Transfers to households 2828 3414 3824 4643 52% 50% 46% 52% 996 35% 32% Personnel Emoluments 1195 1288 1593 2143 22% 19% 19% 24% 398 33% 30% Transfersto households 1633 2126 2231 2500 30% 31% 27% 28% 598 37% 34% Purchasesof goods and services 1196 1656 2011 2269 22% 24% 24% 25% 815 68% 65% Capital expenditure 954 1454 2107 1602 17% 21% 25% 18% 1153 121% 116% Other 489 319 361 435 9% 5% 4% 5% -128 -26% -28% Functionalclassification State operating functions 1265 1435 1771 2205 23% 21% 21% 25% 506 40% 37% Social and welfare functions 2821 3351 3811 4513 52% 49% 46% 50% 990 35% 32% Education 931 956 1170 1501 17% 14% 14% 17% 239 26% 23% Health 210 224 277 351 4% 3% 3% 4% 67 32% 29% Social protectionand social security 1570 2054 2204 2471 29% 30% 27% 28% 634 40% 37% State Budget 216 479 409 500 4% 7% 5% 6% 193 89% 85% Social Protection Fund 1354 1575 1795 1971 25% 23% 22% 22% 441 33% 30% Culture,arts and religion 110 117 160 190 2% 2% 2% 2% 50 45% 42% Economic Services 1177 1757 2526 2079 22% 26% 30% 23% 1349 115% 110% Investment 791 1210 1746 1239 14% 18% 21% 14% 955 121% 116% Other items 205 299 195 154 4% 4% 2% 2% -10 -5% -7% No serious reforms are expectedto be carried out in 2002-2004. These years will be characterized in significant changes in expenditure policy over the next period starting from 2005-2006, when oil revenue flow to the budget will increase and the "Dutch disease" problem will need to be addressed. NOTE: figures in column 2004 of Table 5 are not based on the consolidated budget but the State Budget. Because of absenceof data on 2001 implicit subsidiesin order to provide comparability of 2002-2004 data quasi-fiscalsubsidieswere excludedfrom 2002-2004consolidated expenditure. 7 h) 0 0 h) - h) 0 0 0 il 0 E 0 73 -0 3 a 8.$P ? E I ;1 h) 0 2 3 I c c - - c In a U lD 3 a 4 # I e 9, 3 lD 2 2 lD c a (D m, i 0 - C C i - - - fn a fn a 7J 2 I, I, 0 P. m 2 8 2 8 P 0 > i - Dm E. a 2 3 (0 & (D VI i J 4 ! ! - + hl 0 9 I h G - hl s + t .. S .-0 c c3 -0 3 0 lo N - r P N - P Lo N - 3) m d N - c v) 0 - E Q -v) 0 c0 P al s0 v) .-C c 9e! 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