Azerbaijan

EBRD Ready to Increase Financing of Azerbaijan Operations

by Shahriyar Aliyev

The COVID-19 pandemic has reinforced efforts of providing support to business entities. Azerbaijani authorities announced the implementation of an action plan to support businesses and people affected by the pandemic in the amount of AZN 3.5 billion. Currently, the first stage of this plan is being implemented.

As of May 19, the Ministry of Finance of Azerbaijan ensured the issuance of AZN533.257 million to business structures and individual entrepreneurs (IP) affected by COVID-19.

In particular, AZN69.119 million was directed to pay the wages of employees of individual companies, and AZN55.637 million was sent to financially support individual entrepreneurs (micro-business entities). In addition, AZN35 million was transferred to the Entrepreneurship Development Fund (SIF) to provide guarantees and business loan subsidies.

The Ministry of Finance also transferred AZN229 million to the Ministry of Labor and Social Protection of the Population for the payment of one-time benefits to 600,000 people and AZN15 million to provide temporary employment for the unemployed.

The first stage of support for state-owned companies, businesses, and the population is estimated at AZN1.1 bn. At the moment, the Ministry of Finance has funded only about 50% of the assistance provided.

Many private companies and sole proprietors who rely on state assistance often point out bureaucratic barriers to raising funds. This applies mainly to banks, which require a large number of documents from business entities to transfer funds. As a result, the process from approving the receipt of financial assistance to receiving it directly takes over a month for larger companies (for micro-business entities this process is faster).

Along with state support, Azerbaijani authorities are also seeking alternate channels for obtaining funds. The possibility of raising funds from the Asian Development Bank (ADB) and the European Bank for Reconstruction and Development (EBRD) is currently being considered. ADB has a promising program to support countries affected by a coronavirus. Funds are issued for a period of up to 10 years at a rate of LIBOR + 0.5%, are preferential. Azerbaijani authorities have not yet announced whether it plans on raising external funds or whether the country’s own financial resources will be sufficient. However, under current conditions, it is more profitable to accept a long-term loan from ADB than to spend internal reserves. This was seen with Kazakhstan, which requested ADB funds in the amount of $1 billion. Azerbaijan, however, may count on receiving funds in the amount of up to $500 million.

For the EBRD, Azerbaijani authorities are counting on financial assistance from the bank directly for a number of companies, as well as on EBRD participation in financing public projects. In 2019, the EBRD allocated only 17 million euros for the implementation of 5 projects in Azerbaijan, which is the lowest indicator for the period of cooperation.

In 2020, the EBRD is ready to provide Azerbaijan with more than $250 million. At the same time, the financing of 9 projects in the public sector is currently being discussed between the parties.

One element of this program is to support businesses through the Central Bank. In particular, the Central Bank of Azerbaijan and the EBRD signed an agreement on a currency swap worth $200 million in May to ensure access of the real sector in Azerbaijan to financial instruments in the context of the COVID-19 pandemic. Under the agreement, local companies will have access to the EBRD financial resources in the national currency of Azerbaijan.

The EBRD is also ready to finance renewable energy sources (RES) projects and the privatization of state-owned companies, implement a pilot project in the field of irrigation, provide technical assistance to commercial banks in Azerbaijan, and work with small and medium-sized businesses to diversify the economy. However, the dependency of the economy on fuel exports complicates the diversification process. In order to achieve sustainable economic development, fuel revenues should be used in an effective manner. The oil price decrease and the struggle with COVID-19 call for immediate economic diversification plans. This would attract many other financial institutions besides EBRD and ADB to invest and support economic development in Azerbaijan.