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Azerbaijan: Validation of the Final Review of Country Operations, 2000 – 2011

| country: Azerbaijan

1. A mechanism is required to secure government commitment to an ADB-supported forward program that is flexible in the context of shifting government priorities. ADB needs to adopt a flexible approach to its country program, in case the multi-tranche financing faciltiy (MFF) tranches do not materialize as envisaged. MFFs are generally approved for periods of up to 10 years, whereas country partnership strategies are approved for periods of 4 5 years. This flexibility could be either linked to updating the country operations business plan or defining a low-lending case or a base case scenario with results of support defined at entry for priority sectors. The evaluation period witnessed a shift in government’s approach to economic growth from an early expeditious development of its oil and gas resources, to a more broad-based approach looking to long-term growth to reduce poverty and raise living standards. ADB initiated the shift in its strategic focus from direct support to internally displaced persons, agriculture and rural development, water supply and sanitation, and rural roads until 2006, to the transport, water supply and sanitation, and energy sectors starting from 2007. While ADB failed to secure commitment from the government for its planned full country and strategy program in 2006, it slowly and in an incremental manner developed its program in roads, water supply, and power.

2. A shift from investment program financing to provision of more knowledge services and technology facilitation is needed in upper middle-income country contexts. With the majority of the ADB-supported projects still ongoing, chances are high that most would be carried forward into the next country partnership strategy period. However, like Kazakhstan, another upper middle income country in the region, ADB needs to look beyond provision of investment program financing to knowledge services that add value. In the roads multitranche financing facility (MFF), efforts are ongoing to develop a study on a legal and regulatory framework and operational procedures for toll roads. Similarly, in the Urban Services MFF, a twinning arrangement is being finalized between Azersu, the executing agency and an international water utility for sustained institutional and organizational capacity development. ADB needs to build on these efforts to develop systematic policy advisory support and targeted capacity development in its sectors of engagement. Such an approach would enable continued ADB engagement in targeted sectors through a lowlending scenario, even if there were changes to the government’s policy on external borrowing.

3. A focus on non-physical components, specifically Capacity Development, is essential to maximize the development effectiveness of investments in physical components. The capacity of the executing and implementing agencies has varied across ADB sectors of engagement, and capacity development efforts in the past have been part of ADB investments. Much of the previous focus has been on developing organizational capacity through, for example, preparation of manuals and training materials. In-country consultations highlighted that non-physical components, and especially Capacity Development, need to be given more attention through the forthcoming country partneship strategy period. The World Bank experience has included the use of funding pools earmarked for preparation and implementation of projects in priority sectors, in addition to individual capacity development components within sector investments. While, the former approach raises sustainability issues after closure of funding pool, the latter approach raises difficulties in reporting improvements at institutional, organizational, and individual levels. Predefined actionable indicators, which cover policy, regulatory issues (upstream), corporatization issues of service providers in the sector (mid-stream), and service delivery (downstream) are needed.

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