News Brief No. 99/36

News Brief: IMF Executive Board Completes Review and Approves Credit Tranche for Azerbaijan

June 30, 1999

Shigemitsu Sugisaki, Deputy Managing Director of the International Monetary Fund (IMF), said: "The Executive Board of the IMF today completed the reviews under Azerbaijan's ESAF and EFF loans and credits, and as a result, an additional amount of IMF-financing totaling SDR 11.1 million (about US$15 million) is now available to Azerbaijan.

"During today's discussion, the Executive Board emphasized the following key points:

"Directors commended the authorities' firm policy response to the external shocks experienced in 1998, which had allowed Azerbaijan to maintain financial stability in a difficult and uncertain environment. They considered, however, that with deflationary trends evident, some easing of macroeconomic policies to support near-term growth was now called for.

"Directors endorsed the National Bank's easing of monetary conditions. Regarding fiscal policy, Directors supported the authorities' decision to increase cash budgetary expenditures and, in particular, to reduce pension arrears, which would help one of the poorest groups in society. At the same time, Directors considered that measures were needed to improve the underlying structure of the public finances. They stressed the need to strengthen tax administration, to improve budgetary management, and to avoid accumulation of budgetary arrears. Directors also welcomed the authorities' intention to enhance the operation of the treasury bill market.

"Directors encouraged the authorities to intensify structural reforms to support broad-based and sustainable growth and improve the climate for private foreign investment and private sector activity. They emphasized also the importance of proceeding with privatization of state enterprises and of strengthening the banking system, so that it might make a bigger contribution to financing private sector development. Directors encouraged the authorities to undertake a careful review of the reform strategy for the banking sector.

"Directors considered that Azerbaijan's medium term prospects were strong, provided economic reforms were pursued vigorously. They stressed, however, that Azerbaijan's oil wealth would not in the long term provide a substitute for determined reform. Directors considered that a key challenge was to strengthen governance, as an important step in creating a favorable environment for private sector activity. In this connection, they stressed the importance of reforms to the legal and regulatory framework, reorganization of public administration, and improved fiscal transparency," Sugisaki said.