BAKU

The Asian Infrastructure Investment Bank (AIIB) approved a $100 million sovereign loan to help Azerbaijan implement its plan to mitigate the adverse health, social, and economic impacts of the COVID-19 pandemic.

Measures to contain the spread of the COVID-19 pandemic that took hold last year, impacting mobility and production across the world, have significantly affected global demand for oil,  forcing oil producers to eventually cut their production levels.

Oil-rich Azerbaijan also reduced oil production as the pandemic, among other reasons, impacted demand and production. Lockdowns to control the spread of the virus in the ex-Soviet country have resulted in lower trade, diminished tourism revenues, a drop in remittances, and a decline in consumer demand.

Gross Domestic Product (GDP) contracted by 4.3 percent in 2020. Recovery started in April and the government said in June that it might revise its GDP growth forecast to 4 percent for 2021 from the current projection of 3.4 percent.

Due to the deteriorating fiscal situation, the total fiscal deficit is expected to reach $2.61 billion in 2021, of which the domestic financing will cover $2.26 billion, while the external financing will be $350 million, closing the financing gap, AIIB said in a statement.

The AIIB said that the loan would be co-financed with the  Asian Development Bank (ADB) as the lead co-financier.

Earlier this month, ADB has allocated a $250 million loan to Azerbaijan that is funded through the COVID-19 pandemic response option (CPRO) under the bank’s Countercyclical Support Facility. CPRO was established as part of ADB’s $20 billion expanded assistance for its developing member countries’ pandemic response.

Azerbaijan’s government took steps to strengthen social protection amid the pandemic by increasing monthly allowances for low-income households and expanding the number of households eligible for support to 80,000. Other social protection measures include increased old-age pension payments, monthly allowances, subsidised utility services for internally displaced people, and interest-free loans to low-income families for higher education.

In addition, the government said it had created 17,000 temporary public jobs, interest rate subsidies for bank loans to businesses affected by the pandemic, and financial support for selected state-owned enterprises.

The ADB said in April that Azerbaijan’s economic growth was forecast to return in 2021 at 1.9 percent and accelerate to 2.5 percent in 2022 as demand improves at home and abroad. As consumer confidence is restored and petroleum receipts become available for public investment, growth in the petroleum industry is expected to be outpaced by expansion in the rest of the economy.