Resource information
Azerbaijan experienced a 'golden
age' in the last decade, during which the average
growth rate reached record high levels and poverty decreased
significantly. On average, the economy grew by 15.3 percent
per year in real terms during this period, mainly driven by
the oil sector (21.5 percent growth per year), but with a
significant contribution from the non-oil sector (11.1
percent per year). As a result, poverty declined
dramatically from 49.6 percent in 2001 to 15.8 percent in
2008 the latest year for which household survey data was
available when this report was prepared. This report takes
an inclusive growth approach to investigating the ways in
which the country's high growth was translated into
significant poverty reduction. First chapter summarizes the
sources of growth in Azerbaijan with an emphasis on
structural transformation and discusses highlights of the
inclusive growth methodology. Second chapter explores how
growth helped to reduce poverty. Third chapter analyzes the
sustainability and inclusiveness of the recent growth.
Finally, fourth chapter focuses on the structural obstacles
that constrain further inclusive growth in Azerbaijan. The
last chapter recommends some policies to overcome these
obstacles. The main findings of this report call for a
careful strategy in promoting further inclusive growth in
Azerbaijan. The mechanisms that facilitated drastic
reductions in poverty in the last decade a strong rise in
fiscal transfers and in the real wage were made possible by
the oil boom. However, these mechanisms also reduced the
pace of structural transformation in the Azerbaijan economy.
Distorted incentives in demand and supply sides of the labor
market have seemed to weaken the correlation between
productivity growth and employment shares. This report finds
that the failure to follow a fiscal rule over the past
decade has led to excessive domestic absorption with a
resulting barriers against further development and
diversification in the tradable sectors (principally
agriculture and manufacturing) and against employment
creation within those sectors, as well as leading to an
unsustainable growth in public expenditures, and to
inadequate long-term public savings in the Oil Fund. Thus,
the reassertion of a fiscal rule that constrains domestic
absorption and promotes economic diversification is a
necessary condition for achieving sustained inclusive growth.
