WB assesses impact of Ukraine war on Azerbaijan's export earnings

The short-term concerns over energy security, amplified by supply chain disruptions because of the war in Ukraine, may have a positive impact on export revenues in Azerbaijan, Report informs, citing the Azerbaijan Systematic Country Diagnostic Update (SCD) for 2022, conducted by the World Bank Group.

“However, in the longer term, a global shift toward low emissions will accelerate and will likely affect Azerbaijan’s economy by reducing export revenues from both the hydrocarbon and nonhydrocarbon sectors if actions are not taken. In addition, Azerbaijan is among the countries that are more vulnerable to risks from climate change. Thus, investments are critical in sectors such as energy, transportation, renewable energy, untapped natural resources, the greening of the financial system, and digitalization,” WB experts noted.

“Revisiting the current tariff system to encourage the efficient use of energy is also a policy option to consider. Investments in the green transition should ensure an equitable transition that is as fair and inclusive as possible, and progress and impacts should be monitored regularly.”

“Because of the economic and geopolitical challenges that emerged after the publication of the first SCD, new policy areas emerged as priorities, as follows: greater emphasis on balancing development across locations, including post-conflict areas; digital development as a foundation for the new growth model; more emphasis on improving the business climate to accelerate private sector growth that promotes innovation, entrepreneurship, and competition; enhancing the inclusion of the vulnerable, such as women and IDPs, through increased human capital accumulation and opportunities to use the accumulated human capital productively; and more emphasis on the need to accelerate the transition to greener growth and on building the resilience to the risks stemming from climate change,” the WB noted.

“The economic forecast is uncertain because of regional and global tensions. However, in the medium term, growth is expected to return to the forecast level before the war in Ukraine as the fundamental nature of the challenges facing Azerbaijan is still valid. In fact, economic uncertainties revealed by the war in Ukraine emphasize even more the need to accelerate the pace of proposed and ongoing reforms,” reads the report.

“While many countries are being confronted by the effects of the crisis in Europe through trade disruptions and slower growth, the net impact on Azerbaijan’s economy is difficult to measure. As a net producer and exporter of oil and gas, Azerbaijan is expected to increase exports and revenues because of higher oil prices and demand associated with the effects of the sanctions on Russia. This may propel growth in Azerbaijan in 2022. While the economy may experience growth driven by increased demand for the country’s resources, a significant rise in the international prices of food, fertilizer, and other necessity items may disproportionally impact the less well-off and increase poverty and inequality.”