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The Asian Development Bank (ADB) plans to extend loans averaging US$22mn per year to Azerbaijan over the next three years.

Since joining the ADB in 1999, the bank has approved 10 technical assistance projects and two Japan Fund for Poverty Reduction grants for Azerbaijan. It is envisaged that public sector lending will start this year.

The ADB’s programme will focus on four main sectors, with assistance planned for internally displaced persons, agriculture and rural development, the water sector, and road development.

The total loan amount earmarked for the period is US$65mn-US$70mn of concessional funds (ADF resources) and about US$40mn in non-concessional funds (OCR resources). The final amount will depend on the ADB’s resource availability and country performance.

The main challenge facing the government is how to address the serious poverty situation. Almost half of the population lives below the national poverty line and 17% were living in extreme poverty in 2001.

But amid a global slowdown, Azerbaijan’s economy maintained strong growth momentum in 2002. Real gross domestic product growth accelerated from 9.9% in 2001 to 10.6% on 2002, driven by increased foreign direct investment in the oil and gas sector.

Growth is expected to remain buoyant at least until the end of the decade, provided there is no political instability and major investment projects in the oil and gas sectors are implemented on schedule.

“The encouraging economic news and the government’s recent reform commitments are a positive signal to the funding community,” says Marco Gatti, an ADB senior country programs specialist. “These developments provide the ADB with an opportunity to help improve governance and strengthen infrastructure and institutions, so that the benefits of economic growth can filter through to more of the population.”

Seven loans are planned for the period, among which:

In the water supply and sanitation sector, the ADB will improve the living and health conditions in three secondary towns.

To promote agricultural and rural development, the bank will reduce the adverse impacts of flooding in four flood-prone areas. It will also assist the government to prepare a microfinance development strategy to provide basic financial services in rural areas and develop the infrastructure for internally displaced persons.

In the road sector, the ADB is planning to finance two loans for improving the central and southern Azerbaijan road corridors, to give greater connectivity to rural roads and improve the highway infrastructure.

An early childhood development project planned for 2005 will provide support services for children, particularly those who are most vulnerable and disadvantaged, including the internally displaced.

The loans will be complemented by a technical assistance program covering 12 projects and totaling US$6mn. These will support a range of economic, thematic, and sector work.