Long-run policies towards social and economic development

Kenan Aslanli

Long-run policies towards social and economic development should have the following three objectives :

  1. To increase the availability and widen the distribution of basic life-sustaining goods such as food, shelter, health and protection;
  2. To raise levels of living, including, in addition to higher incomes, the provision of more jobs, better education, and greater attention to cultural and human values, all of which will serve not only to enhance material well-being but also to generate greater individual and national self-esteem;
  3. To expand the range of economic and social choices available to individuals and nations by freeing them from servitude and dependence not only in relations to other people and nation-states but also to the forces of ignorance and human misery.

In September 2000, the 189 member countries of the United States at that time adopted 8 “Millennium Development Goals” (MDG) in order to commit themselves to making substantial progress toward the eradication of poverty and achieving other human development goals by 2015. All transition economies have identified poverty as a major development problem. Millennium Development Goals (MDG) was promising tool to solve this problem. Emanating from the Millennium Declaration, the eight Millennium Development Goals bind countries to do more and join efforts in the fight against poverty, illiteracy, hunger, lack of education, gender inequality, child and maternal mortality, disease and environmental degradation.

The Goals offer the world a means to accelerate the pace of development and measure results. But during last decade governments of resource-rich transitional countries including Azerbaijan could make only limited progress towards achieving the MDG. Azerbaijani government tried to meet all of its commitments under the Millennium Development Goals that run until 2015, though 20 percent of Azerbaijan's territory is occupied by neighboring Armenia and there are up to a million Azerbaijani refugees and IDPs. Despite that the poverty level in Azerbaijan decreased by 1.5 % and amounted to 7.6 % in 2011, share of poorest quintile in national income also diminished .






Population below national poverty line (%)





Share of poorest quintile in national income or consumption (%)





Source: www.azsta t.org

Most recently, “State Programme of Socio-Economic Development of the Regions of Azerbaijan (2009-2013)”, “State Programme of Poverty Reduction and Sustainable Development of the Republic of the Azerbaijan”, “State Programme of Ensuring Reliable Population in the Republic of Azerbaijan in food provision” (2008-2015) and other projects were launched . One of the leading priorities in these programmes was social and human development. Efforts were being made in the country to reduce maternal and child mortality rates. Due to official statistics the rate of child mortality has decreased three-fold and that of maternal deaths halved in the past five years, but still Azerbaijan lags behind many neighboring countries including resource-poor Georgia and Armenia.

The government is also working to deter the spread of the HIV virus in the country and is placing an emphasis on environmental protection. Also revenues from the oil sector could be allowed financing projects required to reach those aims by 2015. But interestingly that even in Azerbaijan receiving large revenues from oil, there wasn’t rapid increase in public funding for the social sector. The Government rather prefers to accumulate the surplus in the special oil fund and plan to use it to push forward big infrastructure projects. According to calculations of the experts of the National Budget Group (civil alliance for public finance monitoring), if to take 2013 budget of Azerbaijan in the equivalent of 100 USD, then out of every 100 USD, 45.80 USD will be spent for capital investments to main foundations, 14.20 for labor remuneration, 11.40 USD for other expenditures, only 8.80 USD for pensions and social benefits, 1.60 USD for subsidies and transfers, 1.50 USD for procurement of food products, 0.90 USD for medicines, winding accessories and materials . Anyway, under such general resource ceiling and current spending pattern, public funding for education, health, and environment may not be sufficient in order to achieve MDGs.

Source: World Bank Metadata, author’s calculation

Azerbaijan government strengthens the tendency of earlier years for next year as well, and considers state administration and law-enforcement system as a higher priority than social sector for providing budget support. Even if the necessity has been reiterated on official level for long years, the government does not make any changes in 2013 for transit to student-financing in secondary education and application of compulsory medical insurance system in the health sector. It is crucial to define optimal level of the share of education and health expenditures in the state budget, and to keep the same level during forecasts of budget expenditures for next years.

Social policy achievements and challenges

Regarding to World Bank’s country report, higher wages over the last decade are likely to have contributed to poverty reduction, although more research is needed to assess the size of the impact and whether increases larger than the rise of the average wage may have slowed job creation. Minimum wages were last increased by 10 % from January 2012 to the equivalent of $118 a month. Social transfers, including a well targeted social assistance program, have also contributed to declining official poverty rate. Job growth seems to have plateaued. According to official statistics, employment rose 1.1 % in 2011, about the same as in 2010 (and in the 2000s on average). Anecdotal evidence suggests that most of the gross employment is created in construction, a sector that is highly dependent on public spending. Brisk non-oil GDP growth and sharp increases in public spending do not appear to be accelerating the pace of job creation.

The oil sector is unlikely to generate enough employment for Azerbaijan’s young and growing population. Further progress on diversification towards sectors with higher growth elasticity of employment would help foster a more dynamic labor market and create new jobs, especially if the impressive gains in poverty reduction are to be preserved. Agriculture and services remain the major employers in the economy, together accounting for more than 85 % of total employment. Mining-including oil and natural gas production - accounts for less than 1 % of employment but almost half of GDP. Lower job creation is accompanied by a sharp drop in labor force participation and in the unemployment rate. The labor force participation rate fell from 96.5 % in 2000 to 78 % in 2011, reflecting decisions to drop out of the job market. Since these people are not part of the labor force, they do not count as unemployed. The unemployment rate has also declined steadily over the same period, falling to 5.4 % by the end of 2011, apparently largely driven by the fall in labor participation .

Deep structural reforms will be crucial to develop a competitive private sector led non-oil economy able to foster exports, create jobs, and sustain diversification. Another major area of improvement was the targeting of social benefits. As a result of a 2008 reform, social benefits are now given only to poor families and not to all as was previously the case. General pension levels still remain low in country.

IDP vulnerability as a constraint in social policies

Azerbaijan has one of the highest concentrations of Internally Displaced Persons (IDPs) per capita in the world. Most of these IDPs were forcibly displaced in the years 1988-94 during conflict between Armenia and Azerbaijan over the Nagorno-Karabakh region of Azerbaijan. The IDPs were settled into new locations in Azerbaijan. IDPs are a vulnerable group whose impoverishment in the immediate aftermath of their forced movement was an economic shock that has been hard to overcome, especially since they lost access to significant assets.

They have had to adapt to a new context, but still suffer from loss and trauma. IDPs are particularly vulnerable in a range of areas: they are more likely to be poor, suffer worse living conditions, and display lower employment rates and higher work inactivity rates than the non-displaced. Poverty rates among IDPs are 25.0 % compared to 20.1 % among the non-displaced. 42.5 % of IDPs live in one-room accommodations compared to only 9.1 % of non IDPs. IDP families have an average of 36 square meters of living space compared to 74 square meters for local families.

In spite of all taken measures by State Committee of the Republic of Azerbaijan on Deals of Refugees and Internally Displaced Persons, the humanitarian and social condition of refugees and IDPs is still complicated. At present 87631 refugees live in hostels, more than 25550 of them live in camps, 28 thousand are in Finnish type houses, and the rest live in state buildings, incomplete buildings, sanatoriums, boarding houses and in other places under insufferable circumstances, which do not meet sanitary norms . Rates of access to electricity, hot water, and bathrooms are worse among the displaced than non-displaced. Employment rates among IDPs are 40.1 % compared to 57.4 among the non-displaced. Work inactivity rates among IDPs are 54.3 % compared to 36.2 % among the non-displaced.

According to the World Bank’s report, there is also a widespread sense of social marginalization and hopelessness among the IDP population. They express despondency and anxiety, likely a result of their uncertain situation. This feeling is combined with a dependency syndrome and expectations that the solution to all their difficulties lies with the actions of government. The links between ill health and poverty are more pronounced for IDPs than for non-IDPs - the poverty rates for those re­porting as being in poor health are 30.7 % among IDPs and 19.7% for non-IDPs. Calculated using the global standard used by the World Bank for assessing a poverty line, which involves calculating the amount required to sustain an intake of 2,267 calories per day. In Azerbaijan, this is estimated to require a per capita monthly consumption of USD 60. Use of this methodology results in a slightly different poverty level among IDPs than Government of Azerbaijan statistics, which puts the poverty rate among IDPs at 23% . IDPs and refugees still receive free education, free electricity and gas, and monthly food allowances .


Michael P.Todaro, Stephen C.Smith, “Economic Development”, 11th edition, 2012.

Summary of the National Budget Group (NBG) 2013 state budget review (http://www.nbg.az).

“Azerbaijan: switching the drivers of growth”, World Bank, Azerbaijan regular economic report, no. 1, 2012.

World Bank Report No: AAA64 – AZ, “Building Assets and Promoting Self Reliance: The Livelihoods of Internally Displaced Persons in Azerbaijan”, October 2011.

Bertelsmann Transformation Index 2012, Azerbaijan Country Report.