Republic of Azerbaijan State Programme on Poverty Reduction and Economic Development 2003-2005 Baku – 2003 ACRONYMS: ADB - Asian Development Bank AIDS - Acquired Immune Deficiency Syndrome ARRA - Agency for Rehabilitation of Reconstruction of Liberated Areas ARWC - Absheron Regional Water Company AZM - Azerbaijan National Currency (Manat) BA - Bankers’ Association BEP - Baku Executive Power BSSD - Baku Sewerage System Department BSTDB - Black Sea Trade and Development Bank CH - Chamber of Accounts CIDA - Canadian International Development Agency CMAR - Cabinet of Ministers of Azerbaijan Republic CMNAR - Cabinet of Ministers of Nakhchevan Autonomous Republic EBRD - European Bank for Reconstruction and Development ECCD - Early Child Care and Development EF - Eurasia Foundation EU - European Union EU TACIS - European Union Technical Assistance to Commonwealth of Independent States FIAS - Foreign Investments Advisory Services FSIS - Food Security Information System GAVI - Global Alliance for Vaccination and Immunisation GEF - Global Environmental Fund GER - Gross Enrolment Rate GTZ - German Agency for Technical Co-operation HBS - Household Budget Survey HIV - Human Immune Deficiency Virus HPS - Hydro Power Station IAS - International Accounting Standards ICS - Indicator Cluster Survey IDA - International Development Association IDB - Islamic Development Bank IDP - Internally Displaced Person IFRC - International Federation of Red Cross and Red Crescent Societies ILO - International Labour Organisation IOM - International Organisation for Migration I-PRSP - Interim Report on Poverty Reduction Strategy Paper JBIC - Japanese Bank of International Cooperation KF - Kuwait Fond LEB - Local Executive Bodies LFPR - Labour Force Participation Rate MA - Ministry of Agriculture MASHAV - International Co-operation Agency of the Ministry of Foreign Affairs of Israel MC - Ministry of Culture ME - Ministry of Education MED - Ministry of Economic Development MENR - Ministry of Ecology and Natural Resources MF - Ministry of Finance MFE - Ministry of Fuel and Energy MH - Ministry of Health MIA - Ministry of Internal Affairs MICS - Multi-Indicators Cluster Survey MJ - Ministry of Justice MLSPP - Ministry of Labour and Social Protection of Population 1 MM - Milli Mejlis (Parliament) MT - Ministry of Taxes MTEF - Medium Term Expenditure Framework MTr - Ministry of Transport MYST - Ministry of Youth, Sport and Tourism NB - National Bank of Azerbaijan NOC - National Olympic Committee OXFAM - Oxford Committee for Famine and Relief PC - Para Olympic Committee PIP - Public Investment Programme PMU - Poverty Monitoring Unit PO - Presidential Office PPP - Purchasing Power Parity SASMP - State Agency for Standardisation, Meteorology and Patent SPPRED - State Programme on Poverty Reduction and Economic Development SCC - State Customs Committee SCCA - State Committee for Construction and Architecture SCAI - State Committee for Amelioration and Irrigation SCRIDP - State Committee for Refugees and Internally Displaced Persons SCS - State Committee for Securities SCSM - State Committee for Soil and Mapping SCWA - State Committee on Woman Affairs SDFIDP - Social Development Fund for IDPs SF - Saudi Fund SG - Swiss Government SME - Small and Medium Enterprises SOCAR - State Oil Company of Azerbaijan Republic SOFAR - State Oil Fund Azerbaijan Republic SPF - Social Protection Fund SSC - State Statistics Committee STVBC - State TV and Broadcasting Company SWG - Sector Working Group UEIP - Urgent Environmental Investment Projects UNDP - UN Development Programme UNEP - UN Environmental Programme UNFPA - UN Population Fund UNHCR - UN High Commissioner for Refugees UNICEF - UN Children Fund UNIFEM - UN Development Fund for Women UNWFP - UN World Food Programme USTDA - United States Trade Development Agency USAID - United States Agency for International Development USD - US Dollars WB - World Bank WHO - World Health Organisation 2 TABLE OF CONTENTS: Introduction 5-7 Executive Summary 7-20 1. Poverty in Azerbaijan – An analysis of the Current Situation 21-46 1.1. Demographic Background 1.2. Poverty Incidence 1.3. Poverty Profile 1.4. Urban / Rural poverty 1.5. Regional Differences in Living Standards 1.6. Gender and Poverty 1.7. Income Distribution and Inequality 1.8. IDPs and Refugees 1.9. Social Protection System 1.10. Employment 1.11. Health 1.12. Education 1.13. Children and Poverty 1.14. Environment 2. Current Economic Status 47-51 2.1. The Macroeconomic Background 2.2. Achievements 2.3. The Challenges 3. Social Policies Aimed at Poverty Reduction 52-79 3.1. Social Insurance and Social Assistance Reform 3.2. Social Protection of Most Vulnerable Groups 3.3. Labour Market, Wage and Employment Policy 3.4. Education Reform 3.5. Promotion of Culture and Protection of Cultural Heritage 3.6. Health Sector Reform 3.7. Promotion of Sports and Physical Education 3.8. Gender Policy 3.9. Social Policy and the Refugee - IDP Population 4. Economic Policy and Poverty Reduction 80-101 4.1. Maintaining Economic Stability 4.2. Tools for Balanced Growth 4.3 Sectoral Strategies for Balanced Growth 5. Institutional Framework for the Poverty Reduction Strategy 102-105 5.1. Public Administration Reform 5.2. Juridical Reforms 5.3. Decentralisation: Role of Municipalities in Poverty Reduction 5.4. Combating Corruption 3 6. The Participatory Process 106-113 6.1. The Role, Significance and Objective of the Participatory Component 6.2. The Main Players 6.3. Empirical Evidence 6.4. Main Findings 6.5. Achievements and Drawbacks: A Critical Assessment 6.6. Possible Ways to Deepen and Broaden the Process 6.7. The Information Campaign: Public Education on Poverty 7. Implementation, Monitoring and Evaluation 114-119 7.1. Selection of Monitoring and Evaluation Indicators 7.2. Data Sources and Instruments 7.3. Institutional Capacity APPENDIXES: Appendix 1. Policy Matrices of Action Plans Appendix 2. Medium Term Expenditure Framework (MTEF) 4 Introduction Poverty reduction is a global challenge for the international community. While until now, poverty has been largely measured by a population’s income level and food security, now this phenomenon has gained a broader sense. Today, poverty reduction means improving access of the population to basic resources, including land and water, as well as to employment, education and health care services, ensuring equal rights for men and women at all levels, meeting needs for infrastructure and utility services, improvement of sanitary and hygienic conditions and providing adequate living standards for the population. Many countries throughout the world recognise the need to address poverty problems. The World Development Report (2000/2001) prepared by the World Bank suggests that at the beginning of the 21st century almost half of the world’s population (2.8 bln. people) live on less than 2 USD per day, and 1.2 bln. people on less than 1 USD per day. For every 100 newborn infants, 6 die before they reach one year, and 8 before they reach 5 years. 23 out of every 100 school-aged children have no access to education. In order to tackle these problems poverty reduction strategies are currently being developed in over 70 countries throughout the world. International experience shows that macroeconomic stability and reforms aimed at the formation of a market-based economy are crucial for reducing poverty. The World Development Report defines 3 main directions for poverty reduction: 1. Promoting economic opportunities; 2. Expanding rights and access; 3. Increasing financial security. Promoting economic opportunities under the current conditions of economic growth implies ensuring that economic reforms lead to improved income-generation opportunities for the population. Measures for expanding rights and access are largely related to the need to link social and political processes. The main objective here is to increase the efficiency of state administration and legal institutions and remove existing obstacles for relations with the civil society. Increasing financial security implies measures for protecting the population against economic and natural disasters, disability and human violence, and reducing such risks. It is broadly recognised by the international community that poverty alleviation measures need joint efforts. In the World Summit for Sustainable Development, which was held in Johannesburg, in August-September 2002 it was stated that all efforts towards reducing poverty should be joint and coordinated. Poverty alleviation measures cannot be formulated just by national governments and donor organisations; there is also a need to involve all the representatives of civil society in the formulation process. Although poverty is also a problem in the Republic of Azerbaijan, it has some specific features. During the late 1980s and early 1990s political repression in USSR, the disruption of economic relations, mass strikes in all regions throughout the country that were generated by the separatism movement which started in Nagorni Karabakh led to the closure of many enterprises. During that time GDP decreased by an average of 10-15% per annum with the process of hyperinflation gaining speed. 5 Following national independence in 1991 the Republic of Azerbaijan underwent sweeping changes in its social and economic foundation and transition from one socio-economic development pattern to another led to new, unprecedented political, institutional, juridical, economic, social and psychological challenges. These problems on one hand, and Armenian occupation, up to