IMF wants Azerbaijan to set up an oil fund

Nov 27, 1999 01:00 AM

Jonathan Dunn, head of the International Monetary Fund (IMF) mission in Baku, has said that the fund would push the Azerbaijani government to set up a special fund for oil revenues.
Establishment of such a fund will be one of the conditions for the IMF to agree next year on a three-year, $ 200 million loan for Azerbaijan, he said. He stressed, however, that discussions on the new credits were only in the preliminary stages. The talks will continue in January of 2000, he said, when the IMF sends its next mission to the Azerbaijani capital.
The fund is currently pushing Baku to meet the terms for release of the final $ 21 million tranche of a $ 130 million loan package, Dunn noted. Baku has for several years been under pressure to create an oil fund, which would serve to manage revenues from the country's many development projects in a transparent fashion. Transparency in this sector of the economy, which accounts for approximately 50% of all budget revenues, is regarded as crucial.
It is likely to become an even more critical issue over the next few years as earnings from oil projects rise. Baku expects to receive about $ 100-150 million next year just from the Azerbaijan International Operating Company (AIOC), which is working the Azeri-Chirag-Guneshli concession, with revenues rising to $ 1 billion by 2005.
The IMF is not the only financial institution to urge that Azerbaijan establish an oil fund. Tevfik Yaprak, the World Bank's top representative in Baku, said in April of this year that he wanted to move quickly to help the Azerbaijani government set up such a fund. Azerbaijan currently has no centralised agency responsible for handling income from oil and gas development projects, and Yaprak said that the country might suffer if no such structure was in place by the time oil revenues began flowing in on a large scale. Without an oil fund, the Azerbaijani government would have practically no way of making effective use of money earned from investment projects, he explained.
Azerbaijani officials, working in concert with World Bank experts, have drafted plans for the establishment of an fund that would collect all revenues from oil and gas projects save tax revenues. (The taxes would go to the treasury.) Yaprak also noted that the Azerbaijani government had recently set up a special working group to study the experience of other countries that control large oil deposits or depend on commodity exports.
An oil fund would offer Baku some protection from fluctuation on commodity markets, the World Bank official added. Azerbaijan, though not yet a major oil exporter, was hit hard by the price slump on world oil markets last year. Government officials say Baku lost $ 155 million last year due to low crude oil and petroleum product prices.

Source: NewsBase
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