Azerbaijan: Republic of Azerbaijan COVID-19 Active Response and Expenditure Support (CARES) Program

approved

Azerbaijan economy has experienced economic contraction of 4.3 percent in 2020 led mainly by the adverse economic impacts of COVID-19 pandemic and the decline in oil prices combined with oil production cut due to the agreement with OPEC+ countries. These two external shocks and comprehensive government responses to COVID-19 pandemic have led to widening of fiscal position, relative to the GDP, from a surplus of 8.2 percent in 2019 to a deficit of 6.3 percent in 2020 and 5.8 percent in 2021. Due to sound macroeconomic management Azerbaijan's pegged foreign exchange regime has remained stable with the exchange rate of AZN 1.70 to the USD, despite severe economic shocks. Since the first COVID-19 case was confirmed on February 28, 2020, there were 335,568 confirmed COVID-19 cases and 4,963 deaths, as of June 23, 2021. Starting in early March 2021, a new surge in confirmed COVID-19 cases has led the Government to tighten the restriction of public activities to contain and reduce the spread of the disease. Despite the recent improvement in the Azerbaijan's public-sector-led healthcare system in providing universal basic medical care in public hospitals, the growing number of COVID-19 cases has placed significant stress on the initial testing and diagnosis, prevention, and treatment capacity of the system due to inadequate specialized medical facilities, staff, and equipment. Essential health services for emergency care, chronic illnesses and surgical procedures have been challenged due to prioritization on the pandemic. To mitigate the adverse socioeconomic impacts of COVD-19 pandemic, an inter-agency COVID-19 Task Force chaired by the Prime Minister was established along with working groups under key ministries. The government approved the first Action Plans on January 30, 2020. Following the President's Executive Decree on 19 March 2020, the government has allocated AZN 3.5 billion (USD 2.06 billion or 4.8 percent of GDP) to implement the pro-poor countercyclical pandemic response package, covering Health-related, Social Protection and Macroeconomic Stabilization measures. In responding to the recent surge of new COVID-19 cases in 2021, the government has recently approved an additional budget of USD 1.77 billion (3.6 percent of GDP) to extend and expand the implementation of the countercyclical pandemic response program that has started in 2020. Due to the deteriorating fiscal situation, the total fiscal deficit is expected to reach USD 2.61 billion in 2021, of which the domestic financing will cover USD 2.26 billion, while the external financing will be USD 350 million, closing the financing gap. Through the ADB COVID-19 Active Response and Expenditure support (CARES) program under the Countercyclical Support Facility Option (CPRO), ADB has prepared to finance USD 250 million while AIIB has been requested by the Government to provide USD 100 million of sovereign-back financing to bridge the financing gap. The Government will finance the rest of the pandemic response package of USD 1.42 billion. The proposed program structure comprises of three Countercyclical COVID-19 Pandemic Response Measures: A. Enhancement the Government's COVID-19 response and health system; B. Expansion of social protection for the poor and vulnerable; and C. Assistance to impacted economic sectors to prevent job losses from economic downturn due to COVID-19 mitigation and prevention measures.