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Akbar Novruz

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Development finance conferences mostly provide two pieces of news: the figure that is released in the press release itself, and the transactions behind it. The 51st Annual Meeting of the Islamic Development Bank Group, which has ended in Baku after four days of conference, did so too.

While the figure - $4.7 billion worth of agreements and memoranda signed at the Private Sector Forum, compared to $3.6 billion of last year’s corresponding conference, is actual and amounts to a rise of 30%, the transactions behind it say more than the total itself: Karabagh irrigation canal, SOCAR private equity partnership, SME financing facility for Azerbaijani commercial bank, sovereign debt capacity building and ten-year country strategy framework which did not exist before.

Signed agreements sector-by-sector

Alongside the formal agenda for June 18th was a meeting that merits special focus in its own right. President Ilham Aliyev met with a delegation that consisted of heads of all the member institutions of the Arab Coordination Group, an organization made up of development funds of the Arab world, as well as the finance ministers of Saudi Arabia and Kuwait.

The ACG has loaned to more than 13,000 development projects across 160 countries since 1975. Seven heads of development institutions and two finance ministers of the Gulf states at one bilateral meeting of Azerbaijan is a conglomeration of development capital from Arab sources not usually found except in the margins of the G20. Economy Minister Jabbarov stated that "Azerbaijan and ACG are working on 'multi-billion dollar pipeline of projects in water, railways, and roads' – a direct correlation to the infrastructural requirements of the agricultural initiative and of Karabakh reconstruction program." The discussion ended with the presentation of the Dostlug Order of Azerbaijan to Al Jasser by President Ilham Aliyev, for his having traveled to the liberated regions twice, which is an unusual gesture for a head of a multilateral organization.

The logic and the potential

President Ilham Aliyev gave the most straightforward rationale for Azerbaijan's return to borrowing through multilateral agencies despite the fact that it is a nation endowed with $85 billion in sovereign reserves and boasts the lowest ratio of foreign debt in the world (6%) of its GDP. "When we realized we were able to start borrowing once more," he said, "the very first financial institution we turned to was the Islamic Development Bank, owing to our close relationship, our common history." The move to start borrowing, though in moderation, and choosing the organization with which it shares the longest ties, is an acknowledgment that borrowing for development projects not only provides money but also a range of other advantages.

The most immediate example of the above point is the Karabakh irrigation canal agreement. Azerbaijan has already made a commitment of over $17 billion for the reconstruction of Karabakh from all sources, out of which $15 billion comes only from the national budget. While the inclusion of the funding from IsDB in the canal construction project is not necessarily about the money, it is about the institution, the visibility of the institution at an international level, and the message that is being sent to other potential partners that multilateral institutions are participating in a reconstruction program that has been opposed by many Western governments.

These agreements reached this week, according to the description provided by Jabbarov himself, mark perhaps, the big start. By signing the Country Partnership Strategy MoU, which represents the first-of-its-kind MoU signed by Azerbaijan within 34 years of IsDB membership, Azerbaijan opens up the institutional channel for the development and approval of a project pipeline. As stated by Jabbarov, the "multi-billion dollar pipeline in water, railways, and roads" has not been agreed upon; this is an ambition to see signed agreements within the framework of future Annual Meetings. According to the acceleration seen in IsDB, which marks the $1.8 billion total approvals in 84 projects since 1992 for Azerbaijan but with tenfold growth in the Azerbaijani shareholding meaning faster rate of work, Azerbaijan will most probably see much higher rates of project approvals per year within 2026-2030.

Both the Alat Free Economic Zone and the economic regions of Karabakh and East Zangezur were specifically mentioned as potential sites for IsDB/ACG investment by Jabbarov. Both represent new ground – the Alat FEZ as an industrial and logistical platform, the liberated lands as agricultural and renewable energy land – where the tools of IsDB's development finance (concessional loans, PPPs, trade finance, investment insurance through ICIEC) can be used to bring in private capital on a scale that public money cannot. Azerbaijan became a member of ICIEC in 2023 and has already insured $164 million in business within three years. The telecommunications sector insurance provided by ICIEC is an example of a risk mitigation instrument that helps private investment enter frontier economic zones. There is a lot more work to do here.