Azerbaijan: Low Oil Prices and their Social Impact

Abstract

This article looks at the impact of low oil prices and the resulting shortfall in oil rents on the Azerbaijani government's social-assistance policies and related expenditures and discusses its implications for social cohesion in the long run. It argues that the deployment of strategic fiscal reserves and citizens' continuing reliance on informal 'safety nets' have cushioned the negative social impacts of the oil plunge. However, there is a risk that the deepening of an economic crisis exacerbated by weak private sector development and missing major reforms in education and social sectors across the board might undermine the social contract. To mitigate the adverse social impacts of the ongoing crisis, the government must conduct a more comprehensive and wide-ranging reform of the labor market, of the access to and quality of education and of the private business sector to stimulate formal job creation, especially among youth and rural populations as well as in health care to provide quality and affordable health care, in education to improve human capacity and domestic labor skills, and in social policies to ensure inclusive and sustainable social welfare provision.