Historically one of the oldest oil producing countries in the world, Azerbaijan supplied the Former Soviet Union with 75 percent of its oil before World War II. Since then, its status as a major oil provider has steadily decreased, as the country underwent an economic crisis after independence that shrunk its Gross Domestic Product (GDP) by 60%. More recently, the importance of Caspian oil has brought Azerbaijan again into the forefront of global interest and investment.
Initial economic decline resulted in a devastating poverty rate, 68.1% in 1995, which spurred the country to turn to the international financial institutions (IFIs) for help. In 1994, the European Bank for Reconstruction and Development (EBRD) began lending to Azerbaijan, followed by the World Bank and International Finance Corporation (IFC) in 1995 and the Asian Development Bank in 1999. As of early 2008, these IFIs, together with the International Monetary Fund (IMF), have invested approximately 3.8 billion USD in the country with additional projects in the pipeline. A significant share of EBRD and IFC lending is in the oil and gas sector. In contrast, ADB has focused on infrastructural and banking projects, while the World Bank has diversified its lending in health, education, infrastructure, and technical assistance, as well as a few natural resource projects.
High oil prices and increasing oil production and exports have lifted Azerbaijan out of its early economic slump. GDP growth has averaged 18% since 2001 and exceeded 25% in 2007. These strides have contributed to a drop in the poverty rate from 49% in 2001 to 20.8% in 2007. Azerbaijan is the only low-income CIS country expected to halve its poverty rate by 2015 in accordance with the Millennium Development Goals. Yet, despite this progress, Azerbaijan displays signs of the resource curse with its troublesome corruption and declining non-oil GDP growth. To combat these effects, the Azeri government established the State Oil Fund in 1999, following the path of other resource-rich nations like Norway. As a result, key issues in Azerbaijan center on the extractive sector, particularly oil and gas development, pipelines, and revenue management.