News Brief No. 02/101

News Brief: IMF Completes First and Second Review of Armenia's PRGF Arrangement and Approves Request for Waiver of Performance Criteria

September 30, 2002

The Executive Board of the International Monetary Fund (IMF) completed the first and second review of Armenia's economic performance under a three-year arrangement under the Poverty Reduction and Growth Facility and approved the request for waiver of performance criteria.

The Executive Board decision enables Armenia to draw an amount equivalent to SDR 20 million (about US$26 million) under the arrangement.

The PRGF arrangement was approved on May 23, 2001 (see Press Release No. 01/25 ) in a total amount of SDR 69 million (about US$91 million). So far, Armenia has drawn SDR 10 million (about US$13 million).

After the Executive Board's discussion on Armenia, Mr. Eduardo Aninat, Deputy Managing Director and Acting Chairman, stated:

"In recent years, Armenia has experienced rapid growth, low inflation, an increase in real incomes, reduced poverty, and narrowing current account deficits. In 2001, however, tax revenue collection was weak, and important reforms to enhance the efficiency and commercial viability of the energy sector were delayed. Corrective measures taken in those areas in 2002 have already yielded some positive results.

"Armenia's fiscal program for 2002-03 targets further improvements in the tax system to increase revenue, and these are crucial to reinforce fiscal sustainability and increase the scope for poverty reducing spending. The program also provides for a better prioritization of expenditures, a reduction in the overall fiscal deficit, and the clearance of domestic expenditure arrears. Forceful movement forward with these reforms now is critical to ensure sustained growth, and poverty reduction.

"Monetary and exchange rate policies remain sound, and measures are being taken to improve banking supervision and resolve the situation of eight intervened banks. With its new supervisory capacity, the central bank is equipped to deal expeditiously with the very important issue of the problem banks and to improve supervision. It should also move ahead with measures to enhance governance and promote the consolidation of the banking system.

"In the energy, water and irrigation sectors, continued close cooperation with the World Bank and other agencies should lead to improved efficiency, expanded private sector participation, and enhanced and more cost-effective service delivery. In the meantime, further progress is required to eliminate the chronic deficits in those sectors, and prevent the emergence of tax and payments arrears.

"The progress made by Armenia in developing its poverty reduction strategy provides a sound basis for continued concessional assistance by the Fund. Careful prioritization and costing of poverty reduction measures will be called for, to ensure that such measures are linked in a truly effective manner to the medium- term expenditure framework. Measures to improve governance in a wide range of areas will also strengthen the business environment, encourage further private sector development, and support poverty reduction efforts.

"The recent measures taken to improve the fiscal position and the performance of the energy sector, and the formulation of an ambitious official economic program for 2002-03 are especially welcome. Strong performance under the program will be essential to address the key economic challenges facing Armenia and mobilize support for a successful poverty reduction strategy," Mr. Aninat said.