Wednesday, November 8 2023 12:24

ArmInfo.An International Monetary Fund (IMF) team, led by Iva Petrova, visited Yerevan during September 13-25 to hold discussions with the Armenian authorities for the 2023 Article IV consultation and the second review under the Stand-By Arrangement (SBA) with Armenia.  At the conclusion of the discussions, Ms. Petrova issued the following statement:

"I am pleased to announce that the IMF team has concluded discussions  for the 2023 Article IV consultation and has reached a staff-level  agreement for the conclusion of the second review under the  authorities' economic reform program, which is supported by an IMF  three-year SBA. The agreement is subject to approval by the IMF's  Executive Board, which is scheduled to consider the review in mid-  December. The Board approval would enable access of about US$24.3  million (SDR 18.4 million), bringing the total access to about  US$72.9 million (SDR 55.2 million).

"Notwithstanding the unfavorable global economic environment,  Armenia's strong growth momentum continued in 2023 with the economy  growing by 10.5 percent in the first half of the year supported by  robust private consumption and services trade. Inflation has remained  subdued, including due to proactive monetary policy, exchange rate  appreciation, and falling food and transportation prices. However,  service price inflation has been stickier. The overall fiscal balance  recorded a surplus of 0.7 percent of GDP through September 2023 and  central government debt remains sustainable. The banking system has  strong capital and liquidity buffers, and its profitability continues  to remain high.

"We expect growth to ease, reaching 7 and 5 percent in 2023 and 2024,  respectively, as income and capital flows moderate, and global and  domestic financial conditions continue to remain tight. While growth  could surprise on the upside in the event of a renewed bout of income  and capital flows and strong implementation of reforms, downside  risks are elevated, including from geopolitical tensions, tight  global financial conditions, slowdown in external demand, and abrupt  reversal of capital flows.

"The authorities have responded proactively to the needs of the more  than 100,000 ethnic Armenian refugees from Nagorno Karabakh,  including by providing cash support to address essential needs,  temporary shelters, as well as financial aid to cover accommodation  and utility expenses. The ongoing comprehensive assessment of their  medium-to-long term needs-including those related to housing,  education, employment, and social protection-would assist in their  integration in Armenia.

"The draft 2024 budget appropriately accommodates refugee support,  while ensuring macroeconomic stability. The fiscal deficit is  expected to support priority social and capital expenditures, with  efforts continuing to improve revenue mobilization. It should also  help keep the economy from overheating and maintain a moderate debt  level.

"Amid deflationary pressures with a still positive output gap, the  Central Bank of Armenia (CBA) has started gradual normalization of  monetary policy and should continue its data-dependent approach to  ensure inflation expectations remain anchored. The flexible exchange  rate should remain a key shock absorber. The CBA continues its  efforts to strengthen its prudential and supervisory frameworks to  help stem financial sector risks, including from rising housing  prices.

"In the medium term, it is important to maintain the strong policy  and reform momentum, building fiscal buffers and further  strengthening medium term sustainability; keeping inflation  expectations anchored; safeguarding financial stability; completing  governance reforms; and boosting productivity to deliver sustained  and inclusive growth. The knowledge-based, export-oriented, and  investment-driven growth strategy envisaged in the 2021-26 Government  Reform Program requires a steadfast implementation of structural  reforms and an enabling investment environment. To achieve this, it  is important to develop and implement concrete and fully costed  employment and export strategies; upgrade the insolvency framework  and prioritize governance reforms to support investment and improve  the business environment; implement the public investment management  action plan to improve the implementation and quality of capital  expenditures; and create fiscal space through revenue enhancing tax  policies-including via rationalization of tax expenditures-and  ongoing tax administration reforms.

"The IMF team thanks the Armenian authorities, representatives of  civil society, private sector, development partners, and diplomatic  community for fruitful discussions and cooperation."

On December 12, 2022, the Executive Board of the International  Monetary Fund (IMF) today approved a 36-month Stand-By Arrangement  (SBA) for Armenia amounting to SDR 128.80 million (about US$171.1  million or about 100 percent of Armenia's quota in the IMF).

Upon the Board's approval, an amount equivalent to SDR 18.40 million  (about US$24.4 million) becomes immediately available to Armenia, and  the remaining amount will be made available, subject to six semi-  annual reviews.

On November 7, 2023, IMF staff completed the second review under the  Stand-By Arrangement and the 2023 Article IV Consultation with  Armenia.