ArmInfo.The Executive Board of the International Monetary Fund (IMF) completed the third review of the Republic of Armenia's performance under the program supported by the Stand-By Arrangement (SBA). As the statement spread by the Central Bank on December 14 indicates, within the program Armenia will receive SDR 25.714 million (about US$37 million), bringing total disbursements to SDR 231.657 million (about US$ 315 million).
According to IMF's assessment, monetary policy has rightly been accommodative, supporting the economy and keeping the banking sector liquid. Inflation remained low, Nevertheless, according to IMF's recommendation the Central Bank of Armenia should carefully monitor market developments and stand ready to adjust its monetary policy stance, as necessary, to preserve macroeconomic stability, while maintaining exchange rate flexibility to absorb shocks under its inflation targeting framework. While the financial system has not shown signs of stress, IMF advises the Central Bank continue to identify vulnerabilities and risk factors in the banking system and stand ready to take relevant regulatory actions.
Members of the IMF Board responded positively to the fact that the socio-economic shocks did not have a significant negative impact on the financial system. Accordign to IMF Board, financial sector reforms, some of which are underway, will support the recovery and long-term growth.
To recall, on November 20 of this year the IMF published a press release presenting the results of discussions held from September 2 to November 16, 2020 by the IMF group led by the head of the IMF delegation in Armenia Nathan Porter on the third review of the Stand-By loan for Armenia. The same message said that the IMF had reached an agreement on the third review of the Stand-By Arrangement (SBA) of Armenia.
It was noted in the statement that the IMF team has reached a staff-level agreement with the Armenian authorities on the conclusion of the third review under their economic reform program, which is supported by a three-year SBA. The agreement is subject to approval by the IMF's Executive Board, which is scheduled to consider this review in mid- December. About US$ 36.7 million (SDR 25.714 million) would become available to be disbursed immediately after the Board meeting. This financing will be allocated to the budget to help the authorities' efforts in meeting the urgent medical and socio-economic needs'', the message of the IMF read. In the same message, the IMF cited updated forecasts for Armenia's GDP for 2020, expecting a decline of more than 7%. On the state debt of Armenia, the IMF predicted for 2020 that the share in GDP will exceed 60% with subsequent growth in 2021 to almost 69%, and in the medium term, the national debt will gradually decrease and by 2026 will fall below 60% of GDP.
"Armenia's economy has been hard hit by the COVID-19 pandemic and the worst military confrontation since the early-1990s and is set to contract in 2020. These shocks have created domestic demand and supply disruptions and have been exacerbated by a sharp decline in export and tourism revenues, remittances, and to some extent, weaker capital flows. Real GDP is now expected to decline by over 7 percent in 2020. While uncertainty about the recovery is high, growth is projected to remain modest in 2021 and then pick-up as the economy gradually adapts to, and moves past, the impact of these shocks and associated economic scarring. Over the medium term, inflation should rise and gradually converge to its target from below. Near-term downside risks associated with external developments, an uncertain economic and political environment, elevated regional tensions, and the intensity and duration of the pandemic, are balanced against potential upsides from a faster recovery from the pandemic, more limited scarring, and faster reform implementation. "Key near-term priorities include supporting the most vulnerable while ensuring the adequate public health response to the second COVID-19 wave. As the recovery gains momentum, it will be essential to unwind the remaining temporary support measures.
To note, on May 17, 2019, the IMF approved the provision of a stand-by credit line to Armenia for a three- year "transit period" in the amount of SDR 180 million (equivalent to almost $ 248.2 million), or about 139.75% of Armenia's quota in the IMF. From this amount, it was planned to immediately receive SDR 25.714 million (equivalent to nearly $ 35.5 million) with the remainder foreseen based on six half- year estimates. A year later, in mid-May 2020, the IMF increased its financial support to Armenia by SDR 128.8 million (about $ 175 million), which, together with the authorities' intention to attract resources accumulated under the SBA, made it possible to receive SDR 206 million (about $ 280 million) payable immediately. These loan funds are aimed at strengthening Armenia's economic foundations and policies, as well as carrying out structural reforms, in particular, improving management efficiency and improving the business environment.
