Monday, December 14 2020 15:19

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.