IMF opens Armenia`s access to US$24.4 million Stand-By loan and  improves its GDP growth forecast for 2023 to 7%

ArmInfo. The International Monetary Fund (IMF) has opened Armenia's access to a loan of approximately $24.4 million (SDR 18.4 million) under the Stand-by Agreement (SBA), bringing the total access amount to approximately $73.3 million (SDR 55.2 million).  also providing an improved forecast for Armenia's GDP growth for 2023 from the previous 5.5% to an updated 7%, with a slowdown in 2024 to 5% (as previously expected). In terms of inflation, the IMF points to its rapid decline in Armenia, and predicts a return to the target threshold of 4% by mid-2024 and stabilization near this level.

Thus, as IMF reports, "The Executive Board of the International  Monetary Fund (IMF) completed the second review under the Stand-By  Arrangement with Armenia. This provides the country with access to  about US$24.4 million (SDR 18.4 million), bringing the total access  to about US$73.3 million (SDR 55.2 million). The Armenian authorities  continue to treat the SBA as precautionary, IMF reports.

Armenia's strong growth momentum continued through 2023. Supported by  robust private consumption and investment, the economy is projected  to grow by 7 percent in 2023 before moderating to 5 percent in 2024.  Over the medium-term, growth is projected to reach its potential of  around 4.5 percent, while steadfast implementation of structural  reforms under the program could increase potential growth further.

Inflation is projected to revert to the central bank's target of 4  percent by mid-2024 and stabilize around it. The current account is  projected to reach 3 percent of GDP in 2023 and 2024 due to robust  consumption and investment demand.  Foreign direct investment and  capital inflows have moderated. Fiscal overperformance has persisted,  with the overall fiscal balance remaining in surplus through  September 2023, owing to higher than anticipated revenue collection  and spending under-execution, notwithstanding the authorities' prompt  fiscal support to address the urgent needs of Nagorno- Karabakh's  refugees.

The Executive Board today also concluded the 2023 Article IV  consultation [1] with Armenia. The associated press release will be  issued separately.

Following the Executive Board's discussion today, Mr. Bo Li, Deputy  Managing Director and Acting Chair, made the following statement:

"Armenia's economy has managed to overcome recent external shocks and  faces a favorable outlook, with strong growth in the context of  moderate inflation. The program performance remains broadly  satisfactory. However, an uncertain domestic and external environment  warrant continued policy prudence and unwavering reform effort.

"The policy focus of the 2024 budget on preserving macroeconomic  stability and providing humanitarian and development support to NK  refugees is welcome. In the medium term, a gradual fiscal deficit  reduction, anchored on Armenia's fiscal rules, will ensure that  public debt remains moderate. Progress on structural fiscal reforms  including tax expenditure rationalization and SOE ownership policy  will help contain fiscal risks and mobilize revenues to support  priority expenditures on health, social protection, and capital  projects.

"The monetary policy stance is appropriate and has helped ease  inflation. The CBA should remain proactive in case strong demand  conditions pose risks to the inflation outlook. The CBA's plan to  transition to a risk-based approach to price stability should ensure  that the credibility of the inflation targeting framework is  preserved. The flexible exchange rate has served Armenia well in  absorbing external shocks, while building reserve buffers.

"In the face of rising financial sector risks, particularly in the  housing sector, the CBA should advance its prudential regulation and  supervisory reforms. Efforts should focus on preserving capital  buffers, enhancing supervisory powers and capacities, and  strengthening crisis management.

"Advancing structural reforms will support sustainable and inclusive  growth. The authorities' efforts to raise labor force participation  and reduce structural unemployment, ease access to finance, diversify  exports, and strengthen governance will enhance economic resilience  and uplift potential growth."

On December 12, the Central Bank of Armenia updated its GDP growth  forecast for 2023 and 2024, improving it to 8.3% and 6.1%,  respectively, from the previous 7.2% and 5.6%. The World Bank (WB)  expects 4.4% economic growth in Armenia in 2023, with the pace  accelerating to 4.8% in 2024. The EBRD forecasts Armenia's GDP growth  by 6.5% for 2023, with a slowdown in 2024 to 4.5%. The draft RA  budget for 2024 envisages 7% economic growth, similar to the rate  envisaged in the RA budget for 2023.  According to actual statistical  data, Armenia's GDP in 2022 accelerated in growth to double-digit  12.6% (from 5.8% in 2021), exceeding 8.5 trillion drams ($21.6  billion, at the rate of 393.57 AMD/$1 as of December 31, 2022), but  then in 2023, the growth of economic activity in Armenia began to  slow down - to 9.2% y/y in January-October, accompanied by a slowdown  in the increasing rates of exports and imports.