Tuesday, October 22 2024 12:07

ArmInfo. An International Monetary Fund (IMF) team, led by Iva Petrova, visited Yerevan from September 18 to October 1, 2024, and held further virtual discussions afterwards for the fourth 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 and the Armenian  authorities have reached a staff-level agreement on policies for the  completion of the fourth review under the three-year SBA, which  supports Armenia's economic reform program. The agreement is subject  to approval by the IMF's Executive Board, scheduled to consider this  review in mid-December. This approval would enable access of about  US$24.5 million (SDR 18.4 million), bringing total access to about  US$122.7 million (SDR 92 million) since the SBA's inception.

"Armenia's economic activity remains robust, with real GDP growing by  6.5 percent in the first half of the year, driven by domestic demand.  Employment growth has been steady, averaging 19 percent since the  start of 2023, while inflation has remained low at 0.6 percent  year-on-year in September. The current account deficit has widened as  transitory factors subside, and tourism and remittances continue to  normalize.  Preliminary data indicate that prudent execution of the  2024 budget has resulted in a small overall fiscal deficit through  September 2024. Central government debt remains moderate at 48.4  percent of GDP at end 2023. The banking system enjoys strong capital  and liquidity buffers, along with high profitability.

"The strong growth momentum of the past few years continues to  gradually normalize, with GDP growth expected to reach 6 and 4.9  percent in 2024 and 2025, respectively, as domestic consumption and  external demand decelerate. Inflation is expected to remain low in  the short term and gradually converge to the CBA's inflation target  in the medium term. Significant risks to this outlook include  geopolitical tensions and potential growth setbacks in trading  partners, a reversal of capital inflows, and surges in global food  and energy prices. On the upside, growth could exceed expectations if  net exports perform better than anticipated and if structural reforms  and refugee integration are implemented more swiftly.

"The draft 2025 budget appropriately accommodates priority spending  needs, including national security and refugee integration. With  rising spending pressures, however, careful medium-term expenditure  prioritization and the introduction of new tax policies will be  necessary to support fiscal consolidation in line with the fiscal  rules and maintaining debt at a moderate level. Implementing reforms  to strengthen medium-term fiscal planning, enhance public financial  management-including through robust fiscal risk management,  transparency, and governance-and bolster the public investment  management framework remains critical to support fiscal efforts.

"Amid low inflationary pressures, the Central Bank of Armenia (CBA)  has continued its gradual reduction of the policy rate to steer  inflation towards its target. Future rate decisions should continue  to be guided by the evolution of inflation and inflation  expectations. The flexible exchange rate should remain a key shock  absorber, and the authorities' commitment to maintaining healthy  international reserve buffers is welcome.  Ongoing efforts to improve  monetary, foreign exchange, and financial regulatory transparency are  helping enhance CBA's policy communication, and efforts should  continue to strengthen the CBA's prudential and supervisory  frameworks. With its continuous financial risk monitoring, including  the recent increase in the countercyclical capital buffer, the CBA  remains vigilant in mitigating financial sector risks.

"The government's structural reform agenda appropriately focuses on  fostering inclusive growth, including by boosting labor force  participation among the youth, women, and vulnerable populations,  encouraging diversification in the country's export basket and  markets, and improving the business environment.  Achieving these  objectives requires developing and implementing concrete, fully  costed employment and export strategies, prioritizing governance  reforms, upgrading the insolvency framework, and rationalizing  investment incentives to support quality investments.

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