Armenia -- 2002 Article IV Consultation, Concluding Statement of the IMF Mission
July 25, 2002
During July 3–19, an International Monetary Fund (IMF) staff team held the 2002 Article IV consultation discussions1 with the Armenian authorities and reached preliminary understandings on a program and policy memorandum for July 2002–June 2003 that could be supported under the Poverty Reduction and Growth Facility (PRGF).2 Final agreement on the program could be reached within the next few weeks, in which case the report on the consultation and the completion of reviews under the PRGF-supported program would be submitted for consideration by the Fund's Executive Board in September 2002. All documents would be published shortly thereafter. The Executive Board's approval would enable Armenia to draw the second and the third tranches under the program, equivalent to US$27 million.
The mission noted the recent strong economic performance of the Armenian economy in 2001 and the first half of 2002, with real GDP growing at about 9 percent, annual inflation at around 3 percent, a comfortable level of foreign exchange reserves, and continued narrowing of the fiscal and current account deficits. In light of serious problems with tax revenues and lack of reforms in the energy sector in 2001, the mission welcomed the higher level of tax collection during the second quarter of 2002 and the authorities' decision to proceed quickly with the privatization and reform in the energy, water, and irrigation sectors. The mission also welcomed the progress achieved in the establishment of a large taxpayers unit, the reduction in the number of imported goods exempted from value-added tax at the border, the signing of decrees to increase the flow of information between the Ministry of State Revenues and the Customs Committee, and the pursuance of financial policies geared towards price stability.
The discussions centered on measures to continue improving tax and customs administration, ensure the transparency of public sector operations, release additional resources for spending on social sectors, eliminate expenditure arrears, and create the conditions for the banking system to sustain the process of economic growth. The economic program discussed for the next year addresses these challenges. The authorities stated their commitment to implement program measures forcefully and in particular to ensure the efficient functioning of the legal system, fight corruption and tax evasion, move quickly to resolve the situation of the commercial banks under temporary administration, and lay the foundation for a modern deposit insurance system. The authorities will also need to ensure full transparency in the privatization of state enterprises and the restructuring of Armenia's external debt. Lastly, the mission assessed developments in the foreign exchange market, civil service reform, the anti-corruption strategy, the medium-term economic outlook, and the poverty reduction strategy. The government's Poverty Reduction Strategy Paper, to be finalized later this year in consultation with civil society, is expected to become the centerpiece of Armenia's development strategy.
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with member countries, usually every year. A staff team visits the country and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
2 A three-year PRGF-supported program began in May 2001. The first and second semi-annual reviews under the program have been delayed pending completion of discussions on the measures needed to keep the program on track.
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