Armenia -- Concluding Statement of the IMF Mission
August 5, 2003
During July 16-August 1, a team from the International Monetary Fund (IMF) visited Yerevan and conducted discussions with the Armenian authorities on the fourth review of the program supported by the Poverty Reduction and Growth Facility (PRGF). Based on preliminary information, all but one of the quantitative performance criteria under the program were met and most structural measures were implemented. Three measures (adoption of the financial rehabilitation plan for the energy, water, and transport sectors; preparation of an internal audit report at customs; and introduction of a post-clearance verification program at customs) were subject to a small delay and are scheduled for implementation by September 2003.
The Armenian economy continued its strong performance in the first half of 2003, with real GDP growing at 14.8 percent. The twelve-month rate of inflation picked up slightly from 2 percent at end-2002 to 3.5 percent in July 2003. The fiscal accounts displayed a small deficit of 0.3 percent of GDP, and the balance of payments was well supported by foreign grants and foreign investment leading to a further accumulation of international reserves.
The authorities continued to make progress on their structural reform agenda. In the fiscal area, an amendment to the budget law was passed to enhance expenditure control and the administration of the value-added tax (VAT) has gradually been improving. Profit tax collection, however, remains weak, and a number of tax exemptions create distortions in the economy and hinder the efficiency of the tax system. In the banking sector, the two remaining intervened banks are being resolved and new legislation to increase confidence in the banking system has been approved. In the energy sector, two power plants and the financial management of the nuclear power plant have been privatized.
Understandings have been reached in several policy areas for the government's program from now to mid-2004. These include measures to improve efficiency and transparency of customs operations, establish regular reporting and monitoring for noncommercial enterprises, proceed with the resolution of the two intervened banks, and enhance corporate governance in state-owned utility companies. Armenia's Poverty Reduction Strategy should be finalized by mid-August 2003 and an appropriately targeted anti-corruption strategy is expected to be approved by year-end.
Despite higher nominal tax revenues and structural reforms in recent years, significant shortcomings in tax and customs administration remain to be addressed. The authorities stated their intention to move decisively in this area to ensure uniformity of treatment among taxpayers and harness efficiency gains. Discussions will continue during the next few weeks on measures to improve tax administration, remove exemptions, and increase tax collection in 2004. Once understandings have been reached, the IMF Executive Board will consider approving the completion of the review, allowing Armenia access to the fifth tranche under the PRGF arrangement equivalent to about US$13 million.