IMF Executive Board Concludes the 2012 Article IV Consultation with Armenia

Public Information Notice (PIN) No. 13/09
February 5, 2013

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2012 Article IV Consultation with Armenia is also available.

On December 7, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the 2012 Article IV Consultation with Armenia.1 The Board also discussed an Ex Post Assessment of Armenia’s long-term involvement with Fund-supported programs.2 On the same day, the Board also completed the fifth review of Armenia’s economic performance under program supported by Extended Fund Facility and Extended Credit Facility arrangements (see Press Release No. 12/478).


The recovery of the Armenian economy has continued for a third consecutive year. After a major decline in activity in 2009 in the context of the global financial crisis, growth resumed in 2010 and 2011, although at a moderate pace. In 2012, growth is projected to accelerate to over 6 percent, led by agriculture, agro-processing, mining, and services. Construction, a key pre-crisis growth driver is finally stabilizing. Inflation remained subdued in 2012, reflecting sound macroeconomic policies and low agricultural prices, and is expected to average about 4 percent, within the authorities’ target range (4 ± 1.5 percent).

Fiscal consolidation has continued, and in 2012, the headline budget deficit is expected to reach 2.1 percent of GDP, lower than the previous years’ outturn. The external adjustment has also proceeded, but at a gradual pace—with the current account deficit projected to remain slightly below 10½ percent of GDP in 2012. The financing of the current account deficit has continued to come mainly from foreign direct investment, government external borrowing, and bank flows. Foreign exchange inflows in the first several months of 2012 had been somewhat weaker than expected, contributing to a decline in international reserves of the Central Bank of Armenia (CBA). However, reserves have recovered and are expected to close the year at over 3½ months of imports.

The banking sector remains robust, with the capital adequacy ratio of the system as a whole reaching almost 17 percent, and no bank below the required 12 percent. At about 4 percent of gross loans, nonperforming loans of the banking system continue to be low. Dollarization of both deposits and credit remains high, constituting a source of banking system vulnerability; measures under the Fund-supported program aim to reduce dollarization. Credit to the private sector has been strong, especially in foreign currency. In spite of rapid credit growth in 2012 and in previous years, the ratio of credit to GDP in Armenia remains relatively low compared to more advanced economies.

The authorities’ policies remain geared towards maintaining macroeconomic stability and fostering sustainable and inclusive economic growth. The CBA continues to conduct monetary policy under an inflation targeting framework accompanied by exchange rate flexibility and to implement policies aimed at maintaining and strengthening financial sector stability. Fiscal policy remains focused on keeping the deficit and debt at manageable levels, while augmenting growth-enhancing expenditures and strengthening social protection. In addition, the authorities are pursuing an agenda of structural reforms to improve the business environment in Armenia.

An Ex Post Assessment Update (EPA) was conducted to review Armenia’s economic performance during its long-term involvement with the Fund. The report covered the country’s performance during 2005–12 under four Fund-supported programs: a 2005–08 Poverty Reduction and Growth Facility, a 2008–09 PRGF, a 2009–10 Stand-By Arrangement, and the current Extended Fund Facility and Extended Credit Facility arrangements approved in 2010.

Executive Board Assessment

Executive Directors commended the authorities for implementing economic and financial policies which have contributed to a sustained recovery. Growth has accelerated, inflation has remained subdued, the fiscal deficit has declined, and credit growth has been robust. Directors called for continued commitment to sound macroeconomic policies and ambitious structural reforms to address remaining vulnerabilities, ensure medium-term macroeconomic stability, and foster sustainable and inclusive growth.

Directors recognized the role that fiscal consolidation has played in curbing the rise in debt and reducing the large current account deficit. They welcomed the authorities’ commitment to continued consolidation, but underscored the importance of relying on stronger revenue raising measures to create space for higher social and investment spending. Continued improvements in tax policy and administration should be key priorities going forward.

Directors considered the current monetary policy stance to be appropriate as it has kept inflation under control and anchored expectations. They encouraged further strengthening the monetary policy framework, including enhancing communications and developing term money-market instruments to enhance the transmission mechanism. Directors stressed the importance of allowing greater exchange rate flexibility to help narrow the current account deficit, increase resilience to shocks, and ensure a comfortable level of reserves.

Directors noted that the banking system is robust and welcomed the recent financial regulations aimed at strengthening the soundness and supervisory framework of the banking system. They encouraged further efforts to reduce high dollarization, including expanding the differential between reserve requirements for foreign exchange and dram liabilities.

Directors welcomed the advances in the structural reform agenda but underscored that further measures are needed to improve governance and the business environment, enhance competitiveness, and foster export diversification. Full implementation of the regulatory guillotine program will be important to reduce red tape in key areas. Directors also cautioned against large-scale public involvement in Nairit.

Directors broadly agreed with the findings of the ex post assessment. While Fund programs have helped Armenia maintain macroeconomic stability and respond to shocks, results in the areas of tax revenues, exchange rate policy, and structural reforms have been mixed. Directors generally welcomed the authorities’ interest in a successor arrangement, stressing that a stronger commitment in these areas should be at the core of any future program.

Armenia: Selected Economic Indicators, 2009–13
  2009 2010 2011 2012 2013
        Proj. Proj.



Real GDP growth (market price)

-14.1 2.2 4.7 6.2 4.3

GDP (in billions of U.S. dollars)

8.6 9.3 10.1 10.2 10.5

GDP per capita (in U.S. dollars)

2,647 2,807 3,042 3,036 3,088



Consumer prices (end of period, percent change)

6.7 8.5 4.7 4.0 4.0

Consumer prices (period average, percent change)

3.5 7.3 7.7 2.4 4.2

Public Finances


Revenue and grants (percent of GDP)

20.9 21.2 22.1 21.3 22.2

Expenditure (percent of GDP)

28.6 26.2 25.0 23.4 24.8

Budget balance (including grants, percent of GDP)

-7.9 -4.6 -2.8 -2.1 -2.6

Total government debt (percent of GDP)

40.2 39.7 41.8 44.9 43.5

Money and credit


Credit to the private sector (percent change)

14.0 26.7 35.6 31.1 15.0

Base money (percent change)

13.8 -0.8 32.3 -7.2 11.5

Broad money (percent change)

16.4 10.6 23.6 14.5 11.5

12-month T-bill rate (period average, in percent)

9.4 10.6 9.6 ... ...

Balance of Payments


Exports of goods and services (in U.S. dollars, percent change)

-24.0 45.0 24.3 7.5 7.9

Imports of goods and services (in U.S. dollars, percent change)

-22.4 14.4 13.9 3.7 4.4

Current account balance (percent of GDP)

-15.8 -14.8 -10.9 -10.4 -9.6

Foreign direct investment (percent of GDP)

8.4 6.1 4.4 3.1 3.4

Total external debt (percent of GDP)

57.8 65.4 72.8 77.7 76.0

Gross reserves (in millions of U.S. dollars)

2,004 1,866 1,869 1,614 1,536

International Reserves (in months of imports of goods and services)

5.7 4.7 4.5 3.7 3.5

Sources: Armenian authorities; and IMF staff estimates.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, 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. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:

2 An EPA is required for all members having longer-term program engagement with the Fund. EPAs are intended to provide an opportunity to step back from continuing program relations to consider an analysis of the economic problems facing the country, review progress under Fund-supported programs, and draw forward-looking lessons for future Fund engagement.


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