Press Release No. 06/263

Press Release: IMF Executive Board Completes Third Review Under PRGF Arrangement for Armenia and Approves US$4.9 Million Disbursement

November 22, 2006

The Executive Board of the International Monetary Fund (IMF) has completed the third review of the Republic of Armenia's economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement.

The completion of the review enables Armenia to draw an amount equivalent to SDR 3.28 million (about US$4.9 million), which will bring total disbursements under the arrangement to the equivalent of SDR 13.12 million (about US$19.5 million).

The Executive Board approved the three-year arrangement on May 25, 2005 (see Press Release No. 05/123) for a total amount equivalent to SDR 23 million (about US$34.3 million) to support the government's economic program through 2008.

Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:

"Armenia's economy continues to perform well under its PRGF-supported program. Prudent fiscal and monetary policies, large external inflows, and ongoing structural reforms have contributed to double-digit growth in a low inflation environment and to a sustained reduction in poverty and unemployment. There has been impressive progress in the areas of fiscal and financial sector reforms, including through improved tax administration, strengthened prudential regulations and oversight of the financial sector, and improved corporate governance of banks. Looking ahead, the focus of the authorities' policy will be to manage the macroeconomic impact of continued large capital inflows, and to boost tax revenue to finance expenditure increases in infrastructure and social services.

"The authorities' economic program for the remainder of 2006 and 2007 focuses on limiting inflationary pressures, maintaining a flexible exchange rate arrangement, and improving tax revenue performance. The draft 2007 budget is compatible with macroeconomic stability and envisages a significant increase in tax revenues, which will be needed to finance priority expenditures in infrastructure and social services.

"Continued fiscal and financial sector reforms remain key to sustaining growth and reducing poverty. In the fiscal area, the authorities' reform efforts will focus on broadening the tax base by reducing exemptions and loopholes and on improving the predictability and efficiency of tax administration. In the financial sector, reforms in the period ahead will focus on improving corporate governance, strengthening regulation and supervision, and deepening financial intermediation, including through the development of the nonbank financial sector," Mr. Kato said.