Press Release No. 10/48

Press Release: IMF Mission Reaches Staff-Level Agreement on Third Review Under Stand-By Arrangement with Armenia

February 17, 2010

An International Monetary Fund (IMF) mission, led by Mr. Mark Lewis, visited Yerevan during February 4-17 to carry out discussions on the third review of Armenia’s 28-month Stand-By Arrangement (see Press Release No 09/306).

At the end of the mission, Mr. Lewis issued the following statement:

“The mission reached a staff-level agreement with the authorities on a package of policies that aims at completing the third review under the SBA. The staff level agreement is subject to approval by IMF management and the Executive Board. A discussion of the review at the Executive Board is planned for late March. The completion of the third review would enable Armenia to draw SDR 48.49 million (about US$74 million).

“After a very challenging year in 2009, output appears to have stabilized and real GDP is expected to recover in 2010. Inflation has picked up, although this principally reflects exogenous effects linked to the international environment, pass-through from the exchange rate depreciation in early 2009, as well as administered price increases during 2009. Inflation is however expected to come down from its highs in the first quarter of 2010, and with sound policies in place, should return to the target range in the near future. The public finance situation is improving, and while weaknesses remain in the balance of payments, reserves are at a comfortable level. The financial sector is sound and has proved resilient to the shocks over the last year.

“Performance under the Stand-by Arrangement continues to be good. The authorities have successfully implemented a broad range of policies to address the macroeconomic challenges in 2009, described in their Letters of Intent, and macroeconomic policies are on track.

“In 2010, the authorities intend to pursue economic policies to support the recovery while managing any demand pressures that may emerge. Fiscal policy will continue to provide support to the economy and priority social programs, while the deficit will be reduced to 6 percent of GDP from 7.5 percent of GDP in 2009. Monetary policy will gradually return to a neutral stance, while providing room for credit growth. Over the medium term, in light of debt sustainability concerns, the authorities should gradually reduce the deficit and rely as much as possible on concessional financing.

“Continued structural reforms to boost tax administration, further strengthen the financial sector, and additional efforts to increase competition and raise productivity will be important contributors to macroeconomic stability and sustained economic growth. Further efforts in the social sectors will likewise be important to improve social services and reduce poverty.

“In the period ahead, the continued successful implementation of the program will help solidify the economic recovery, strengthen the balance of payments, and lead to continued progress in poverty reduction.

“The mission would like to express gratitude to the authorities for their hospitality and fruitful cooperation.”