## 1armea2019004 ## Source details **Canonical URL:** [1armea2019004](https://www.imf.org/-/media/files/publications/cr/2019/1armea2019004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1armea2019004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1armea2019004.pdf.json) --- ### PREFACE — Mission, Scope, and Executive Summary - Mission: - Technical mission from the Fiscal Affairs Department (FAD) of the IMF visited Yerevan, Armenia during March 28-April 10, 2018 to conduct a Fiscal Transparency Evaluation (FTE). - Mission leader and team: Mr. Johann Seiwald (FAD); Mr. Fazeer Sheik Rahim (FAD); Ms. Viera Karolova (STA); Mr. John Zohrab (Regional Advisor); Mr. Vahram Janvelyan (local IMF Office); Mr. Eivind Tandberg (short-term expert). - Principal counterparts: Ministry of Finance (Minister and senior officials across multiple departments); Committee Chair, Financial-Credit and Budgetary Affairs (Parliament); Chamber of Control; MoLSA; CBA; Ministry of Energy and Natural Resources; State Property Management Department; NSS; State Revenue Committee; Department of Investment Attraction and Coordination; Ministry of Economy; development partners briefed: World Bank; GIZ; ADB; USAID. - Overall progress and reforms: - Fiscal forecasts and budgets improved via an MTEF, clearer fiscal objectives, and a performance budgeting system. - Accrual accounting reform (IPSAS-based) launched; expected completion by 2025. - PPP law under preparation. - IMF Fiscal Transparency Code assessment: - Armenia meets good or advanced practice on 16 of the 36 principles, and basic practice on a further 14 principles. - Noted strengths (selected): - Publication of monthly budget execution report within a month; financial statistics for general government within 4 months. - MTEF and annual budget present comprehensive macroeconomic forecasts, fiscal objectives, and performance information; submitted to parliament timely per Budget System Law. - Semiannual monitoring reports on public corporations provide aggregate and company-level data for most public corporations. - Noted weaknesses and risks (selected): - No single fiscal report provides a complete picture of general government activity. - Sizeable difference between fiscal balances reported in GFSM 2014 and SNA 2008: 2.5 percent. - Same-year MTEF vs. annual budget difference: 0.6 percent of GDP. - Average share of expenditure not undergoing explicit legislative approval: 8.6 percent. - Public corporations’ liabilities noted at 15 percent of GDP; loss-making public corporations ~2 percent of GDP may require reclassification. - Ten Policy Recommendations (verbatim list headings): 1. Expand institutional coverage of budget execution to central government, and statistical reports to general government by including non-market public corporations and municipal non-commercial organizations; 2. Publish a balance sheet for central government, and expand its coverage to general government; 3. Enhance consistency, comparability, and integrity of fiscal reporting by providing reconciliation of key fiscal aggregates; 4. Ensure that introduction of the new accounting system improves comprehensiveness, quality, and compatibility of fiscal reports; 5. Strengthen the MTEF and budget documentation by including a statement of compliance to fiscal rules and reconciliation tables for revenue and expenditure in the MTEF and budget message; 6. Strengthen independent evaluation by ensuring ex post compliance audit to fiscal rules by the Chamber of Audit; and building technical capacity at the Parliamentary Budget Office, to prepare for the medium-term role of the PBO to assess ex ante compliance in the draft budget; 7. Reduce in-year revisions to the budget by including extra-budgetary accounts in the annual budget; and introduce clear access criteria for the Government Reserve Fund; 8. Provide a consolidated fiscal risk summary (FRS) in the budget documentation, and assign the responsibility for coordinating the FRS to a unit of the MoF; 9. Ensure that the legal framework for PPPs provides for a clear and comprehensive definition of PPPs; and establish a legal limit on accumulated PPP obligations consistent with Armenia’s fiscal rule; and 10. Extend reporting on public corporations to provide a more complete picture of their financial performance, any conflicts of interest, and budgetary impacts. - Public Sector Financial Overview (2016) — Key statistics (verbatim): - Consolidated public sector expenditures: 45.7 percent of GDP. - Public sector asset holdings: around 108.8 percent of GDP. - Public sector liabilities: around 109.1 percent of GDP. - Public sector net worth: 0.3 percent of GDP. - Central government data include estimated non-financial assets and liabilities from PPPs of 10.2 percent of GDP and estimated explicit military pension liability of 6.1 percent of GDP. - Estimated implicit liabilities from the ‘pay as you go’-pension scheme: 51.5 percent of GDP (not included in liabilities but reflected under memo item “Net financial worth including pension liabilities”). - Public corporations’ liabilities highlighted at 15 percent of GDP; loss-making public corporations represent about 2 percent of GDP. - Reported sizeable reporting discrepancy: fiscal balances difference between GFSM 2014 and SNA 2008 of 2.5 percent. - Same-year MTEF vs. annual budget difference: 0.6 percent of GDP. - Average share of expenditure not undergoing explicit legislative approval: 8.6 percent. - PPP capital stock reported: 10.2 percent of GDP. - Implementation and follow-up: - Annex I prioritizes and sequences recommendations into a Government Fiscal Transparency Action Plan (2018–21). - Report organized into three chapters: Chapter I Fiscal Reporting; Chapter II Forecasting and Budgeting; Chapter III Fiscal Risks. _Italic source: PREFACE and EXECUTIVE SUMMARY, 1armea2019004 (IMF Fiscal Transparency Evaluation — Armenia), March 28–April 10, 2018._ ### I. Fiscal Reporting — Coverage, Timeliness, Quality, Integrity - Assessment scope: - Evaluates coverage of institutions, stocks and flows; frequency and timeliness; quality, accessibility, comparability; and reliability/integrity against the IMF Fiscal Transparency Code. - Main practices and reforms: - Adoption of GFSM 2001 economic classification in 2008; publication of monthly and quarterly cash basis budget execution reports; adoption of SNA 2008; accrual accounting reform (IPSAS-based) to be completed in 2025. - Principal fiscal reports (frequency and lags, verbatim): - Monthly Budget Execution Reports: Cash basis; Monthly; Lag 30d. - State Budget Indicators: Cash basis; Monthly; Lag 30d. - State Debt Data: Non-cash; Monthly; Lag 30d. - Quarterly Budget Execution Reports: Cash basis; Quarterly; Lag 30d. - Consolidated Budget (quarterly): Cash basis; Quarterly; Lag 30d. - Annual Budget Execution Report: Cash basis; Annual; Lag 4m. - Annual Debt Report: Non-cash; Annual; Lag 5m. - National Accounts (SNA 2008): Non-cash; Annual; Lag 18m. - Coverage of institutions and fiscal outcomes (2016, percent of GDP, verbatim): - Public Sector: Revenue 28.1; Expenditure 34.8; Net lending/borrowing -6.8. - General government: Revenue 24.9; Expenditure 30.3; Net lending/borrowing -5.4. - Central government (consolidated): Revenue 23.5; Expenditure 28.9; Net lending/borrowing -5.5. - State Budget: Revenue 23.1; Expenditure 28.5; Net lending/borrowing -5.5. - State Non-Commercial Organizations (SNCOs): Revenue 3.3; Expenditure 3.3; Net lending/borrowing 0.0. - Local government (consolidated): Revenue 2.6; Expenditure 2.5; Net lending/borrowing 0.1. - Nonfinancial public corporations: Revenue 3.8; Expenditure 5.0; Net lending/borrowing -1.2. - Central Bank: Revenue 0.6; Expenditure 0.7; Net lending/borrowing -0.1. - Institutional and subsector coverage gaps: - No single report provides complete coverage of general government or public sector activity. - Including SNCOs and MNCOs would add 3.5 percent of GDP to both revenue and expenditure but not change the deficit. - Expanding to public corporations would add 4.4 percent of GDP to revenue and 5.7 percent of GDP to expenditure, resulting in overall public sector deficit of 6.8 percent of GDP. - Loss-making public corporations (verbatim figures): - Of 199 public corporations monitored, 49 units have cumulated losses of 2.8 percent of GDP. - These loss-making units had expenditures of 3.7 percent of GDP (including net investment in non-financial assets of 1.8 percent of GDP) and an accrual deficit of 1.9 percent of GDP in 2016. - Stocks, asset valuation, reporting gaps (selected figures, verbatim): - Public sector Assets 102.3; Nonfinancial Assets 56.8; Financial Assets 45.5 (percent of GDP). - Public sector Liabilities 101.9; Liabilities other than equity 101.9. - Public sector Net worth 0.3; Net financial worth -56.5. - Net fin. worth including pension liabilities -108.0. - State financial assets and liabilities reported as 25.2 and 51.8 percent of GDP respectively. - Liabilities related to PPPs and pensions would raise state liabilities to 68.1 percent of GDP once included. - Single SNCOs report assets 3.8 percent of GDP; debt 2.9 percent of GDP. - Flow coverage and recording issues: - Budget execution reports and GFSM 2014 statistical reports: cash basis; do not include accrued transactions and other economic flows. - Examples of inconsistent recording that underestimate deficits: capital injections to loss-making public corporations treated as equity acquisitions; dividends treated as revenue even if from revaluation gains or reserves. - Reporting fragmentation and accessibility: - Reports for SNCOs and most public corporations are not published publicly; data on MNCOs are available only to local governments. - Key table excerpts and exact figures reproduced (verbatim): - Table 1.3 (Spending by Economic Type, AMD, billion in 2016): - Compensation of employees: State Budget 142; Central Government 270 - Use of goods and services: State Budget 162; Central Government 136 - Interest: State Budget 98; Central Government 98 - Subsidies: State Budget 121; Central Government 61 - Grants: State Budget 158; Central Government 133 - Social benefits: State Budget 405; Central Government 407 - Other expense: State Budget 195; Central Government 198 - Net/gross investment in nonfinancial assets: State Budget 167; Central Government 167 - Total: State Budget 1,449; Central Government 1,470 - Miscellaneous figures: Tax expenditures "almost 7 percent of GDP" and "one third of total collected taxes"; VAT, CIT, PIT: 70 percent of total taxes; VAT exemptions: "around 40 lines"; monthly reports: published within 30 days; annual budget execution reports: published within 4 months; sectoral national accounts delay: 18 months; Government Reserve Fund: "2.5 percent of total spending in the past three years."; Underestimation of compensation of employees due to SNCO exclusion: "47 percent in 2016."; Unexplained residuals in stock-flow adjustments: "0.7 and 0.2 percent of GDP" for 2014 and 2015; Reconciliation differences between GFSM and SNA: "on average 0.6 percent of GDP"; up to "2.5 percent of GDP". - Recommendations (excerpted, verbatim headings and key actions): - Recommendation 1.1: Expand institutional coverage — apply market/non-market test; maintain comprehensive list of units; include municipal NCOs and non-market public corporations; include state SNCOs in consolidated central government budget execution reports. - Recommendation 1.2: Publish balance sheet for central government — collect data from SPMD, ministries, Treasury, Public Debt Management; publish consolidated central government balance sheet (including SNCOs) based on GFSM 2014; present state financial balance sheet monthly and annually. - Recommendation 1.3: Enhance consistency, comparability, integrity — compile and publish reconciliation tables for (i) change in stocks and related flows; (ii) deficit/surplus and change in debt; (iii) differences between GFSM 2014 and SNA 2008 aggregates with explanation; properly classify material government operations. - Recommendation 1.4: Ensure IPSAS-based accounting improves reporting — enforce IPSAS-based national accounting standards; integrate cash-based and accrual-based reporting; ensure reconcilability between budget execution, fiscal statistics, and financial statements. ### II. Fiscal Forecasting and Budgeting — Comprehensiveness, Orderliness, Policy Orientation, Credibility - Overall assessment summary: - Armenia meets good or advanced practice in 6 of 12 indicators. - Strengths: well-articulated budget process; comprehensive fiscal objectives; high-quality budget documents; MTEF and detailed macroeconomic forecasts. - Shortcomings: lack of independent evaluation of forecasts; extensive in-year budget changes without specific parliamentary approval; large unexplained differences between MTEFs and annual budgets; limited public participation. - Comprehensiveness (selected findings and exact figures): - Budget Unity: Assessment Basic — extra-budgetary accounts excluded; extra-budgetary accounts amounted to AMD 33.8bn in 2016 — 2.8 percent of total revenue; together with SNCOs own-source revenue they represented 4.7 percent of total state revenue. - Macroeconomic Forecasts: Assessment Advanced — MTEF and annual budget provide three year-ahead forecasts; forecasts historically optimistic but comparable to other forecasters. - MTEF: Assessment Good — introduced 2003; annual MTEF published in July; deviations across MTEFs and annual budgets noted (annual budget approved less than six months after MTEF has differed markedly; average absolute change from MTEF ceiling to annual budget 0.61 percent of GDP between 2012-2017). - Investment Projects: Assessment Basic — total multi-annual obligations not disclosed comprehensively; general government investment amounts to 3.3 percent of GDP; authorities plan to almost double nominal general government capital expenditure over next four years. - Orderliness: - Fiscal Legislation: Assessment Advanced — Budget System Law regulates calendar and contents; MTEF submission to Parliament by July 20; budget submission 90 days before budget year. - Timeliness: Assessment Good — budget proposal submitted 90 days before budget year; Table of draft/approval dates for 2014–2018 shows submission in early October and approval by early December. - Policy Orientation: - Fiscal Policy Objectives (verbatim rules): - State deficit for budget year (t+1) cannot exceed 7.5 percent of GDP envisaged in the coming year budget (t+1). - If state debt exceeds 40 percent of GDP, capital expenditures (t+1) should not be below the level of planned state budget deficit. - If state debt is between 50 and 60 percent of GDP, the growth rate of primary current expenditure is capped by historical 7-year average growth rate of GDP. - If state debt exceeds 60 percent of GDP, growth rate of primary current expenditure capped at 0.5 percent lower of average GDP growth; total current expenditure cannot exceed total tax revenues for upcoming year. - When state debt exceeds 50 percent of GDP, government required to present corrective action plan in MTEF to bring debt below 50 percent of GDP within 5 years. - Escape clause allows suspension in exceptional cases; does not apply to deficit limit of 7.5 percent of GDP. - Evolution of rules (timeline verbatim): 2002: -5% deficit ceiling; 2008: Deficit ceiling increased to 7.5%; 2009: Debt ceiling increased to 60%; -50% debt brake introduced; 2015: Definition of state debt changed to exclude central bank debt; 2018: Automatic correction at 50% and 60% debt removed. Government to present corrective action plan instead; Escape clause introduced; Cap on expenditure to be set by government decree. - Contextual data: State debt of 53.6 percent of GDP in 2017. - Credibility and transparency: - Independent evaluation: Assessment Not Met — no comparisons of government forecasts with independent forecasters; Budget Office of Parliament lightly staffed (three technical staff). - Supplementary budgets and in-year flexibility: Assessment Not Met — legal flexibilities allow in-year changes; in total an average of 8.6 percent of total spending was undertaken without direct ex ante Parliamentary approval during 2014–16. - Forecast reconciliation and forecast performance: Assessment Not Met — average absolute change from MTEF ceiling to annual budget 0.61 percent of GDP (2012–2017); deviations from outturns averaged 0.96 percent of GDP. - Recommendations to strengthen forecasting and budgeting (verbatim headings and key actions): - Recommendation 2.1: Strengthen the MTEF and budget documentation — include statement of compliance to fiscal rules in MTEF and Annual Budget Law; streamline MTEF; include breakdown by full economic classification; present MTEF and annual budget as rolling baseline with reconciliation tables; report all tax expenditure. - Recommendation 2.2: Strengthen independent evaluation — include comparisons of government forecasts with other agencies in MTEF and budget documentation; include statement of compliance to fiscal rules in Annual Budget Law to enable CoA ex post compliance audit; build capacity at Parliamentary Budget Office. - Recommendation 2.3: Reduce in-year revisions — project revenue and spending of extra-budgetary accounts and include them in annual budget; introduce limit in Art 11 of Annual Budget Law on increases in spending; separate Government Reserve Fund into provisions with clear access criteria. ### III. Fiscal Risks — Disclosure, Analysis, and Management - General finding: - Presentation of fiscal risks is fragmented; no consolidated fiscal risk summary (FRS) in budget documentation; quantification incomplete; no assessment of simultaneous realization of multiple risks. - Institutional arrangements: - MoF Fiscal Risk Assessment Division (FRAD) established late 2014; status unclear after reorganization in June 2018. - FRAD produces a fiscal risk statement (FRS) twice a year in MTEF and annual budget documentation assessing 22 corporations in energy, transport, and water sectors (including 2 concessionaires). - Macroeconomic risks and debt dynamics (verbatim figures and decomposition): - Public debt/GDP rose from 16 percent in 2008 to 59 percent in 2017. - Of the 43 percentage point increase in debt/GDP from 2008 to 2017: 37 is attributable to the primary deficit; 13 to exchange rate depreciation; strong growth reduced ratio by 12 percentage points; remaining 10 percentage points unexplained. - With growth picking up, ratio projected to decline after 2019, but stochastic projections show non-trivial probability of debt rising beyond 60 percent of GDP. - Specific fiscal risks — aggregated exposures (selected table entries, verbatim): - Guarantees: Debt guarantees — 1.4 — Yes - Underwriting of Deposit Guarantee Scheme — 5.8 — No - Promissory note to CBA — 1.5 — Yes - PPPs: Total investment — 10.2 — Yes - Financial sector: Liabilities of FPC except equity (including CBA) — 32.4 — Yes - Public corporations (exc. CBA) on-lending: Liabilities of public non-financial corporations except equity — 8.5 — Yes - Outstanding loans arising from on-lending — 9.6 — No - Implicit risks: Pension costs: Unfunded pension liabilities — 51.5 — No - Natural disasters: Average annual loss — 1.3 — No; Probable maximum loss earthquake (50 year) — 2.6 — No - Aggregate observations: Aggregate maximum exposure to explicit fiscal risks may be as high as 70 percent of GDP; maximum exposure to implicit risks may be about 125 percent of GDP. - Public corporations and fiscal exposure (verbatim figures): - Semiannual SPMD monitoring report provides aggregate and company-level data for most public corporations. - Combined operating losses of public corporations in 2016: 12 billion AMD (0.24 percent of GDP). - Profitable corporations generated 2.3 billion AMD (0.05 percent of GDP). - Two corporations (High-voltage Electric Networks and Yerevan TPP) responsible for most profits. - Six loss-making corporations have losses exceeding 500 million (0.01 percent of GDP) each. - Public corporation liabilities: 15.4 percent of GDP (Appendix III figures). - Natural resources and environmental risks (verbatim): - Mineral industry made up 17.9 percent of total industrial production in 2016. - Exports from the mineral industry valued at USD 480 million in 2016, 25 percent of export revenue. - Mineral resources amounted to 2.5 percent of revenue in 2016. - Average annual loss from natural disasters estimated at 1.3 percent of GDP. - Probable maximum loss earthquake (50 year) estimated at 2.6 percent of GDP. - Fiscal risk management and budgetary contingencies: - Article 19 of BSL: reserve fund not exceeding 5 percent of budgeted total expenditure. - Size of reserve fund averaged 2.5 percent of total budget in recent years; more than 90 percent of use was for items below 500 million AMD (~0.03 percent of total budget). - Recommendation Box (3.1) presents the “three Us” criteria for reserve use: Unforeseeable, Unavoidable, Un-absorbable. - Recommendations (verbatim headings and key actions): - Recommendation 3.1: Provide a consolidated fiscal risk summary (FRS) in budget documentation — include summary table of key fiscal risks, assign responsibility to MoF unit, expand scope and quantification across MTEFs and budgets, disclose outstanding guarantees and on-lending. - Recommendation 3.2: Ensure PPP legal framework provides a clear and comprehensive definition; establish PPP database; publish total rights, obligations and exposures; establish legal limit on accumulated PPP obligations consistent with fiscal rule. - Recommendation 3.3: Extend SPMD monitoring report to indicate government objective for each corporation; identify minority shareholders; identify all interactions with the budget; phase in coverage across 2019–2021. ### Appendix I — Government Fiscal Transparency Action Plan (2018–21) — Selected Implementation Actions and Responsibilities - I. FISCAL REPORTING (Recommendations 1.1–1.4) — selected actions: - Prepare and maintain comprehensive list of general government units and public corporations; include state SNCOs in consolidated central government budget execution reports; ensure proper sectorization; expand consolidated reports to include municipal NCOs and relevant public corporations. Responsibility: MoF, NSS. - Collect and consolidate data on general government assets and liabilities; publish state balance sheet monthly and annually; compile consolidated central government balance sheet (including SNCOs) based on GFSM 2014. Responsibility: Government, MoF. - Compile and publish reconciliation tables: change in stocks and related flows; deficit/surplus and change in debt; differences between GFSM 2014 and SNA 2008. Responsibility: MoF. - Ensure IPSAS-based accounting information delivers GFSM 2014 and SNA 2008 information; integrate cash and accrual reporting; enforce IPSAS-based national accounting standards; publish financial statements. Responsibility: MoF, CoA. - II. FORECASTING AND BUDGETING (Recommendations 2.1–2.3) — selected actions: - Include statement of compliance to fiscal rules in 2019-2021 MTEF and 2019 annual budget; include reconciliation tables in 2019 annual budget and subsequent MTEFs; include high-level breakdown of revenue and expenditure by economic classification in 2020-2022 MTEF; commence restructuring MTEF and annual budget as rolling baseline process; provide training. Responsibility: Government, MoF, SRC. - Disclose alternative forecasts: include comparisons of official forecasts with those of other agencies in 2019-2021 MTEF and 2019 budget. Responsibility: MoF, others. - Include projected revenue and spending of extra-budgetary accounts in 2020 budget; amend Art 11 of BSL to limit increases in spend and require Parliamentary approval beyond limit; amend Art 19 of BSL to include clear access criteria to Government Reserve Fund. Responsibility: Parliament, Government, MoF, CoA. - III. FISCAL RISKS (Recommendations 3.1–3.3) — selected actions: - 2019 budget: include summary table indicating key fiscal risks, their probability and potential fiscal impact; 2020–2022 MTEF and 2020 budget: enhance scope and quantification; 2021–2023 MTEF: include implicit and explicit risks. Responsibility: MoF unit responsible for fiscal risks coordination and other state agencies. - Approve PPP Law and implementing decree; establish database and annual publication of PPP rights, obligations and exposures; establish legal limit on accumulated PPP obligations consistent with fiscal rule. Responsibility: Parliament, Government, MoF, MoEDI. - Extend SPMD monitoring report to include government objective for each public corporation, minority shareholders, and all interactions with the budget, phased across 2019–2021. Responsibility: SPMD. - Appendix II and III provide methodological notes, detailed balance sheet estimates (Table A.2) and estimation of specific fiscal risks (explicit and implicit values such as Guarantees 1.4 percent of GDP; Underwriting of Deposit Guarantee Scheme 5.8 percent of GDP; PPPs total investment 10.2 percent of GDP; Unfunded pension liabilities 51.5 percent of GDP; Natural disasters average annual loss 1.3 percent of GDP; Probable maximum loss earthquake 2.6 percent of GDP). _Italic source: Appendix I. Government Fiscal Transparency Action Plan (2018–21), and Chapters I–III, 1armea2019004 (IMF Fiscal Transparency Evaluation — Armenia)._ ### PREFACE _________________________________________________________________________________________ 7 ### 1armea2019004 - PREFACE _________________________________________________________________________________________ 7 ### Mission and Scope - A technical mission from the Fiscal Affairs Department (FAD) of the IMF visited Yerevan, Armenia during the period March 28-April 10, 2018 to conduct a Fiscal Transparency Evaluation (FTE). - Mission leader and team: Mr. Johann Seiwald (FAD); Mr. Fazeer Sheik Rahim (FAD); Ms. Viera Karolova (STA); Mr. John Zohrab (Regional Advisor); Mr. Vahram Janvelyan (local IMF Office); Mr. Eivind Tandberg (short-term expert). - Principal counterparts met: - Ministry of Finance: Mr. Vardan Aramyan (Minister of Finance); Mr. Atom Janjughazyan (First Deputy Minister); Mr. Armen Hayrapetyan (Deputy Minister); and senior officials across Macroeconomic Policy Department; Budget Block; Department for Financial Planning of Budget Expenditures; Fiscal Risk Assessment Division (FRAD); Department for Monitoring Obligations to the State Budget (DMOSB); Budget Execution Reporting Department; Public Debt Management Department; and Public Sector Accounting Methodology and Reporting Monitoring Department. - Other public bodies: Committee Chair, Financial-Credit and Budgetary Affairs (Parliament); Chamber of Control; Ministry of Labor and Social Affairs (MoLSA); Department of Financial System Stability and Development, Central Bank of Armenia (CBA); Ministry of Energy and Natural Resources; State Property Management Department; National Statistics Service (NSS); State Revenue Committee; Department of Investment Attraction and Coordination; Ministry of Economy. - Development partners briefed: World Bank; Gesellschaft für Internationale Zusammenarbeit (GIZ); Asian Development Bank (ADB); USAID. - Acknowledgements: In particular Mr. Eduard Hakobyan; Ms. Yulia Ustyugova (IMF Resident Representative in Armenia); Ms. Marina Aleksanyan; Mr. Khachatur Adumyan; Ms. Lilit Simonyan. ### Executive Summary — Key Findings - Overall progress: - Armenia’s fiscal transparency practices have benefitted from public financial management reforms over the last decade; several planned reforms will bring further progress. - Fiscal forecasts and budgets have become more forward looking and policy oriented through an MTEF, improved fiscal objectives, and a performance budgeting system. - Fiscal risk disclosure has gradually improved, particularly macrofiscal risk assessment; a PPP law is being drafted. - Accrual accounting reform will significantly improve coverage and quality of budget execution reports and fiscal statistics. - IMF Fiscal Transparency Code (FTC) assessment: - Armenia meets the standard of good or advanced practice on 16 of the 36 principles, and of basic practice on a further 14 principles. - Noted strengths: - Publication of a monthly budget execution report within a month comprising multiple classifications, and financial statistics within 4 months for general government. - Presentation of an MTEF and annual budget with comprehensive macro-economic forecasts, fiscal objectives, and performance information, submitted to parliament in a timely manner per the Budget System Law. - Analysis of impact of alternative macroeconomic scenarios on public finances and fiscal risk disclosure on specific fiscal risks in different documents. - Semiannual monitoring reports on financial performance of public corporations provide aggregate and company-level data for most public corporations; individual transfers between government and public corporations are disclosed in budget documents. - Public corporations’ liabilities noted as high at 15 percent of GDP and profitability of the sector is weak. - Noted weaknesses and risks: - No individual fiscal report provides a complete picture of general government activity; several loss-making public corporations (representing about 2 percent of GDP) may likely have to be reclassified into general government but no market/non-market test is undertaken. - Differences between fiscal balances reported in statistical reports based on GFSM 2014 and SNA 2008 are sizeable at 2.5 percent and deviations are not explained. - Recent changes to the fiscal rules framework increase flexibility but require efforts to strengthen credibility and ensure compliance; the Parliamentary Budget Office does not have the function to conduct independent evaluation on compliance of government fiscal forecasts and fiscal policy objectives. - Large differences between same year MTEFs and annual budgets (0.6 percent of GDP) are not well explained and lack a reconciliation table. - Extensive in-year changes to budget appropriations can undermine budget credibility: an average 8.6 percent of expenditure does not undergo explicit legislative approval (includes extra-budgetary accounts not budgeted for, use of the Government Reserve Fund, and in-year revisions). - Information on specific fiscal risks is fragmented across MTEF, annual budget documentation, and other documents. Comprehensive risk analysis is published for financial liabilities (65 percent for general government), but no published risk analysis exists for financial assets—on-lending, inter-state loans, and budgetary loans (26 percent) are subject to significant valuation risks. - Risk assessments are provided for only two out of four PPPs amounting to a capital stock of 10.2 percent of GDP; important information such as total rights and obligations are missing. A PPP law is under preparation. ### Ten Policy Recommendations (as presented) 1. Expand the institutional coverage of the budget execution to central government, and statistical reports to general government by including non-market public corporations and municipal non-commercial organizations; 2. Publish a balance sheet for central government, and expand its coverage to general government; 3. Enhance consistency, comparability, and integrity of fiscal reporting by providing reconciliation of key fiscal aggregates; 4. Ensure that introduction of the new accounting system improves comprehensiveness, quality, and compatibility of fiscal reports; 5. Strengthen the MTEF and budget documentation by including a statement of compliance to fiscal rules and reconciliation tables for revenue and expenditure in the MTEF and budget message; 6. Strengthen independent evaluation by ensuring ex post compliance audit to fiscal rules by the Chamber of Audit; and building technical capacity at the Parliamentary Budget Office, to prepare for the medium-term role of the PBO to assess ex ante compliance in the draft budget; 7. Reduce in-year revisions to the budget by including extra-budgetary accounts in the annual budget; and introduce clear access criteria for the Government Reserve Fund; 8. Provide a consolidated fiscal risk summary (FRS) in the budget documentation, and assign the responsibility for coordinating the FRS to a unit of the MoF; 9. Ensure that the legal framework for PPPs provides for a clear and comprehensive definition of PPPs; and establish a legal limit on accumulated PPP obligations consistent with Armenia’s fiscal rule; and 10. Extend reporting on public corporations to provide a more complete picture of their financial performance, any conflicts of interest, and budgetary impacts. ### Public Sector Financial Overview (2016) — Key Statistics - Consolidated public sector expenditures: 45.7 percent of GDP. - Public sector asset holdings: around 108.8 percent of GDP. - Public sector liabilities: around 109.1 percent of GDP. - Public sector net worth: 0.3 percent of GDP. - Central government data include estimated non-financial assets and liabilities from PPPs of 10.2 percent of GDP and estimated explicit military pension liability of 6.1 percent of GDP. - Estimated implicit liabilities from the ‘pay as you go’-pension scheme: 51.5 percent of GDP (not included in liabilities but reflected under memo item “Net financial worth including pension liabilities”). - Public corporations’ liabilities highlighted at 15 percent of GDP; loss-making public corporations represent about 2 percent of GDP. - Reported sizeable reporting discrepancy: fiscal balances difference between GFSM 2014 and SNA 2008 of 2.5 percent. - Same-year MTEF vs. annual budget difference: 0.6 percent of GDP. - Average share of expenditure not undergoing explicit legislative approval: 8.6 percent. - PPP capital stock reported: 10.2 percent of GDP. ### Implementation and Follow-up - Annex I prioritizes and sequences the recommendations into a Government Fiscal Transparency Action Plan (2018–21). - The report notes that implementation will require effort and that the government could benefit from capacity building from IMF and other TA providers. - The remainder of the report is organized into three chapters evaluating: - Chapter I: coverage, timeliness, quality, and integrity of fiscal reporting; - Chapter II: comprehensiveness, orderliness, policy orientation, and credibility of fiscal forecasting and budgeting; - Chapter III: disclosure and management of fiscal risks. _Italic source: PREFACE and EXECUTIVE SUMMARY, 1armea2019004 (IMF Fiscal Transparency Evaluation — Armenia), March 28–April 10, 2018._ ### 1. Fiscal reports should provide a comprehensive, timely, reliable, comparable, and ### 1armea2019004 - 1. Fiscal reports should provide a comprehensive, timely, reliable, comparable, and ### Assessment scope and standards - This chapter assesses Armenia’s fiscal reporting practices against the IMF’s Fiscal Transparency Code for the following dimensions: - Coverage of public sector institutions, stocks, and flows; - Frequency and timeliness of reporting; - Quality, accessibility, and comparability of fiscal reports; - Reliability and integrity of reported fiscal data. ### Main fiscal reporting practices and recent reforms - Key advancements: - Adoption of the Government Finance Statistics Manual 2001 (GFSM 2001) for the economic classification of the budget in 2008. - Publication of monthly and quarterly reports on budget execution on a cash basis. - Adoption of the System of National Accounts (SNA) 2008 and publication of annual national accounts for the general government sector. - Launching a new national accounting system at the ministry level based on International Public Sector Accrual Standards (IPSAS) to be completed in 2025. - Principal summary fiscal reports: - Monthly and quarterly budget execution reports (state budget cash-based outturns for revenue, expenditure, and financing; quarterly reports provide more detailed data by economic categories for state budget and local governments). - State debt data and bulletins prepared monthly, quarterly, and annually (details by residence, currency, maturity, and type of interest rate). - Annual budget execution report consolidated for cash revenues, expenditures, and financing covering the state budget and local governments; SNCOs consolidated only after accounting reform. - Fiscal statistics: MoF’s Debt Department according to GFSM 2014 (cash basis; not published nationally), and NSS according to SNA 2008 (non-cash; published regularly). ### Frequency, timeliness, and publication lags (selected items from Table 1.1) - Monthly Budget Execution Reports: Cash basis; Monthly; Lag 30d. - State Budget Indicators: Cash basis; Monthly; Lag 30d. - State Debt Data: Non-cash; Monthly; Lag 30d. - Quarterly Budget Execution Reports: Cash basis; Quarterly; Lag 30d. - Consolidated Budget (quarterly): Cash basis; Quarterly; Lag 30d. - Annual Budget Execution Report: Cash basis; Annual; Lag 4m. - Annual Debt Report: Non-cash; Annual; Lag 5m. - National Accounts (SNA 2008): Non-cash; Annual; Lag 18m. - Note: BCG: Budgetary Central Government; CG: Central Government; LG: Local Government; R: Revenue; E: Expenditure; Fin: Financing; GFSM 2014 and SNA 2008 classification noted. ### Coverage of institutions and fiscal outcomes (2016) - Public sector composition: - At least 3,464 public units across subsectors (precise number unknown; comprehensive list does not exist). - Central government: 1,961 units (including 66 central government budgetary units and 1,895 SNCOs classified as extra-budgetary funds). - Local government: at least 1,201 units (including 502 municipalities and thousands of MNCOs; 699 MNCOs conduct limited commercial activities). - Public nonfinancial corporations: around 288 corporations controlled by central government (241 joint-stock companies); number controlled by local government unknown. - Public financial corporations: 14 units (NCB and its 10 subsidiaries, plus three state corporations). - Aggregate public sector finances, 2016 (Percent of GDP): - Public Sector: Revenue 28.1; Expenditure 34.8; Net lending/borrowing -6.8. - General government: Revenue 24.9; Expenditure 30.3; Net lending/borrowing -5.4. - Central government (consolidated): Revenue 23.5; Expenditure 28.9; Net lending/borrowing -5.5. - State Budget: Revenue 23.1; Expenditure 28.5; Net lending/borrowing -5.5. - State Non-Commercial Organizations (SNCOs): Revenue 3.3; Expenditure 3.3; Net lending/borrowing 0.0. - Local government (consolidated): Revenue 2.6; Expenditure 2.5; Net lending/borrowing 0.1. - Nonfinancial public corporations: Revenue 3.8; Expenditure 5.0; Net lending/borrowing -1.2. - Central Bank: Revenue 0.6; Expenditure 0.7; Net lending/borrowing -0.1. - Observations: - Public sector expenditures amounted to 34.8 percent of GDP in 2016. - General government net expenditure accounted for 29.2 percent of GDP (around 91 percent by central government, 1 percent by local governments). - Expenditures of SNCOs (~3.5 percent of GDP) are almost entirely financed through government transfers. - Public corporations net expenditure added 5.6 percent of GDP (majority from nonfinancial corporations). ### Gaps in institutional and subsector coverage - No single report provides complete coverage of general government or public sector activity: - Budget execution reports consolidate budgetary central and local governments but exclude EBFs (SNCOs and MNCOs). - Annual GFSM 2014 statistical reports include SNCOs but do not capture MNCOs (not published). - NSS SNA 2008 general government accounts are compiled and published but sector definition is not fully compliant with international statistical standards. - Impact of expanding coverage: - Including SNCOs and MNCOs would add 3.5 percent of GDP to both revenue and expenditure but not change the deficit. - Expanding to include public corporations (public sector basis, accrual) would add 4.4 percent of GDP to revenue and 5.7 percent of GDP to expenditure, resulting in an overall public sector deficit of 6.8 percent of GDP. - Loss-making public corporations: - Of 199 public corporations monitored, 49 units have cumulated losses of 2.8 percent of GDP (mainly energy and water sectors). - These loss-making units had expenditures of 3.7 percent of GDP (including net investment in non-financial assets of 1.8 percent of GDP) and an accrual deficit of 1.9 percent of GDP in 2016. - Such loss-making public corporations could be classified in general government under GFSM 2014 if they do not operate on a market basis. ### Coverage of stocks, asset valuation, and reporting gaps - Published stock data: - State budget deposits and state debt data are published in the annual State Debt Report (by residency, currency, maturity, type of interest rate). - Treasury State Account (TSA) reports state budget cash deposits. - No single comprehensive balance sheet exists for any public subsector; data are fragmented across agencies. - Selected stock figures and aggregates, 2016 (Percent of GDP): - Public sector Assets 102.3; Nonfinancial Assets 56.8; Financial Assets 45.5. - Public sector Liabilities 101.9; Liabilities other than equity 101.9. - Public sector Net worth 0.3; Net financial worth -56.5. - Net fin. worth including pension liabilities -108.0 (note: inclusion of implicit pension liabilities). - Additional stock details and data gaps: - State financial assets and liabilities reported as 25.2 and 51.8 percent of GDP respectively, but data are dispersed and not consolidated. - Liabilities related to PPPs and pensions would raise state liabilities to 68.1 percent of GDP once included. - Single SNCOs report balance sheets (individual data: assets 3.8 percent of GDP; debt 2.9 percent of GDP) but no aggregated report. - Local governments reportedly have limited financial assets and liabilities (strict borrowing rules; no municipal debt). - Non-financial asset data gaps and valuation issues: - Partial data on state non-financial assets subject to privatization: 2.8 percent of GDP (from SPMD). - Line ministries report non-financial assets amounting to 17.4 percent of GDP (mostly operational assets); these balance sheets are not publicly available. - Non-financial assets such as infrastructure, natural resources, historical buildings, land are not available centrally; many are owned by local governments and operated by MNCOs. - Non-financial assets of SNCOs (0.8 percent of GDP) and public corporations (11.8 percent of GDP) exist in individual financial statements but lack aggregation. - Non-financial assets and liabilities related to PPP contracts (10.2 percent of GDP), explicit military pension liabilities (6.1 percent of GDP), and implicit liabilities of the pay-as-you-go social security pension scheme (51.5 percent of GDP) are not reported by the government. - Consequences and valuation caveats: - Estimated consolidated public sector asset holdings (excluding implicit pension liabilities) at least 102.3 percent of GDP and liabilities 101.9 percent of GDP in 2016. - Public sector net worth estimated at 0.3 percent of GDP; net financial worth at -56.5 percent of GDP. - Including estimated implicit pension liabilities results in public sector net financial worth of -108 percent of GDP. - These aggregates exclude government-owned infrastructure, land, subsoil assets, and historical buildings (no indicative values available). - Valuation of non-financial assets likely does not reflect market prices; proper valuation and adding missing assets would likely improve net worth materially. ### Coverage of flows and recording issues - Flow coverage: - Budget execution reports and GFSM 2014 statistical reports cover cash revenues, expenditures, and financing but do not include accrued transactions and other economic flows. - SNA-based national accounts include some accrual elements (e.g., consumption of fixed capital) but GFSM 2014 reports are on a cash basis. - Recording inconsistencies with international standards: - Some national rules do not reflect the economic substance of transactions, resulting in underestimated government deficits. - Examples: - Capital injections to loss-making public corporations are treated as acquisitions of shares/equities rather than as expenditures. - Dividends are treated as revenue in budget execution reports even if paid out of revaluation gains or reserves rather than operational profits. ### Reporting fragmentation and accessibility - Despite a large volume of fiscal data, reporting is fragmented and not always publicly available: - Budget execution reports and fiscal statistics mainly cover flows; stock data are dispersed across central and local government reports. - Reports for SNCOs and most public corporations are not published publicly. - Data on MNCOs are available only to local governments. *Source: GFSM 2014 report, Armenian authorities, financial statements of public corporations, and IMF staff estimates.* ### 19. Recognizing of non-cash transactions not covered in the reports may have a ### 1armea2019004 - 19. Recognizing of non-cash transactions not covered in the reports may have a ### Non-cash transactions and accrual impact - Non-monetary operations not currently captured can have a noticeable impact on the general government deficit on an accrual basis. - Examples and implications: - Inclusion of capital investments performed through PPPs, where the government bears most associated risks, should be counted as government investment in non-financial assets and "will significantly increase the government deficit at the time the construction and other related works are performed." - Capturing the net accrual pension entitlements of public military employees "will impact the deficit as well as financing." - Delayed payments in trade credits and other payables seem to be insignificant. ### Coverage of Tax Expenditures (Good) - Practices: - Since 2015, estimated tax expenditures are published in the explanatory note of the annual budget documentation including estimates for the three main taxes, VAT, corporate income tax and personal income tax (70 percent of total taxes). - VAT expenditures with around 40 lines of exemptions in the tax code are presented by sectors (e.g. health, education, financial and insurance sectors) and by other broad categories of exemptions. - Breakdown of PIT and CIT expenditures includes only privileges on agriculture, dividends, and VAT thresholds. - The State Revenue Committee plans to expand its reporting on individual tax exemptions in 2019. - Key figures: - Tax expenditure accounts for almost 7 percent of GDP (Figure 1.5) and one third of total collected taxes. - Governance gap: - "There is no control on, or budgetary objectives for, the size of tax expenditures." - Recommendation approach: reduce tax expenditure size via budgetary objective or limit and report on implementation. ### Frequency and Timeliness of Fiscal Reporting - In-year reporting: - "In-year state budget and local government reports are published monthly, within a month." - These budget execution reports are published within 30 days of the end of month. - Monthly data on the state budget debt are published within a month. - Quarterly budget execution reports are published within one month at the end of each quarter. - Timeliness of annual financial statements: - "Annual budget execution reports are published within 4 months of the following year." - Sectoral national accounts for the general government compiled by the NSS are published with a delay of 18 months. - Armenia is among the group of countries that publish their annual fiscal report within 6 months. ### Quality of Fiscal Reports - Classification (Advanced): - Fiscal reports provide information by administrative, economic, functional, and program classification in line with international standards (COFOG; GFSM 2014). - Revenues aggregated into three types: tax revenues and state duties, official grants, and other income. - Current limitations: - Government Reserve Fund actual expenditure is classified into an eleventh category alongside the ten COFOG categories instead of by purpose—this constitutes "2.5 percent of total spending in the past three years." - Exclusion of SNCOs distorts central government spending by economic type; central government compensation of employees is "largely underestimated in these reports (by 47 percent in 2016—see Table 1.3)." - Internal consistency (Basic): - Armenia reliably publishes one of the three internal consistency checks required under the Code: reconciled above-the-line fiscal deficits with below-the-line financing. - No reconciliation available between net financing and the change in the stock of debt. - Absence of a balance sheet complicates stock-flow reconciliation; unexplained residuals in 2014 and 2015 were 0.7 and 0.2 percent of GDP, respectively. - Historical revisions (Not met): - Fiscal statistics are not systematically revised to reflect new information. - GFSM 2001/2014 submissions to the IMF’s Government Finance Statistics Yearbook have never been revised. - NSS made a one-off methodological revision in 2015 when moving from SNA 1993 to SNA 2008, but systematic publication of revisions and labeling of provisional/revised/final numbers is lacking. ### Integrity of Fiscal Reports - Statistical Integrity (Good): - Official fiscal statistics are compiled and disseminated by the Statistical Committee on the SNA 2008 basis. - The Statistical Committee is a state body; the President of the Statistical Committee is appointed for a term of six years. - Law requires NSS statistics to follow principles of objectivity, reliability, accuracy, confidentiality, comparability, and accessibility. - MoF compiles GFSM 2014-based statistical reports which are not published or reconciled with national accounts. - Capacity constraints at NSS and MoF may constrain full implementation of international statistical standards. - External Audit (Basic): - The Chamber of Control (CoC) published an opinion on the annual budget execution report, but it is not a full financial audit (does not provide "true and fair view" assurance). - New Audit Law established the Chamber of Audit (CoA) in April 2018 to supersede the CoC; CoA will conduct financial audits according to ISAs and has strengthened independence. - CoA plans to start conducting financial audits according to ISAs for the central government budget execution report in 2018, gradually increasing coverage; it is also piloting financial audits of budget institutions in terms of IPSAS-based Armenian Public Sector Accounting Standards (APSAS). - Comparability of Fiscal Data (Basic): - Budget execution reports are prepared on the same economic basis as the budget. - Differences between GFSM 2014 and SNA 2008-based reports are significant: average difference in general government deficit (net lending/borrowing) is 0.6 percent of GDP; unexplained differences between fiscal balance based on national accounts and GFSM 2014 can vary up to 2.5 percent of GDP. ### Tabled and Tabular Data (selected exact figures) - Table 1.3. Armenia: Spending by Economic Type, including and excluding SNCOs (AMD, billion in 2016): - State Budget | Central Government - Compensation of employees 142 270 - Use of goods and services 162 136 - Interest 98 98 - Subsidies 121 61 - Grants 158 133 - Social benefits 405 407 - Other expense 195 198 - Net/gross investment in nonfinancial assets 167 167 - Total 1,449 1,470 - Source: GFS data - Miscellaneous statistics reproduced verbatim: - Tax expenditures: "almost 7 percent of GDP" and "one third of total collected taxes." - VAT, CIT, PIT: 70 percent of total taxes. - VAT exemptions: "around 40 lines." - Monthly reports: published within 30 days. - Annual budget execution reports: published within 4 months. - Sectoral national accounts delay: 18 months. - Government Reserve Fund: "2.5 percent of total spending in the past three years." - Underestimation of compensation of employees due to SNCO exclusion: "47 percent in 2016." - Unexplained residuals in stock-flow adjustments: "0.7 and 0.2 percent of GDP" for 2014 and 2015. - Reconciliation differences between GFSM and SNA: "on average 0.6 percent of GDP"; up to "2.5 percent of GDP" in comparisons. ### Recommendations (extracted and grouped) - Issue: Incomplete institutional coverage of fiscal reports. - Recommendation 1.1: Expand institutional coverage of the budget execution and statistical reports. - Ensure proper sectorization applying the “market/non-market test” (GFSM 2014 and SNA 2008). - Prepare and maintain a comprehensive and up-to-date list of general government units and public corporations. - Expand consolidated general government statistical reports by including municipal NCOs and non-market public corporations (GFSM 2014 and SNA 2008). - Include state SNCOs in consolidated central government budget execution reports. - Issue: Absence of integrated balance sheet. - Recommendation 1.2: Publish balance sheet for central government and expand coverage to general government. - Collect and consolidate fragmented data on assets and liabilities from SPMD, ministerial balance sheets, Treasury, Public Debt Management, Department of Shares, Department of State Obligations, SNCOs, and other relevant bodies. - Publish a consolidated central government balance sheet (including SNCOs) based on GFSM 2014, initially with available information and gradually expand. - Present a state financial balance sheet covering all financial assets and liabilities and publish in a relevant report or bulletin on a monthly and annual basis. - Issue: Lack of reconciliations undermining credibility. - Recommendation 1.3: Enhance consistency, comparability, and integrity of fiscal reporting. - Compile and publish reconciliation tables for (i) change in stocks and related flows by financial asset/liability categories; (ii) deficit/surplus and change in debt; (iii) differences between GFSM 2014 and SNA 2008 aggregates with explanatory note. - Ensure material government operations (e.g., capital injections to loss-making corporations) are classified to reflect economic substance. - Conduct systematic review of fiscal statistics for compliance with international standards, incorporate new information/methodology, and revise time series with an accompanying note explaining revisions. - Assign clear GFS responsibilities in MoF and ensure adequate capacity. - Issue: Implementation of new accounting system should improve reporting. - Recommendation 1.4: Ensure the new accounting system improves comprehensiveness, quality, and compatibility of fiscal reports. - Enforce IPSAS-based national accounting standards and publish financial statements. - Integrate cash-based budget execution reports and accrual-based accounting; ensure reconcilability between budget execution, fiscal statistics, and financial statements. - Provide comprehensive balance sheet data covering all general government assets and liabilities integrated with flow data. - Ensure accounting information is designed to deliver information according to GFSM 2014 and SNA 2008, including intra/inter public sector flows and stocks and counterpart sectors. ### Summary Evaluation: Key high-importance findings (verbatim figures) - Public corporations with net expenditures of 5.6 % of GDP and non-equity liabilities of 40.9 % of GDP are outside fiscal statistics. - Unreported public sector assets of 82.6 percent of GDP and liabilities of 34.1 percent of GDP. - Tax expenditures of 7 percent of GDP. - Monthly reporting periodicity: Monthly 67%; Quarterly 17%; Semi-annually 1%; Annually 15% (as presented). - Timeliness: Armenia publishes within "1 month or less" for monthly reports (50% category referenced). *Source: IMF staff estimates, Fiscal Transparency Evaluations.* ### 35. This section assesses the quality of fiscal forecasting and budgeting practices ### 35. This section assesses the quality of fiscal forecasting and budgeting practices ### Overview - Focuses on four main areas assessed against the Code: - The comprehensiveness of the budget and associated documentation; - The orderliness and timeliness of the budget process; - The policy orientation of budget documentation; and - The credibility of the fiscal forecasts and budget proposals. ### Summary of overall assessment - Armenia meets good or advanced practices in six out of the 12 indicators, with: - A well-articulated budget process; - A comprehensive set of fiscal objectives; and - High-quality budget documents. - Strengths include a modern legal and regulatory framework for budget preparation, and budget documentation containing detailed macroeconomic forecasts that underlie budget planning. - The budget proposal is submitted to Parliament "90 days ahead of the budget year and one month before." - Shortcomings relative to basic practice under the Code: - Lack of independent evaluation of the government’s fiscal forecasts and compliance with fiscal policy objectives; - Extensive in-year changes to budget appropriations, without specific parliamentary approval; - Large differences across successive MTEFs and annual budgets that are not well explained and properly documented; and - Limited public participation in the budget process, except at the local level. ### 2.1 Comprehensiveness of Budget Documentation - Budget Unity (Basic) - Annual budget documentation provides information on revenue, spending, and financing activities of budgetary central government and SNCOs. - Budget documents cover projected revenue, planned expenditure of state budget institutions by administrative, functional, economic, and program classification. - An annex presents projected gross revenue (budget transfers and own source revenue) and planned spending of SNCOs, aggregated by line ministries. - Revenues from extra-budgetary accounts of budgetary entities are not included in the budget. Extra-budgetary accounts are sub-accounts of budget institutions (e.g., Police, State Revenue Committee) for earmarked non-tax revenues, external grants, and sales income; spending from extra-budgetary accounts is authorized by government decree during the year. - In 2018, extra-budgetary accounts amounted to AMD 33.8bn in 2016 - 2.8 percent of total revenue (Figure 2.1). Together with SNCOs own-source revenue, these represented 4.7 percent of total state revenue (Figure 2.2). - Implication for fiscal rules - Exclusion of extra-budgetary accounts complicates implementation of fiscal rules: the Budget System Law requires the government to commit to a cap on current expenditure when debt exceeds 50 percent of GDP (indicator 2.3.1). Ex ante expenditure does not include extra-budgetary accounts, while ex-post it does, so an ex ante cap may be violated ex post as extra-budgetary revenue and spending materialize. - Macroeconomic Forecasts (Advanced) - Budget documentation contains detailed macroeconomic forecasts: three year-ahead forecasts of key macroeconomic variables (such as GDP and inflation), demand and supply determinants, and assumptions on external and domestic environment. Recent performance of these variables and their fiscal impact are comprehensively discussed. - Forecasts first provided in the MTEF (submitted to Parliament in June) and updated in the annual budget document. - Medium-term forecasts have been optimistic in recent years but have not substantially differed from those by external agencies. Between 2001-08, outturns for real GDP exceeded forecast; between 2011-2016, real GDP underperformed. The same pattern holds for inflation. Over 2011-16, real GDP underperformance relative to authorities’ forecasts was similar to that of other forecasters (Figures 2.3–2.5). - Medium-Term Budget Framework (Good) - MTEF introduced in 2003; annual MTEF published in July, three months before the draft budget in October. MTEF includes: - Forecasts for state budget revenues for the next three years, disaggregated by first level of economic classification; - Outturns for revenues (actual previous year, estimated current year); - Forecasts for state budget expenditures for the next three years, disaggregated by functional, administrative, and program classifications, and capital/current distinction; and - Outturns for expenditures (actual previous year, estimate for current year) disaggregated by functional classification and in parts by capital/current distinction. - Deviations across MTEFs and annual budgets highlight a loose relationship: the annual budget approved less than six months after the MTEF has differed markedly from the MTEF in recent years (Figure 2.6). Causes include changes in macro-fiscal forecasts and separate bidding processes by ministries for MTEF and the annual budget. Referring the MTEF to the Debt Sustainability Analysis (DSA) would improve consistency. - Fiscal outturn deviations: expenditure outturns have exceeded MTEF envisaged amounts (particularly the second outer year, around 1 percent of GDP), balanced by conservative revenue projections; as a result, MTEF has provided more accurate fiscal balance estimates. Cross-country comparisons show Armenia’s average medium-term forecast errors in expenditure and revenue relative to peers (Figures 2.7a–2.7b). - Investment Projects (Basic) - Total multi-annual obligations under investment projects are not disclosed comprehensively, although substantial information—especially on external loans financing them—is provided across MTEF, annual budget documents, and execution reports, and two Ministry of Finance data sheets. None disclose total obligations from projects; undisbursed loan amounts are not generally equal to commitments under construction contracts. - Cost-benefit analyses for major investment projects are not required prior to approval under a uniform methodology and are not always published. Donor-financed projects usually have donor methodologies and analyses, typically not published. No requirement exists for cost-benefit analyses for projects financed from general budget resources. - Major investment projects are generally required to be subject to open and competitive tender; projects financed from general budget resources are subject to procurement law, while donor-financed projects are exempt from the procurement law because of international agreements (but donors generally require open and competitive tendering). - General government investment amounts to 3.3 percent of GDP (Figure 2.8). Authorities plan to almost double nominal general government capital expenditure over the next four years. Given state debt of 53.6 percent of GDP in 2017, efficiency in public investment is important. - Reforms under way - A new PPP Law is being drafted; government expected to develop a reform agenda for public investment management. A Public Investment Management Assessment (PIMA) will be undertaken by the IMF later this year to provide recommendations. ### 2.2 Orderliness - Fiscal Legislation (Advanced) - The Budget System Law (BSL) regulates contents of the budget proposal, the budget preparation calendar, and a constitutional law regulates legislature’s budget amendment rights. Article 15 of the BSL contains detailed provisions for MTEF contents; article 16 for the annual budget document. Article 21 gives directions for MTEF and budget preparation processes, including deadlines: MTEF submission to Parliament by July 20 each year and budget submission 90 days before the budget year. BSL regulates municipal budgets (articles 27–36). The law on parliamentary procedures stipulates Parliament can propose changes to the draft budget and government must provide a revised budget proposal containing accepted changes; Parliament must accept or reject the revised budget in its totality (no voting on individual items). - The BSL was adopted in 1997 and amended regularly, most recently in 2017. The BSL is supported by annual decrees and regulations that provide further guidance. Each year the Government issues a decree with a detailed program and timetable for MTEF and budget preparation. Following budget approval, another decree regulates budget execution, including quarterly breakdowns and directions for budgetary amendments and extrabudgetary account transactions. - Timeliness of Budget Documents (Good) - The budget proposal is submitted to Parliament 90 days before the budget year and approved by early December. The deadline for submission is prescribed in the BSL and is always complied with, according to the Ministry of Finance. Parliament has ample time for deliberations; budget approval is generally well before the budget year. Table 2.3 indicates annual budgets 2014–18 were submitted in time and approved before the end of the financial year: - Draft State budget 2014: Date of budget submission October 2, 2013; Date of budget approval December 12, 2013 - Draft State budget 2015: Date of budget submission October 2, 2014; Date of budget approval December 4, 2014 - Draft State budget 2016: Date of budget submission October 2, 2015; Date of budget approval December 9, 2015 - Draft State budget 2017: Date of budget submission September 30, 2016; Date of budget approval December 8, 2016 - Draft State budget 2018: Date of budget submission October 2, 2017; Date of budget approval December 8, 2017 ### 2.3 Policy Orientation - Fiscal Policy Objectives (Good) - Fiscal policy is guided by an upgraded set of fiscal rules set in the Budget System Law: - The state deficit proposed for the budget year (t+1) cannot exceed 7.5 percent of GDP envisaged in the coming year budget (t+1); - If state debt exceeds 40 percent of GDP, capital expenditures (t+1) should not be below the level of planned state budget deficit; - If state debt is between 50 and 60 percent of GDP, the above still applies, and, in addition, the growth rate of primary current expenditure is capped by the historical (average of the last 7 years) growth rate of GDP; - If state debt exceeds 60 percent of GDP, the government must, in addition to the above (but the growth rate of primary current expenditure will be capped at 0.5 percent lower of the average growth rate of GDP), total current expenditure cannot exceed the total amount of tax revenues for the upcoming year; - When state debt exceeds 50 percent of GDP, the government is required to present a corrective action plan in the MTEF to bring debt below 50 percent of GDP within 5 years; and - When state debt exceeds 60 percent of GDP, the government must submit a program of measures to the National Assembly to bring debt below 60 percent within 5 years. - An escape clause allows suspension of the set of measures in exceptional cases (disasters, war, negative economic shocks); this does not apply to the deficit limit of 7.5 percent of GDP. - Evolution of rules - Timeline of key changes summarized (Figure 2.9): - 2002: -5% deficit ceiling - 2008: Deficit ceiling increased to 7.5% - 2009: Debt ceiling increased to 60%; -50% debt brake introduced, with 3% deficit correction mechanism - 2015: Definition of state debt changed to exclude central bank debt - 2018: Automatic correction at 50% and 60% debt removed. Government to present a corrective action plan instead; Escape clause introduced; Cap on expenditure to be set by government decree - Contextual data points - State debt of 53.6 percent of GDP in 2017. - General government public investment amounts to 3.3 percent of GDP. - Extra-budgetary accounts amounted to AMD 33.8bn in 2016 - 2.8 percent of total revenue; together with SNCO own-source revenue they represented 4.7 percent of total state revenue. *Source: IMF staff assessment as presented in the provided content.* ### 56. The deficit rule has not been binding in recent years, but the debt brake was ### 1armea2019004 - 56. The deficit rule has not been binding in recent years, but the debt brake was ### Deficit and debt rules: recent history and current framework - The deficit ceiling was increased from 5 to 7.5 percent of GDP in 2009 and "has since not been binding." - Following the 2014 economic shock, debt rose above 50 percent of GDP, and the government was required to comply with the 3 percent deficit correction mechanism in preparing the 2017 budget. - Debt remains above 50 percent of GDP, but the fiscal rules framework adopted at end-2017: - no longer requires the 3 percent deficit correction; - expects the government to present a corrective action plan in the 2019-2021 MTEF; - expects the government to set a cap on current spending by decree. - Figures referenced: Figure 2.10 (Deficits and the Deficit Rules) and Figure 2.11 (Debt and the Debt Rules). Source: World Economic Outlook database. ### Recent amendments, escape clauses, and numerical limits - Amendments aim to increase flexibility while maintaining credibility: - The debt rules contain an escape clause to allow suspension in exceptional circumstances. - Authorities kept numerical limits unchanged and added an additional constraint at 40 percent. - The 50 percent debt brake no longer requires an automatic adjustment. - The 60 percent debt ceiling does not make new debt null and void. ### Transparency and linkages required by increased flexibility - Increased flexibility requires enhanced transparency and stronger links between MTEF and the budget: - Corrective action plan in the MTEF needs to be tightly linked with the budget and consistent over time (see indicator 2.1.3). - Systematically reconciling the MTEF with the budget and successive MTEFs would enhance credibility (see indicator 2.4.3). - Comparing government forecasts with other forecasters would demonstrate commitment to transparency and help produce more credible forecasts (see indicator 2.4.1). ### External scrutiny and verification mechanisms - Strong external scrutiny required for implementation: - Ex-ante scrutiny of fiscal projections and compliance can be provided by an independent fiscal institution (e.g., a Parliamentary Budget Office) once granted relevant functions and capacity. - Ex-post verification can be provided by the Chamber of Audit, which under the 2015 Constitution has the mandate to perform external audit on use of state funds covered in the Annual Budget Law. - Inclusion of government fiscal objectives, including the corrective action plan, in the Annual Budget Law will give the Chamber of Audit the mandate to undertake ex-post compliance checks. - IMF technical report referenced: ”Armenia: Upgrading Fiscal Rules,” Dabla-Norris et al, June 2017. ### Performance information (state budget documentation) - The state budget documentation includes ex ante and ex post performance information for all programs and sub-programs: - Program classification in use since 2008. - Annex to the budget message details objectives, outputs, and outcomes for all programs and sub-programs. - All programs have outcome descriptions; about half have some outcome indicators. - Quantitative indicators are used comprehensively for outputs. - Annual budget execution report discusses performance against targets and reasons for deviations. - Example (Box 2.1) — Ministry of Labor and Social Affairs Employment Services Program (sub-program: seasonal employment support for job-seeking owners of agricultural land): - Program Outcome Description: Unemployment rate reduced; sustainable employment provided; temporary employment indicator. - Non-financial Indicators: - Quantitative: cumulative number of programs: Q1: 270; Q2: 1,100; Q3: 2,200; year: 2,710 - Qualitative: compliance of programs and beneficiaries with selection criteria defined by legislation: year 100% - Timeliness: average duration of program implementation: year up to 180 days - Financial indicators (AMD million): Q1: 13.6; Q2: 55.5; Q3: 111.0; Q4: 13.699 - Source: Budget documentation. ### Planned reforms to performance budgeting - Reforms to improve quality and presentation of performance information scheduled for the 2019 state budget: - Introduction of appropriation by programs, replacing current combination of administrative unit, function, and economic item appropriations. - 2019 budget documentation will include quantitative outcome and output indicators in the annex to the budget message. - Expected improvements: more homogenous presentation of programs and subprograms, improved aligned performance indicators, addition of a third level to program classification, and a more transparent link of outcome information to appropriations. ### Public participation (basic) - Armenia published a budget guide describing the budget system, process, main aggregates, and economic indicators; readability can be improved and it lacks detailed implications for typical citizens. - Public comment on the draft budget is possible after submission to Parliament via a website (http://www.e-draft.am). - Citizens, NGOs, and business groups cannot formally attend parliamentary committee hearings or submit written comments to committees on the draft budget. - At local level, some initiatives exist (e.g., live broadcasting of local budget discussions, allocation of 1 percent of local budget directly by citizens), but these are small relative to overall spending. - International evidence cited suggests participatory budgeting can enhance quality of spending and improve tax compliance. ### Credibility: independent evaluation and forecast transparency - Independent evaluation (Not Met): - Government does not publish comparisons of its forecasts with independent forecasters; forecasts are not subject to independent evaluation. - MTEF and annual budget documentation do not compare government forecasts with independent institutions. - The Central Bank of Armenia provides an official statement to Parliament validating the proposed budget but not evaluating forecasts. - The Budget Office of Parliament: - Granted functional independence in 2016 with a mandate to support Parliament on budgeting issues. - Lightly staffed: three technical staff in total. - To act as an independent fiscal watchdog it needs a stronger mandate and capacity building. - IMF report referenced: “Armenia: Upgrading Fiscal Rules”, Dabla-Norris et al., June 2017. - Example of small effective fiscal council: Swedish Fiscal Policy Council (SFPC): - Resources limited: approximately US$ 1 million in 2011. - Demonstrated ability to review government plans against fiscal rule and provide favorable and unfavorable assessments. - Sweden: Forecast Errors for Real GDP (in percent) — 2000-2005: 0.58; 2006-2010: 1.87; 2011-2015: 0.47. ### Supplementary budgets and in-year spending flexibility (Not Met) - Legal flexibilities granted to government: - Increase spending if state budget receipts exceed planned (Article 11 - Annual Budget Law). - Proportionally reduce (sequester) spending when risk of shortfall in budgeted receipts of up to 10 percent (Article 23 - Budget System Law). - Make virements across programs of up to three percent of the approved budget (Article 23 - Budget System Law). - Consequences and practices: - No need to request a supplementary budget in the past; sequester used in 2009 during the Global Financial Crisis. - Flexibility has allowed upward in-year budget revisions to accommodate extra capital spending, which averaged 3.3 percent of the approved budget over 2012–16. - Additional in-year spending approved via: - Extra-budgetary accounts: 2.8 percent of the approved budget in 2014–16. - Government Reserve Fund: 2.5 percent of the approved budget in 2014–16. - In total, an average of 8.6 percent of total spending was undertaken without direct ex ante Parliamentary approval during 2014–16, though validated ex post in the annual budget execution report. - International practice: many OECD countries use supplementary budgets (on average one to three times a year) to approve material changes to the budget. ### Forecast reconciliation and forecast performance (Not Met) - Budget documentation does not provide comparisons of current fiscal forecasts with previous forecasts. - Fiscal forecast revisions and errors: - Average absolute change from MTEF ceiling to annual budget (approved six months later) averaged 0.61 percent of GDP in absolute terms between 2012-2017. - Deviations from outturns (net of extrabudgetary accounts) averaged 0.96 percent of GDP over the same period. - New fiscal rules require stronger transparency on fiscal forecasts: - Corrective mechanism allows government to propose a credible medium-term fiscal path when debt exceeds 50 percent of GDP; when this path is updated, reasons must be explained (e.g., economic factors, new policies, one-offs). - A reconciliation table is recommended to explain changes across MTEFs and annual budgets (Box 2.3 provides an illustrative reconciliation table in AMD billion for MTEFs and budgets). *Source: IMF chapter content provided in the supplied PDF extract.* ### Box 2.3. Forecast Reconciliation (concluded) ### Box 2.3. Forecast Reconciliation (concluded) ### Breakdown of Forecast Errors for 2018 - Breakdown table in source shows line items with placeholder values presented as: - "2017 forecast Outturn Difference of which: Policy changes Economic factors Residual" - Taxes and duties: "xxxxxx" - value added tax: "xxxxxx" - profit tax: "xxxxxx" - income tax: "xxxxxx" - excise tax: "xxxxxx" - customs duty: "xxxxxx" - income tax (duplicate line): "xxxxxx" - other taxes and duties: "xxxxxx" - Other income: "xxx" - Official transfers: "xxx" - Expense: "xxxxxx" - wages: "xxxxxx" - goods and services: "xxxxxx" - interest payment: "xxxxxx" - subsidies: "xxxxxx" - transfers: "xxxxxx" - pensions and allowances: "xxxxxx" - other: "xxxxxx" - Acquisition of non-financial assets: "xxx" ### Recommendations to Strengthen Fiscal Forecasting and Budgeting - Issue: The upgraded fiscal rule framework relies on a credible medium-term expenditure framework (MTEF) to deliver fiscal adjustment. Large revisions of the MTEF and budget to previous plans do not give planning security. - Recommendation 2.1. Strengthen the MTEF and budget documentation by: - Including a statement of compliance to fiscal rules in MTEF and Annual Budget Law, including a justification on the reasons for triggering the escape clause. - Streamlining the MTEF document and presenting information in the MTEF, corrective action plan, and budget message in a comparable format. - Including a breakdown of revenue and expenditure by full economic classification in the MTEF. - Presenting MTEF and annual budget as stages of a rolling baseline process by including reconciliation tables for total revenue and expenditure in MTEFs and budget message. - Reporting on all tax expenditure. - Issue: The upgraded fiscal rule framework requires enhanced transparency; granted flexibility must be combined with a mechanism ensuring credible implementation. - Recommendation 2.2: Strengthen independent evaluation by: - Including comparison of government forecasts with those of other agencies in the MTEF and budget documentation. - Including a statement of compliance to fiscal rules in the Annual Budget Law to ensure that the Chamber of Audit has a mandate to undertake an ex post compliance audit. - Building technical capacity at the Parliamentary Budget Office, to prepare for it to play a role in assessing fiscal forecasts, and the ex-ante compliance to fiscal rules. - Issue: Regular in-year changes to the budget undermine credibility and impede implementation of the new fiscal rules; high variation between approved budget, revised budget, and outturns makes monitoring and controlling the expenditure cap more difficult. - Recommendation 2.3. Reduce in year revisions to the budget by: - Projecting revenue and spending of extra budgetary accounts and including them in the annual budget. - Introducing a limit in Article 11 of the Annual Budget Law, which currently allows the government to increase spending when revenues exceed forecasts without any limit. - Separating the Government Reserve Fund into a provision for implementing ongoing initiatives which cannot be budgeted for; and a provision for genuine contingencies. ### Summary Evaluation: Fiscal Forecasting and Budgeting (highlights from Table 2.4) - 2.1.1 Budget Unity - Assessment: Basic — Own revenues (from non-tax and external grants) of extra budgetary accounts and spending are not presented in approved budget. - Importance: High — Extra budgetary accounts are 2.8 percent of revenues, and contribute to high in-year revisions. - Recommendation reference: 2.3 - 2.1.2 Macroeconomic Forecasts - Assessment: Advanced — Budget documentation includes forecasts of main macro variables, their components and underlying assumptions. - Importance: Medium — Forecast have tended to be optimistic in recent years but bias is comparable with other forecasters. - 2.1.3 Medium-term Budget Framework - Assessment: Good — The MTEF includes outturns for two previous years and revenue and spending projections for next three years by ministry, function and program, but only by high level economic category. - Importance: High — There have been large variations between MTEF forecasts and outturns, with an optimistic bias. - Recommendation reference: 2.1 - 2.1.4 Investment Projects - Assessment: Basic — Major projects required to be contracted via open and competitive tender; Government does not disclose total multi-year obligations; Cost benefit analyses not systematically undertaken or published. - Importance: High — Plan is to double capital expenditure in next 4 years, under tight fiscal space. A forthcoming PIMA will provide specific recommendations to improve management of public investment. - 2.2.1 Fiscal Legislation - Assessment: Advanced — Budget System law regulates budget calendar and budget contents. Legislature’s amendment rights defined in a Constitutional law. - Importance: Low — Legal framework provides a well-defined framework for budget preparation. - 2.2.2 Timeliness of Budget Documents - Assessment: Good — Budget proposal submitted to Parliament 90 days before the budget year and approved by early December. - Importance: Low — Budget submission and approval deadlines have been met in the last 5 years. - 2.3.1 Fiscal Policy Objectives - Assessment: Good — Fiscal rules are precise and time-bound, but have been revised several times (change in 2008: to deficit rule; 2015: of debt definition; 2017: new rules). - Importance: High — 50 percent debt brake is being applied since 2017 and a corrective action plan is required. - Recommendation reference: 2.1–2.3 - 2.3.2 Performance - Assessment: Advanced — Budget documentation reports targets for, and performance against, the outcomes to be achieved in each major government policy area. - Importance: Medium — Scope to improve performance information and its links to appropriations. - 2.3.3 Public Participation - Assessment: Basic — Budget guide with summary of budget aggregates. Participatory initiatives at municipal level. - Importance: Low — Budget documents are very comprehensive and include non-financial program indicators. - 2.4.1 Independent Evaluation - Assessment: Not met — No comparison with independent forecasters is provided. Budget Office does not evaluate government’s forecasts. - Importance: High — Fiscal rule revision brings more flexibility, but requires stronger monitoring. - Recommendation reference: 2.2 - 2.4.2 Supplementary Budget - Assessment: Not met — Legislation gives government wide mandate to change budgetary allocations; no supplementary budget required. - Importance: High — In-year budget revisions without Parliamentary approval of 8.6 percent of spending. - Recommendation reference: 2.3 - 2.4.3 Forecast Reconciliation - Assessment: Not met — Differences between fiscal forecasts from one year to the next is not shown and discussed. - Importance: Medium — Absolute differences between budget and same year MTEF, and between outturns (excluding EBAs) and budget averaged 0.6 and 0.96 percent of GDP respectively in last five years. - Recommendation reference: 2.1 ### Fiscal Risks — Disclosure and Analysis (Chapter III highlights) - General finding: - Presentation of fiscal risks is fragmented; no consolidated summary analysis of key fiscal risks in budget documentation. - Quantification of fiscal risks and valuation of potential impacts is not comprehensive; no assessment of impacts of multiple risks materializing simultaneously. - Institutional arrangement: - Ministry of Finance has a Fiscal Risk Assessment Division (FRAD) established late 2014; status unclear after reorganization in June 2018. - FRAD produces a fiscal risk statement (FRS) twice a year in the MTEF and annual budget documentation assessing likelihood of financial distress of 22 corporations in energy, transport, and water sectors (including 2 concessionaires). ### Macroeconomic Risks (3.1.1) - Budget documents contain sensitivity analysis of macroeconomic and fiscal scenarios (annex “Budget Macro Risks”), quantifying impacts of alternative scenarios for GDP growth, inflation, exchange rates, imports, and external resource disbursements on revenue, expenditure, and financing. - Debt dynamics history and decomposition: - Public debt/GDP rose from 16 percent in 2008 to 59 percent in 2017. - Of the 43 percentage point increase in the debt to GDP ratio from 2008 to 2017: - 37 is attributable to the primary deficit, - 13 to the exchange rate depreciation, - strong growth contributed to reducing the debt to GDP ratio by 12 percentage points, - a remaining 10 percentage point is unexplained. - With growth picking up, the ratio is projected to decline after 2019, but stochastic projections show a non-trivial probability of debt rising beyond 60 percent of GDP. ### Specific Fiscal Risks (3.1.2) — aggregated exposures (Table 3.2) - Explicit risks (magnitude, measure, % GDP, reported): - Guarantees: Debt guarantees — 1.4 — Yes - Underwriting of Deposit Guarantee Scheme — 5.8 — No - Promissory note to CBA — 1.5 — Yes - PPPs: Total investment — 10.2 — Yes - Total risk exposure: N.A. — No - Financial sector: Liabilities of FPC except equity (including CBA) — 32.4 — Yes - PCs (exc. CBA) On-lending: Liabilities of public non-financial corporations except equity — 8.5 — Yes - Outstanding loans arising from on-lending — 9.6 — No - Implicit risks: - Financial sector: Liabilities of commercial banks — 66 - Natural resources: Contribution of mineral sector to GDP volatility — 2 — No - Natural disasters: Average annual loss — 1.3 — No - Probable maximum loss earthquake (50 year) — 2.6 — No - Long-term risks: - Pension costs: Unfunded pension liabilities — 51.5 — No - Health care costs: Expected increase in annual health care costs in percent of GDP (2020-2050) — 3.7 — No - Aggregate observations: - Aggregate maximum exposure to explicit fiscal risks may be as high as 70 percent of GDP. - Maximum exposure to implicit risks may be about 125 percent of GDP. - Most explicit risks are subject to reporting, but implicit risks are not disclosed in government documents. ### Long-term Sustainability (3.1.3) - Government publishes debt projections for next 20 years and macro-fiscal projections for next ten years. - Debt sustainability report published in 2012 and 2017 provides external and public debt projections for 2017–37. - 2014-25 Armenia Development Strategy (ADS) provides macro-fiscal projections for 10 years. - Health and pension cost projections: - Overall health care costs as a share of GDP may increase by 65 percent from 2015 to 2050 and reach levels considerably higher than comparators (Figure 3.4). - Figure 3.5 indicates a similar but less dramatic development in total pension costs; fiscal impact likely small after recent pension reform. - Government intends to include these analyses in forthcoming ADS. ### Fiscal Risk Management — Budgetary Contingencies (3.2.1) - Legal framework: - Article 19 of the BSL requires a separate expenditure line for the reserve fund not exceeding 5 percent of budgeted total expenditure to be appropriated in the annual budget law. - Government decree required to access the reserve (Article 19); justification of such spending needs to be provided at the end of the year (Article 25). - Law does not define the purposes for which the reserve can be used. - Practice and concerns: - Size of the reserve fund averaged 2.5 percent of total budget in recent years. - More than 90 percent of reserve fund use was for items below 500 million AMD, roughly 0.03 percent of total budget. - Use is authorized by decree, spread over the year, reported but not justified in annual budget execution report. - Several recent cases (e.g., renovation of buildings, purchase of computer licenses, spending on ongoing infrastructure projects) could have been foreseen or delayed, undermining ability to respond to large genuine contingencies. *Source: IMF* ### Box 3.1. Determining a Robust Budget Reserve Framework ### Box 3.1. Determining a Robust Budget Reserve Framework ### Role and design considerations - The role of a budget reserve is to ensure the necessary flexibility in budget execution in the face of uncertainty. - The size of the reserve and access conditions matter: - If reserves are too small, they can be inadequate to respond to large events. - If reserves are too generous, they can create the expectation that funding will be available during the year and, as a result, discourage expenditure prioritization during the budget phase. - When access is not limited, there is a risk that reserves are not used for genuine contingencies, particularly if PFM institutions are weak. ### International practices and restrictions - Australia: - Adopted stringent restrictions on its reserve, which can be used only to deal with unexpected variations in forecast parameters and not to fund new policies. - United Kingdom and South Africa: - Developed a more flexible approach that requires events to satisfy the three Us: unforeseeable, unavoidable, and un-absorbable. - Guidance: When events can be foreseen, they should be budgeted for. When they can be avoided, their funding should be deferred for later years. When their fiscal costs are small enough, they should be absorbed within existing budgetary allocations. - Finland: - Created two types of reserves: - First for unexpected spending (true contingencies). - Second to allow spending on ongoing long-term initiatives, which cannot be well foreseen at the time of budget preparation. ### The three Us — qualifying criteria for reserve use - Unforeseeable: if an event can be foreseen, it should be budgeted for rather than funded from the reserve. - Unavoidable: if an event can be avoided, its funding should be deferred to later years. - Un-absorbable: if the fiscal costs are small enough to be absorbed within existing budgetary allocations, the reserve should not be used. ### Examples of qualifying and non-qualifying events - Events satisfying the three Us (qualify for reserve use): - Repair of infrastructure damaged by disasters. - Impact of a depreciation of the domestic currency. - Response to emergency national interventions. - Events that do not qualify: - Cost overrun of an infrastructure project due to underbudgeting. - Wage increases. - Non-emergency maintenance of public assets. *Source: 1armea2019004 - Box 3.1. Determining a Robust Budget Reserve Framework.* ### 98. There is no systematic government reporting on either mining reserves or asset ### 98. There is no systematic government reporting on either mining reserves or asset ### Mining sector size and transparency - Mineral industry made up 17.9 percent of total industrial production in 2016. - Exports from the mineral industry were valued at USD 480 million in 2016, 25 percent of the country’s export revenue. - The Armenian Geological Fund provides data on individual deposits, but there is no consolidated assessment of reserves and values. - Mineral resources amounted to 2.5 percent of revenue in 2016, exposing the budget to risks from world market price and production volume variability. - Historical shock example: during the 2009 economic crisis prices of copper and molybdenum fell by two thirds, the value of Armenian exports fell by 47 percent and foreign direct investment fell by 250 million USD. - Even in normal times metal prices are subject to significant deviations. - Armenia’s commitment to participate in the Extractive Industries Transparency Initiative (EITI) is expected to improve transparency in the mining sector. - Through EITI implementation, governments commit to transparently disclose information including legal framework, production and exports statistics, licenses, state participation, revenue collected, beneficial owners, and revenue allocation. - Footnote: The EITI Board admitted the Republic of Armenia as an EITI candidate country on March 9, 2017. Armenia is required to publish its first EITI Report by September 9, 2018. The EITI Board expects Armenia to publish a beneficial ownership roadmap by January 1, 2018. ### Environmental risks and fiscal impacts - No analysis of environmental risks and their potential fiscal impacts in budget documents. - MTEF documents mention inclement weather as a possible source of reduced agricultural output, but there is no specific analysis or quantification. - No discussion of risks related to earthquakes or technological risks such as those related to the operations of the Soviet-era nuclear power plant. - There is no contingency fund dedicated to natural disasters and no dedicated allocation of funds for this purpose in the general contingency fund. - Average annual loss from natural disasters is estimated to be 1.3 percent of GDP. - Probable maximum loss from a large earthquake (could occur every 50 years) is estimated to be 2.6 percent of GDP. - These estimates reflect historical data for losses from drought, earthquakes, extreme temperatures, flooding and storms and do not reflect potential costs related to the nuclear power plant. - Contextual historical events and estimates: - 1988 earthquake: killed 25,000 people and injured 19,000, severely damaging 517,000 homes and causing an estimated economic loss of USD 15-20 billion in northern parts of the country. - 2010 flooding caused an estimated USD 10 million in damage. - A project to build a new nuclear plant and decommission the old plant is estimated to cost 5 billion USD. (Note in source text: citations provided.) ### Disaster risk management support - A World Bank National Disaster Risk Management Program aims to strengthen disaster resilience by: - improving disaster risk information; - enhancing disaster risk reduction; - strengthening disaster preparedness; and - improving understanding of fiscal disaster risks and risk financing options. - The program includes an assessment to better understand fiscal impacts of disasters and to provide analysis and policy options for disaster risk financing and insurance. ### Fiscal coordination: subnational governments - Treasury publishes quarterly and annual reports on consolidated budget execution for municipalities. - Annual state budget includes an annex with aggregate data on consolidated municipality budgets. - Individual municipalities (502 as of 2017) publish annual budgets and quarterly budget execution reports; the Ministry of Territorial administration and development publishes a consolidated report. - Budget execution is on a cash basis; there are no published or audited accrual-based financial statements according to the national accounting framework. - Budget execution reports do not include MNCOs’ own revenues or commercial companies controlled by municipalities; municipal debt is close to zero. - Consolidated municipality budget expenditure in 2016 was 8.6 percent of general government budget expenditure, equivalent to 2.6 percent of GDP. - Municipality borrowing limits under the Budget System Law: - Borrowing from outside general government is subject to MoF approval and limited to infrastructure development. Total debt servicing, principal and interest, may not exceed 20 percent of the revenues earmarked for capital expenditure in any year. - Borrowing to finance current expenditure is subject to MoF approval and limited to borrowing from the central government or other municipalities; normally repaid within the year. - Fiscal risks from sub-national governments appear low at present: - Municipality expenditures are below 3 percent of GDP (noted as one of the lowest compared to other selected countries). - Local governments’ own-source revenues make up only 20 percent of their funding. - Municipal debt is close to zero and comprises only loans from central government. - Yerevan City intends to borrow and engage in PPPs, which could create potential fiscal risks. ### Public corporations: monitoring and fiscal exposure - Semiannual monitoring report by SPMD provides aggregate and company-level data for most public corporations, assessing financial performance and management quality. - Individual transfers between government and public corporations are disclosed separately in different budget documents; there is no consolidated presentation of transfers to public corporations and no disclosure of quasi-fiscal activities. - Transfers (subsidies, capital injections, loans, other payments) appear under responsible ministries’ budget lines and are not consolidated. - Summary tables for loans and guarantees exist in debt management reports but are not compared to other transfers. - No disclosure of quasi-fiscal activities in official documents, despite some corporations operating in regulated markets and potentially providing services at prices that do not cover costs. - Government policies have reduced the number of public corporations via privatization, restructuring and liquidation. - Government program for 2017-2022 includes reorganizing unprofitable commercial organizations with 100 percent state participation into non-commercial organizations. - At end-2017 the government owned 50 percent or more in 211 joint stock companies. 54 are slated for privatization and ownership is transferred to SPMD. The remaining 157 companies are owned and managed by sector line ministries, subject to SPMD monitoring. - Budget documents include an assessment of fiscal risks related to 20 major corporations in energy, transport and water sectors, providing aggregate sector data but not listing which corporations are covered or providing individual company data. - Profitability statistics (2016): - Combined operating losses of 12 billion AMD (0.24 percent of GDP). - Profitable corporations generated 2.3 billion AMD (0.05 percent of GDP). - Two corporations (High-voltage Electric Networks and Yerevan TPP) are responsible for most profits. - Six loss-making corporations have losses exceeding 500 million (0.01 percent of GDP) each. - One public corporation (Armgazard) has very significant negative equity. - Annual budget support to public corporations is sizable, including equity injections and subsidies. - Public corporation liabilities are medium in Armenia compared to other countries. ### Recommendations (selected) - Recommendation 3.1: Provide a consolidated fiscal risk summary (FRS) in the budget documentation: - Include a summary table indicating key fiscal risks, their probability, and potential fiscal impact; - Assign to a unit of the MoF responsibility for coordinating the FRS, with inputs from other departments; - Ensure risks are described consistently for comparison and prioritization; - Establish a FRS timetable that ensures risk analysis informs MTEF and budget policymaking; - Provide more detailed analysis of fiscal risks, including mitigation strategies, in MTEF and budget documents; - Include projections for future health and pension spending in the Armenia Development Strategy 2018 – 2030, with analysis of long-term fiscal sustainability; - Provide information about all outstanding guarantees in budget documentation, including strategic rationale, probability of being called, and any payments related to government guarantees over the last five years; - Provide a similar presentation for all government on-lending operations; - Describe any government support to the financial sector over the last 10 years, including guarantees and direct payments; - Describe the government’s responsibilities under the bank deposit guarantee scheme; - Provide an estimate of the volume and value of current mineral resources, and the expected government share of this; and describe variation in budget revenue streams from mineral extraction over the last 10 years. - Recommendation 3.2: Ensure PPP legal framework provides: - a clear and comprehensive definition of PPPs; - establishment of a database of PPPs; - annual publication of total rights, obligations, and other exposures under PPP contracts; - expected annual receipts and payments under the contracts; and - establishment of a legal limit on accumulated PPP obligations consistent with Armenia’s fiscal rule. - Recommendation 3.3: Extend the bi-annual SPMD monitoring report on public corporations to: - Indicate the government’s objective for each corporation (policy objective, financial objective, remain under public ownership, be privatized, be restructured or liquidated); - Identify minority shareholders in each public corporation; - Identify all interactions with the budget, including capital injections, loans, subsidies, dividends, and guarantees. ### Summary evaluation: selected fiscal risks and ratings (excerpted) - 3.1.1 Macroeconomic Risks: Advanced; Importance High; note: public debt rose from 16 in 2008 to 59 percent in 2017 (2008: 16). - 3.1.2 Specific Fiscal Risks: Basic; Importance High; explicit fiscal risks may be as high as 70 percent of GDP. - 3.1.3 Long-term Fiscal Sustainability: Basic; Importance Medium; long-term health and pension costs may increase from 15 to 23 percent of GDP, most of this occurring after 2030. - 3.2.2 Asset and Liability Management: Basic; Importance High; Net financial worth (based on disclosed information) -30 percent of GDP. Gross liabilities 57 percent of GDP. - 3.2.6 Natural Resources: Not met; Importance Medium; Resource prices are volatile, and GDP may fluctuate by 2 percent. Ongoing EITI process will improve disclosure. - 3.2.7 Environmental Risks: Not met; Importance Medium; expected average annual loss of 1.3 percent of GDP. - 3.3.1 Sub-national Governments: Advanced; Importance Low; Municipality expenditure is 8.6 percent of general government expenditure. - 3.3.2 Public Corporations: Good; Importance High; Liabilities of 15.4 and aggregate recorded loss of 0.2 percent of GDP in 2016. *Source: IMF country report text (excerpts from content unit 1armea2019004).* ### Appendix I. Government Fiscal Transparency Action Plan (2018–21) ### Appendix I. Government Fiscal Transparency Action Plan (2018–21) ### I. FISCAL REPORTING - Recommendation 1.1: Expand the institutional coverage of reports - 2018–2021 actions: - Prepare and maintain a comprehensive list of the general government units and public corporations. - Include state SNCOs in the consolidated central government budget execution reports. - Ensure proper sectorization of public entities into the general government sector or public corporation sector. - Expand the consolidated general government statistical reports by including municipal NCOs, and relevant public corporations. - Responsibility: MoF, NSS - Recommendation 1.2: Publish balance sheet for central government - 2018–2021 actions: - Collect and consolidate data on general government assets and liabilities held by the various units of the MoF, the State Property Management Department, SNCOs, and ministries. - Publish the state balance sheet covering all financial assets and liabilities in a relevant bulletin/report on a monthly and annual basis. - Compile a consolidated central government balance sheet (including SNCOs) based on the GFSM 2014 methodology with available information. - Expand coverage to general government. - Responsibility: Government, MoF - Recommendation 1.3: Enhance consistency, comparability, and integrity of fiscal reporting - 2018–2021 actions: - Ensure that material government operations, e.g. capital injections to loss-making corporations, are properly classified as above the line. - Compile and publish reconciliation tables: - I. the change in stocks and related flows by individual categories of financial assets and liabilities; - II. the deficit/surplus and the change in debt; - III. the differences between the main aggregates based on the GFSM 2014 and SNA 2008 methodology (including an explanatory note). - Responsibility: MoF - Recommendation 1.4: Ensure full implementation of IPSAS-based accounting - 2018–2021 actions: - Ensure that the accounting information is designed to deliver information according to international statistical standards (GFSM 2014 and SNA 2008). - Ensure that cash-based budget execution reports and accrual-based financial statements will be integrated. - Ensure reconcilability between the budget execution data, fiscal statistics, and financial statements. - Enforce the IPSAS-based national accounting standards and publish financial statements. - Provide comprehensive balance sheet data covering all general government assets and liabilities integrated with the flow data. - Responsibility: MoF, CoA ### II. FORECASTING AND BUDGETING - Recommendation 2.1: Strengthen the MTEF and budget documentation - 2018–2021 actions: - Optimize the medium-term and annual budget processes. - Include a statement of compliance to fiscal rules in the 2019-2021 MTEF and 2019 annual budget. - Include reconciliation tables in the 2019 annual budget (See Box 2.3 in FTE report), and subsequent MTEFs and annual budgets. - Include a statement of compliance to fiscal rules in the 2019 budget execution report. - Include a high-level breakdown of revenue and expenditure by the economic classification in the 2020-2022 MTEF. - Prepare and approve a plan to streamline and restructure the MTEF and annual budget as stages of a rolling baseline process. - Conduct training in the new MTEF and annual budget processes. - Commence implementation of the restructuring of the MTEF and annual budget as a rolling baseline process. - Responsibility: Government, MoF, SRC - Recommendation 2.2: Strengthen independent evaluation - 2018–2021 action: - Disclose alternative forecasts: include in the 2019-2021 MTEF and 2019 budget comparisons of official forecasts with those of other agencies. - Recommendation 2.3: Improve budget coverage, and reduce budget revisions - 2018–2021 actions: - Ensure that the annual and revised budgets are credible. - Include a statement of fiscal objectives in the corrective action plan in the 2019-2012 MTEF and in the 2019 budget law to ensure compliance audit by CoA. - Include projected revenue and spending of extra budgetary accounts in the 2020 budget. - Conduct compliance audit. - Amend Art 11 of BSL to: (i) limit increases in spend, and (ii) require Parliamentary approval for increases beyond this limit. - Amend Art 19 of BSL to include clear access criteria to Government Reserve Fund for genuine contingencies (see Box 3.1 in FTE report for country examples). - Responsibility: Parliament, Government, MoF, CoA ### III. FISCAL RISKS - Recommendation 3.1: Provide a consolidated fiscal risk summary - 2018–2021 actions: - a. Include a summary table indicating key fiscal risks, their probability, and potential fiscal impact. - Include the table in the 2019 budget documentation on the basis of currently available information. - Enhance the scope of risks covered in the table and their quantification in the 2020-2022 MTEF and 2020 budget documentation with explicit fiscal risks. - Enhance scope of risks covered in table and their quantification in the 2021-2023 MTEF and 2021 budget documentation with implicit and explicit fiscal risks. - Responsibility: MoF unit responsible for fiscal risks co-ordination. Other state agencies. - b. Assign to a unit of the MoF the responsibility for coordinating the fiscal risks summary, with inputs from other departments dealing with fiscal risk management. - Action: Approval of MoF Order defining and assigning the responsibility. - Responsibility: Minister of Finance. - c. Extend the scope, quality, quantification and mitigation analysis of the discussion of the currently-disclosed individual key fiscal risks in the MTEF and annual budget documentation. - Extend the individual fiscal risk disclosures in the 2019 annual budget documentation, e.g. value of total obligations, rights, and disclosures of PPP contracts; quantification of possible direct impacts on the fiscal forecasts of the different risks discussed. - Extend the individual fiscal risks disclosures in the 2020-2022 MTEF and 2020 budget documentation, incorporating IMF TA advice on assessment of fiscal risks in the energy, transport and water sectors; and on macroeconomic risk assessment. - Extend the individual fiscal risks disclosures in the 2021-2023 MTEF and 2021 budget documentation, including extension of assessment of fiscal risks to all sectors of the real economy. - Responsibility: MoF unit responsible for fiscal risks coordination and individual MoF responsible for managing the individual risks. Other state agencies. - d. Disclose information on additional specific fiscal risks. - Provide specific information about each outstanding guarantee in 2019 budget documentation. - Disclose an analysis of outstanding loans in 2019 annual budget documentation. - Describe in annual budget documentation any government support to the financial sector over the last 10 years. - Describe in annual budget documentation the government’s responsibilities under the bank deposit guarantee scheme. - Provide an estimate of the volume and value of current mineral resources, and the expected government share of this in the 2020-2022 MTEF. - Include an assessment of climate change and other environmental fiscal risks in the 2022-2024 MTEF. - Include an assessment of natural disaster fiscal risks in the 2021-2023 MTEF. - Responsibility: MoF. Other state agencies. - Recommendation 3.2: Improve the legal framework for PPPs - 2018–2021 actions: - Approve a PPP Law that ensures: clear and comprehensive definition of PPPs; the establishment of a database of PPPs; the annual publication of the total rights, obligations, and other exposures under PPP contracts and the expected annual receipts and payments under the contracts; and the establishment of a legal limit on accumulated PPP obligations consistent with Armenia’s fiscal rule. - Collect relevant data. - Approve a government decree implementing the PPP Law. - Approve methodological guidelines to provide detailed guidance on implementing the Law. - Conduct training of MoF, MoEDI, PPP Unit and line ministries in implementation of the methodological guidelines. - Responsibility: Parliament, Government, MoF, MoEDI - Recommendation 3.3: Extend the bi-annual monitoring report published by SPMD on public corporations - 2018–2021 actions: - Indicate the government’s objective for each public corporation, identify minority shareholders in each corporation, and identify all interactions between each corporation and the budget, including capital injections, loans, subsidies, dividends, and guarantees. - Include this information in the SPMD’s reports for the largest third of the public corporations (2019). - Include this information in the SPMD’s reports for the next largest third of the public corporations (2020). - Include this information in the SPMD’s reports for the final third of the public corporations (2021). - Responsibility: SPMD ### Appendix II. Technical Note on Table 0.2 — Methodological Framework and Sources - Methodological points: - Table 0.2 estimates compiled in accordance with the GFSM 2014, presenting an overview of Armenia’s public sector finances; exercise is an approximate picture given data limitations. - Institutional coverage: “public sector consists of all resident institutional units controlled directly, or indirectly, by resident government units—that is, all units of the general government sector and resident public corporations. Public corporations include units engaged in both nonfinancial and financial activities.” (GFSM 2014, paragraph 2.63) - GFSM presentation: transactions that increase net worth recorded as revenue; those that decrease net worth recorded as expense. Net operating balance = revenue − expense (excludes transactions in nonfinancial assets). Net lending/borrowing (fiscal balance) = net operating balance − net investment in nonfinancial assets (acquisitions less disposals less consumption of fixed capital). - Sources and methods — General government: - Primary data: annual cash based GFS data compiled by the MoF for the IMF’s GFS yearbook. - Adjustment: addition to local government revenue and expenditure of estimated value of operations of extra-budgetary units (Municipal Non-Commercial Organizations). - Estimates on GG stock positions for non-financial assets, financial assets, and liabilities based on accounting data supplemented by government agencies and IMF’s Capital Stock Database. - IMF staff estimates added for PPP fixed assets and related liabilities, and liabilities of the pension scheme for military personnel. - Table A.2 Estimated Balance Sheet of the General Government (bn AMD) - Budgetary Central Government - Non-financial assets 1,609 - Assets owned by Ministries, source: MoF, aggregated financial statement / balance sheet of the line Ministries 886 - Public infrastructure assets and military equipment, source: State Property Management and MoF 205 - PPPs, source: IMF staff estimate based on the Private Participation in Infrastructure (PPI) Project Database 518 - Financial Assets 1,279 - Currency and deposits, source: Monetary and Financial Statistics (also include local government) 184 - Debt securities and loans, source: MoF data and MFS, International Investment Position (IIP), and accounting data on loans granted to public corporations 347 - Equities and shares, source: State Property Management and Department of Debt Obligations 747 - Liabilities 3,460 - Debt securities and loans; Loans from PPPs; Employment related pension entitlements (net present value estimation described): 2,631; 518; 312 (presented as components under Liabilities) - EBFs (SNCOs) - Non-financial assets, source: Property Management Department data based on financial statements 130 - Financial assets, source: Property Management Department data based on financial statements 62 - Liabilities, source: Property Management Department data based on financial statements 150 - Local Government - Non-financial assets source: IMF staff estimate based on the IMF’s Capital Stock Database 547 - Pension liabilities and memo items: - Employment-related defined-benefit pension schemes require a liability recognition on government balance sheet; for Armenia this includes the unfunded scheme covering military personnel (pensions paid out of general budget). - The pension entitlements for military personnel estimated annual pension cash flow 210 bn, 20 years with interest rate 5 percent (used to derive net present value). - Implicit pension entitlements from PAYG pension scheme shown as a memo item in Table 0.2; estimated net present value calculated by IMF staff via extrapolation and not included in the government balance sheet per GFSM 2014 methodology. - Sources and methods — Public corporations: - Non-financial corporations: - Main data: accrual based financial statements for 188 SOEs from the State Property Management. - Revenue and expense from profit and loss accounts. - Net investment in non-financial assets estimated from cash-flow statements of four biggest corporations (High Voltage, ANPP, Yerevan TPP, Vorotan TPP); for others estimated as change in stocks of non-financial assets reported in balance sheets. - Stocks of assets and liabilities based on accounting balance sheets. - Financial corporations: - Transaction and balance sheet data based on Annual report of the National Central Bank (including its 10 subsidiaries), annual financial statements of Armenia's Development and Investment Corporation, and Export Insurance Agency of Armenia. - Financial statements of Deposit Guarantee Fund of Armenia were not available and no estimates included in Table 0.2. - Eliminations: - Material reciprocal transactions and stock positions between general government and public sector eliminated where data allow (main eliminations: subsidies and dividends; on stock side: government holding of public corporation equity, loans granted by state to public corporations, government deposits in central bank). ### Appendix III. Estimation of Specific Fiscal Risks - Explicit risks — magnitude and sources (as presented) - Guarantees — Debt guarantees: 1.4 % GDP; Estimation method: Annual debt report 2016 - Underwriting of Deposit Guarantee Scheme: 5.8 % GDP; Source: Information provided by CBA - Promissory note to CBA: 1.5 % GDP; Source: CBA financial statement 2017 - PPPs — Total investment: 10.2 % GDP; Derived from published data; Source: Ministry of Economy website - Total risk exposure: N.A. - Financial sector — Liabilities of FPC (including CBA): 32.6 % GDP; As reported in the balance sheet by units; Source: Annual financial statements and Monetary Financial Statistics - Public Corp (exc. CBA) — Liabilities of non-financial public corporations: 15.4 % GDP; As reported by the units; Source: SPED annual monitoring report - On-lending — Outstanding loans arising from on-lending: 9.6 % GDP; Derived from published data; Source: Monthly bulletin on public debt - Financial sector — Liabilities of commercial banks: 66 % GDP - Natural resources — Contribution of mineral sector to GDP volatility: listed as “2?” (tabulated); additional items: - 0,5 (0,5 % of GDP) and 2,5 % of revenues (2016) is 0,5 % of GDP. 2016 prices less than half of 2012. Source references: prices: London metal exchange website. - Natural disasters - Average annual loss: 1.3 % GDP; UNISDR estimates based on reported annual costs; Source: UNISDR - Probable maximum loss earthquake (50 year): 2.6 % GDP; UNISDR estimates based on reported annual costs; Source: UNISDR - Long-term risks - Pension costs — Unfunded pension liabilities: 51.5 % GDP; Net present value of pension liabilities calculated (see Appendix II); Source: IMF staff calculations - Health care costs — Expected increase in annual health care costs in percent of GDP (2020-2050): 3.7 % GDP; Methodology described in FAD: Fiscal Policy: How to Assess Fiscal Implications of Demographic Shifts: A Granular Approach, 2016; Source: IMF staff calculations, based on UN demographic projections *Appendix I. Government Fiscal Transparency Action Plan (2018–21), as provided in the source PDF.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1armea2019004.pdf_