## cr1933-armenia-ta ## Source details **Canonical URL:** [cr1933-armenia-ta](https://www.imf.org/-/media/files/publications/cr/2019/cr1933-armenia-ta.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/cr1933-armenia-ta.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/cr1933-armenia-ta.pdf.json) --- ### Executive summary — public capital, investment trends, and efficiency - Public capital stock declined from 160 percent of GDP in 2000 to 62 percent of GDP in 2017. - Public investment has remained low at approximately half of that invested by regional peers since 2012. - Recent pickup driven by large energy and road projects (including the North South Road and M6 Highway) has not reversed the long-term decline in public capital stock. - Physical output efficiency gap: 36 percent. - Quality efficiency gap: 24 percent. - Perception of infrastructure quality (World Economic Forum survey) improved from 2.9 to 4.3 from 2007 to 2015; electricity supply score reduced from 5.1 in 2014 to 4.8 in 2017 (scale 1–7). ### Trends, financing, and fiscal outcomes - Aggregate state debt rose from 17 percent of GDP in 2007 to 58 percent of GDP in 2017. - Borrowing for investment purposes is predominantly external and equates to 25 percent of GDP in 2017. - Share of externally financed public investment projects rose from 21 percent to 63 percent over the past ten years. - Loan financing accounted for an average of 90 percent of total externally funded projects from 2007–17. - Public investment implemented by subnational governments averaged 11 percent of total public investment over the past ten years; subnational development spending fell from 17 percent to 5 percent of total public investment spending in 2017. - Externally financed investment execution: - Averaged 66 percent of their budget from 2010–2014. - Averaged 195 percent from 2015 to 2017. - Domestically funded projects (including extrabudgetary accounts) spent 150 percent of their original budget from 2010. - From 2009 to 2012, recurrent and development spending were reduced by about 2 and 4 percent of GDP respectively. - From 2012, the budget deficit more than tripled to almost 5 percent of GDP in 2016. ### Sectoral composition and outcomes - Spending on economic infrastructure and social sectors is lower than the CIS Average; spending on defense and general public services is higher. - Rural roads: 3,000 Km (almost 40 percent of the road network) require maintenance/upgrading. - Some thermal power plants have not received investment for over 45 years. - Hrazdan TPP uses 40 percent more gas per KWH produced compared to newer alternatives; outages per transmission line are 2.5 times higher than average well performing utilities in Europe and the US (World Bank 2014). - Infrastructure access: education indicators outperform comparators; treated water access broadly equal. - Water loss rates and percentage of firms experiencing electrical outages show Armenia compares relatively poorly in the region. ### PPPs and public corporations (PCs) - Four PPPs operating; IMF Fiscal Transparency Evaluation reported PPP investment commitments of 10.2 percent of GDP in 2016. - PCs’ capital stock averaged 7 percent of GDP over the past three years. - NPP and Yerevan TPP account for approximately half of PC capital stock; GEOCOSMOS accounted for 30 percent of total fixed assets in 2017. - PCs’ capital investments predominantly financed by on-lending from the State budget; on-lending rose due to energy sector projects (Gyumri-2 substation, life-extension of NPP, Vorotan HPP). - Budget execution of on-lending experienced swings from under-execution to over-spending. ### PIMA institutional aggregate and key weaknesses - Armenia’s PIM Institutions score at the same level as the average of emerging market economies on aggregate. - Relative strengths: fiscal rules (Design—High; Effectiveness—Medium), budget comprehensiveness, availability of funding (Design—High; Effectiveness—High). - Relative weaknesses: project appraisal (Design—Low; Effectiveness—Medium), budgeting for investment (Design—Low; Effectiveness—Low), project selection (Design—Low; Effectiveness—Low). - Six institutions equal or outperform scores of emerging market economies; eight institutions underperform. ### MTEF, multi-year budgeting, and credibility - MTEF in place since 2003; project-level projections for upcoming fiscal year and two additional years, but ceilings are highly indicative. - Total construction costs of development projects are not published in budget documents. - Historical forecast errors undermine credibility: - Average forecast errors reported as negative 26, 30 and 20 for 2012–14 and positive 40 and 45 for 2015 and 2016. - In 2017 there were 354 projects under execution; baseline estimations for these projects were 128 Billion Dram higher than fiscal space allowed under the reviewed MTEF. - Recommendation focus: improve baselines for largest foreign-financed projects over USD 5million and establish systematic storage of changes to project costs. ### Project selection, gatekeeping, and pipelines - Projects likely to receive external financing can “fast-track” through the selection process; full appraisal often occurs after Prime Minister approval and loan signing. - MoF involvement typically late; MoF approval required for financing negotiations but sought late in the process. - No centralized pipeline of appraised projects accessible to MoF; MoF has database of projects under implementation only. - Recommendation: create gatekeeping roles for MoF and MoEDI; consolidate pipeline in a central database; implement a two-stage “gateway” approach for projects above AMD 5 billion. ### Procurement, e-systems, and availability of funding - New Law on Procurement (PPL) effective April 25, 2017; ARMEPS covers whole procurement cycle. - 300 public procuring entities registered in ARMEPS. - Business intelligence tool complies with OCDS but not publicly available. - Procurement complaints increased by 35 percent since establishment of current process. - Treasury Single Account (TSA) used for almost all general government capital expenditure payments; donor project bank accounts are TSA sub-accounts since 2012. - Monthly and weekly cash flow forecasts prepared; PIU TSA sub-accounts usually pre-funded by donors ensuring timely contractor payments. ### Project monitoring, implementation, oversight, and audits - MoF monitors project costs and physical progress; reporting monthly for loan financed projects and quarterly for others. - MoF limited powers to address implementation problems; monitoring results often used to permit overspending via reserves or budget revisions. - No systemic requirement for ex-post project reviews covering all major projects regardless of funding source; full ex-post reviews typically done for donor-financed projects per donor requirements. - Audit Chamber transformed from Control Chamber to Audit Chamber effective April 9, 2018; mandate shifted toward audits (financial, performance) following INTOSAI standards. - Audit Chamber capacity needs strengthening to ensure financial, operational and administrative independence. ### Asset registers, valuation, and IT systems - Multiple asset registers maintained by different agencies; not comprehensive. - State Property Register: annual updates; records buildings value only. - Armenian Road Directorate (HDM4): central govt coverage; roads updated every 2 years. - No fiscal report includes stock value of non-financial assets of the government; annual government/community accounts prepared on cash-basis and exclude stock of nonfinancial assets. - IT systems focus on budget preparation and execution phases; no integrated project lifecycle database capturing project outlines, appraisals, linkage to strategic documents, life-cycle costs, and ex-post evaluations. - MoF Capital Expenditure Division comprises five staff and covers domestically financed projects only; externally financed projects covered by Budget Process Management Department. ### Key quantitative indicators (selected) - Public capital stock: 160 percent of GDP (2000) → 62 percent of GDP (2017). - Aggregate state debt: 17 percent of GDP (2007) → 58 percent of GDP (2017). - Externally financed public investment share: 21 percent → 63 percent (past ten years). - Loan financing share of externally funded projects: 90 percent (2007–17 average). - Externally financed investment execution rates: 66 percent (2010–2014 average) and 195 percent (2015–2017 average). - Domestically funded projects execution: 150 percent of original budget (from 2010). - Number of projects under execution in 2017: 354 projects. - Threshold for full-fledged unified appraisal recommended: all major projects above AMD 5 billion. - Government reserve fund ceiling for “unforeseen expenditures”: 5 percent of total expenditure (Article 19, Budget System Law). - Limit on total debt servicing for communities: may not exceed 20 percent of revenues earmarked for capital expenditure in any year. - Outstanding community external loan example: EUR 7 million (Yerevan City, EIB, Yerevan Energy Efficiency project). - PCs’ capital stock: averaged 7 percent of GDP (past three years). - PPP investment commitments reported: 10.2 percent of GDP (2016). - Energy sector PCs combined losses: AMD 12.1 billion versus AMD 2.6 billion profits from profitable corporations (reported). ### Priority reforms and eight prioritized actions (summary) - Planning stage: - Improve hierarchical structure of investment strategy documents: define consistent planning horizons, ensure consistency of project information, include resource envelope constraints. (Inst.: 2; TA needs: Yes) - Develop a unified appraisal methodology to ensure comparability across all major projects regardless of financing sources or implementers. (Inst.: 4, 10; TA needs: Yes) — ensure all major projects above AMD 5 billion are subject to full-fledged unified appraisal. - Allocation stage: - Establish MoF’s power to challenge project cost estimate baselines and require reappraisal for reprioritization when budgets are persistently under- or over-executed. (Inst.: 6, 14; TA needs: Yes) - Amend the Budget System Law to establish restrictions on in-year adjustments to capital expenditure; make appropriations for loan-financed projects binding except via parliamentary supplementary budgets. (Inst.: 8) - Establish a project selection process based on a “gateway” approach with a centralized pipeline of ranked projects and central veto at concept and appraisal stages (legislation to include all state, community, PC, external loan and PPP projects where total costs exceed AMD 5 Billion). (Inst.: 10; TA needs: Yes) - Implementation stage: - Improve system and capacity for public procurement associated with capital projects: integrate comprehensive e-Tendering into the GFMIS, strengthen procurement officers, develop KPIs and strategic procurement planning. (Inst.: 11; TA needs: Yes) - Establish a constraint on in-year changes in project implementation plans and complete transformation of the Audit Chamber from the Control Chamber; legislation to prevent changes that increase the capital budget of responsible line ministry and resource Audit Chamber. (Inst.: 8, 14) - Cross-cutting: - Establish in the MoF a dedicated unit covering all domestic and externally financed projects to ensure consistent appraisal and selection prior to funding negotiations and budget inclusion. (TA needs: Yes) — explore expanding Capital Expenditure Division mandate, identify additional resource needs, consider secondments and donor-supported assistance. ### Action plan highlights and sequencing - Recommendation 2: Begin full-fledged appraisal of all major projects above AMD 5 billion with consistent economic assumptions. Responsible: MoF, MoEDI. - Recommendation 3: Include in MTEF and budget message updated total costs of all loan-financed projects with annual breakdown; legislate reappraisal/reprioritization triggers. Responsible: MoF, MoEDI. - Recommendation 4: Amend Budget System Law or State Budget Law to make appropriations for loan-financed projects binding and restrict use of contingency reserves for projects. Responsible: MoF. - Recommendation 5: Establish gateway-based project selection and a centralized pipeline; develop simple prioritization tools and legal empowerment for MoF and MoEDI veto. Responsible: MoF, MoEDI. - Recommendation 6: Develop comprehensive e-Tendering as part of GFMIS (PSMP 3); complete integration. Responsible: MoF. - Recommendation 7: Require that changes to project implementation plans should not increase capital budget of responsible line ministry in the 2019 budget; build Audit Chamber capacity under new law. Responsible: MoF; Audit Chamber; Government of Armenia. - Recommendation 8: Operationalize a dedicated MoF unit for all projects; mobilize resources and external assistance. Responsible: MoF. - Overall action plan timeline spans 2018–2021 with responsibilities assigned to MoF, MoEDI, line ministries, Audit Chamber, and Government of Armenia. ### Illustrative project prioritization (Appendix V — example methodology and scenarios) - Purpose: prioritize new initiatives for inclusion in MTEF using a weighted scoring approach. - Example parameter weights (illustrative): - Impact of project — 10.0% - PDS pillar alignment — 15.0% - Will the project require contracting new debt? — 25.0% - Does the project have a feasibility analysis? — 10.0% - Objective of investment — 25.0% - Average budget execution rate of sponsor in 2017 — 15.0% - Scoring: each project scored 0–5 on six dimensions; final score is weighted sum. - Illustrative outcomes: - Project 1 (New school, IFI): Total score 2.05. - Project 2 (Warehouse renovation): Total score 3.10. - Project 3 (Customs scanners): Total score 3.40. - Note: changing weights alters rankings; prioritization exercise is a short-term tool while full PIM systems are developed. _Italic: Source — cr1933-armenia-ta (IMF, Public Investment Management Assessment mission to Armenia, June 27–July 10, 2018)._ ### PREFACE _________________________________________________________________________________________ 6 ### PREFACE ### Mission and team - A technical assistance mission from the Fiscal Affairs Department (FAD) of the International Monetary Fund (IMF) visited Yerevan, Armenia during the period June 27–July 10, 2018 to conduct a Public Investment Management Assessment (PIMA). - Mission leader: Yugo Koshima. - Mission members: Arturo Navarro (FAD), John Zohrab (Regional Advisor), Vahram Janvelyan (local IMF Office), Imran Aziz (short-term expert), and Armine Aydinyan (World Bank). ### Authorities and stakeholders consulted - Meetings with senior officials of the Ministry of Finance: - Mr. Atom Janjughazyan, Minister of Finance - Mr. Karen Brutyan, First Deputy Minister - Ms. Lala Ananikyan, Head of the Budget Process Management Department - Mr. Zhirayr Titizyan, Head of the Operations Department - Mr. Sergey Shahnazaryan, Head of the Public Finance Management Methodology Department - Ms. Greta Adamyan, Deputy Head of the Macroeconomic Policy Department - Ms. Emma Ghaytanjyan, Deputy Head of Budget Execution Reporting Department - Mr. Artak Marutyan and Mr. Artur Hambardzumyan, Deputy Head and Division Head of Public Debt Management Department - Mr. Vahagn Arsahkyan, Head of Capital Expenditure Division - Meetings with other government ministries and agencies: - State Property Management Department: Mr. Artashes Tarlamazyan, Mr. Armen Melik-Israelyan - Ministry of Economic Development and Investments: Mr. Artak Baghdasaryan, Ms. Marina Minasyan - Ministry of Territorial Administration and Development: Mr. Armen Manukyan, Ms. Narine Avetyan - State Statistical Committee: Mr. Stepan Mnatsakanyan, President - Ministry of Energy and Natural Resources: Mr. Vardan Martirosyan - Armenian Road Directorate: Mr. Gurgen Tadevosyan, Deputy Head - Ministry of Urban Development: Mr. Ashot Babayan, Department Head - Public Services Regulatory Committee: Mr. Mikayel Soghomonyan, Deputy Head - Audit Chamber: Mr. Karen Arustamyan, Department Head - Municipality of Yerevan: Mr. Tigran Sargsyan, Department Head - Other senior officials of government ministries and agencies ### Acknowledgements - Appreciation expressed for open discussions and courtesy extended by the authorities. - Thanks to Ms. Yulia Ustyugova, IMF Resident Representative in Armenia; and Resident Representative Office staff, in particular Ms. Marina Aleksanyan, for excellent support. - Appreciation to Mr. Arthur Aroustamov and Ms. Shushan Avagyan for translation services. --- ### EXECUTIVE SUMMARY ### Key findings on public capital and investment trends - Public capital stock declined from 160 percent of GDP in 2000 to 62 percent of GDP in 2017. - Public investment has remained low at approximately half of that invested by regional peers since 2012. - For the last three years prior to the mission, public investments started to pick up through large energy and road projects, but this has been unable to reverse the declining trend of public capital stock. ### Efficiency and quality of public investment - Significant gaps exist in the efficiency of public investments, both in terms of physical outputs and quality. - Physical outputs of education and water sector infrastructures are higher than the regional average. - Low levels of roads and electricity generation per capita stand out compared to regional peers. - Survey indicators of perceived infrastructure quality have improved; however, indicators such as loss of water in distribution networks and number of electricity outages show deterioration in some sectors. - The physical indicators estimate an efficiency gap of 36 percent. - The quality indicators estimate an efficiency gap of 24 percent. ### External financing and budget execution challenges - The share of external financing for public investment projects rose from 21 to 63 percent of total capital expenditure in the past ten years and is now the dominant modality for public investment. - This rise has been driven predominantly through loan financing and accelerated from 2014 as several major projects were initiated. - Weaknesses remain in the institutional framework for budgeting and managing major externally financed projects. - Budget execution for externally financed projects swung from under-execution by 60 percent of the original budget in 2013 to over-execution by 267 percent of the original budget in 2017. ### Institutional assessment (overview) - The report evaluates Armenia’s public investment institutions across planning, budgeting, and implementation stages of PIM. - Armenia’s PIM Institutions score at the same level as the average of emerging market economies on aggregate. - Relative strengths: fiscal rules, budget comprehensiveness, and availability of funding. - Relative weaknesses: project appraisal, budgeting for investment, and project selection — these are the lowest-scoring areas and span across the project cycle. ### Priority reform areas (high-level) - Planning stage: - National and sectoral strategies do not effectively guide public investment decisions due to inconsistencies in project information and absence of resource envelope constraints. - Major projects are not selected using systemic appraisal techniques across different funding sources and implementers. - Allocation stage: - Ministry of Finance (MoF) lacks power to reprioritize projects that overshoot total costs, undermining the credibility of the MTEF. - Budget allocations for capital projects are not credible because appropriations are not binding. - No centralized project pipeline or selection criteria for major projects; selection driven by availability of financing rather than project viability. - Implementation stage: - e-procurement system not integrated into the GFMIS; procurement officer capacity needs strengthening. - Project implementation plans can be modified significantly throughout the year, limiting government control. - Audit Chamber has not fully shifted mandate from compliance control to audit function. - Cross-cutting issue: - MoF’s Capital Expenditure Division covers only domestically financed projects and has limited resources for scrutinizing and controlling major externally financed projects. ### Summary assessment table (excerpted structure) - Planning: fiscal rules high strength; national and sectoral plans medium strength but low effectiveness; project appraisal low strength; project selection low strength and low effectiveness. - Allocation: multi-year budgeting medium strength but low effectiveness; budgeting for investment low strength and low effectiveness; maintenance funding medium strength and medium effectiveness. - Implementation: procurement high strength and medium effectiveness; availability of funding high strength and high effectiveness; portfolio management and oversight medium strength and medium effectiveness; project implementation medium strength and low effectiveness; management of public assets medium strength and medium effectiveness. ### Eight prioritized actions (summary) - Planning: - Improve hierarchical structure of investment strategy documents to define consistent planning horizons, ensure consistency of project information, and include resource envelope constraints. (Inst.: 2; TA needs: Yes) - Develop a unified appraisal methodology to ensure comparability across all major projects regardless of financing sources or implementers. (Inst.: 4, 10; TA needs: Yes) - Allocation: - Establish MoF’s power to challenge project cost estimate baselines and require reappraisal for reprioritization when budgets are persistently under- or over-executed. (Inst.: 6, 14; TA needs: Yes) - Amend the Budget System Law to establish restrictions on in-year adjustments to capital expenditure. (Inst.: 8) - Establish a project selection process based on a “gateway” approach with a centralized pipeline of ranked projects and central veto at concept and appraisal stages. (Inst.: 10; TA needs: Yes) - Implementation: - Improve system and capacity for public procurement associated with capital projects. (Inst.: 11; TA needs: Yes) - Establish a constraint on in-year changes in project implementation plans and complete transformation of the Audit Chamber from the Control Chamber. (Inst.: 8, 14) - Cross-cutting: - Establish in the MoF a dedicated unit covering all domestic and externally financed projects to ensure consistent appraisal and selection prior to funding negotiations and budget inclusion. (TA needs: Yes) ### Supporting material and structure of report - Figure 0.1: Design of Public Investment Management Institutions. - Table 1: Armenia: Summary Assessment. - Table 2: Armenia: Summary of Recommendations. - Appendix I: Proposed Action Plan (implementation details and sequencing). --- ### I. PUBLIC INVESTMENT IN ARMENIA — Total Public Investment and Stock of Capital ### Key point - Public capital stock and public investment trends summarized at the start of the full assessment (detailed analysis follows in the report). *Italic: Source — cr1933-armenia-ta - PREFACE (IMF, Public Investment Management Assessment mission to Armenia, June 27–July 10, 2018).* ### 1. The sharp decline in public investment spending from 2010 has left investment ### cr1933-armenia-ta - 1. The sharp decline in public investment spending from 2010 has left investment ### Trends in public investment and capital stock - Capital stock has been on a downward trend for most of the past two decades, except between 2007 and 2010 when public investment increased substantially. - By 2015, investment flows remain approximately 2 percent lower than other countries in the region. - Levels of capital stock are in the mid-range of comparator countries (Figure 2). - Recent years saw a pickup in investment spending largely through increased spending on externally funded energy and roads projects, including the North South Road and M6 Highway. - Latest available data of comparator average is for 2015. ### Budgetary impacts and fiscal outcomes - From 2009 to 2012, both recurrent and development spending were reduced by about 2 and 4 percent of GDP respectively. - Recurrent spending has grown since at a faster rate than development spending, while revenue growth has remained largely unchanged. - From 2012, the budget deficit has more than tripled to almost 5 percent of GDP in 2016; this is the joint second highest level within the Commonwealth of Independent States (CIS). - Note: Kazakhstan is at the same level of Armenia with Tajikistan the highest. - The April 2018 WEO database deficit figures are lower than the projected figures in the July 2017 Article IV report, which project the overall balance at 5.6 of GDP for above the line items. - Despite trends, current and capital spending in Armenia remains lower than the average for comparator countries of the CIS. ### Financing and public debt - Aggregate state debt rose from 17 percent of GDP in 2007 to 58 percent of GDP in 2017. - Borrowing for investment purposes is predominantly external and equates to 25 percent of GDP in 2017. - Aggregate state debt includes Government debt, government guaranteed debt and central bank external debt. ### Composition of public investment and subnational role - Externally financed public investment share rose from 21 to 63 percent over the past ten years and now dominates public investment (Figure 6). - Loan financing accounted for an average of 90 percent of total externally funded projects from 2007–17. - Public investment implemented by subnational governments averaged 11 percent of total public investment over the past ten years. - Since 2014, the share of development spending at the community level decreased from 17 percent to 5 percent of total public investment spending in 2017. ### Budget execution and volatility - Externally financed investment execution: - Averaged 66 percent of their budget from 2010–2014. - Averaged 195 percent from 2015 to 2017. - Domestically funded projects (including extrabudgetary accounts) spent 150 percent of their original budget from 2010. - Appropriation levels have been exceeded due to: - Open-ended nature for externally financed projects. - Use of the reserve fund for domestically financed projects. - As a result, budget execution rates in Armenia (measured by the absolute forecast error) are almost ten percentage points higher than its nearest regional comparator. - Overspending of the capital budget in 2017 was driven by defense, general public services and economic affairs; the road sector drove overspending in the economic affairs function. - Much of the 2017 overspending resulted from overspending on the North-South corridor. ### Sectoral composition and outcomes - Spending on economic infrastructure and social sectors is lower in Armenia than the CIS Average, whereas spending on defense and general public services is higher. - Sub-national spending on infrastructure accounts for only 5 percent of total public investments. - The current social spending composition in the state budget may not be sustainable given decentralization and limited subnational investment shares. ### PPPs and public corporations (PCs) - Four public-private partnerships (PPPs) are operating in Armenia. - IMF Fiscal Transparency Evaluation reported investment commitments of PPPs were 10.2 percent of GDP in 2016. - These projects include Armenian Railways, Zwartnots Airport, Yerevan, Veolia Water/Sewerage Services and Shirak airport (as listed in the IMF FTE context). - Capital stock of public corporations averaged 7 percent of GDP over the past three years. - The Nuclear Power Plant (NPP) and Yerevan TPP account for approximately half of the total capital stock of the PC sector. - The GEOCOSMOS public corporation accounted for 30 percent of total fixed assets in 2017. - PCs’ capital investments are predominantly financed by on-lending from the State budget. - On-lending has risen due to new energy sector projects including Gyumri-2 substation, the life-extension of NPP, and Vorotan hydroelectric power station. - Capital stock of PCs will be further increased on completion of these projects. - Budget execution of on-lending for PCs’ capital investments experienced a broad swing from under execution to over spending. ### Efficiency and impact of public investment - Infrastructure indicators for health, energy and roads perform significantly lower than peers. - Rural roads cover 3000 Km (almost 40 percent of the road network) and need considerable maintenance and upgrading. - Some thermal power plants (TPP) have not received investment for over 45 years. - The Hrazdan TPP uses 40 percent more gas per KWH produced compared to newer alternatives and outages per transmission line are 2.5 times higher than average well performing utilities in Europe and the US (Armenia Power Sector Policy Note, World Bank 2014). - Access indicators relating to education outperform comparator countries; access to treated water is broadly equal. - Perceptions of infrastructure quality (World Economic Forum survey) improved from 2.9 to 4.3 from 2007 to 2015, but began to decline from 2014 due to reduced electricity supply scores. - Electricity supply score reduced from 5.1 in 2014 to 4.8 in 2017 (2017 survey results). - The perception scale is from 1 to 7. - Other quality indicators: - Water loss rates and the percentage of firms experiencing electrical outages show Armenia compares relatively poorly in the region. - Investment efficiency: - Output (physical indicators) efficiency frontier shows an output efficiency gap of 36 percent for Armenia. - Quality frontier shows an efficiency gap of 24 percent for Armenia. - The infrastructure “output” aggregates indicators of access to and quality of infrastructure with quality weighted at 50 percent, and each of the infrastructure access indicators given an equal weighting within the remaining 50 percent. ### Public investment management institutions and assessment tool - The IMF’s Public Investment Management Assessment (PIMA) framework assesses the quality of public investment management and provides practical recommendations. - PIMA evaluates 15 "institutions" across three stages of the public investment cycle: - Planning of investment levels for all public-sector entities to ensure sustainable levels of public investment. - Allocation of investments to appropriate sectors and projects. - Delivering productive and durable public assets. - Each dimension is assessed against institutional design and effectiveness, scored as high, medium, or low. - “Design” indicates organizations, policies, rules and procedures are in place. - “Effectiveness” indicates the degree to which intended purposes are achieved. - Scores serve as a diagnostic guide to target reform priorities over the short and medium term. ### Key findings and policy-relevant observations - Externally financed public investment is dominant (63 percent of public investment) and predominantly loan-financed (90 percent of external finance), placing an onus on project appraisal and cost-benefit analysis to ensure benefits exceed financing costs. - Aggregate state debt increased from 17 percent of GDP in 2007 to 58 percent of GDP in 2017; externally financed investment for projects equaled 25 percent of GDP in 2017. - Volatility in execution of externally financed projects (66 percent average execution 2010–14 vs. 195 percent 2015–17) and consistent overspending of domestic projects (150 percent of budget from 2010) indicate fiscal and execution risks. - Armenia exhibits an output efficiency gap of 36 percent and a quality efficiency gap of 24 percent in converting public capital into infrastructure outcomes. _Italic: Source: IMF staff estimates; Budget Implementation and Community Budget Reports (2007–17); IMF WEO; Ministry of Finance Annual Debt Reports (2007–2017); IMF World Economic Outlook Database 2018; SPMD Annual Monitoring Reports._ ### 18. Armenia’s PIM Institutions perform generally well on aggregate to other countries ### 18. Armenia’s PIM Institutions perform generally well on aggregate to other countries ### Aggregate assessment and key weaknesses - Armenia’s PIM institutions perform generally well on aggregate compared with other countries that have undertaken PIMAs, but underperform on eight key institutions (see Figure 27). - Six institutions equal or outperform the scores of emerging market economies. - The lowest scores are centered on the phases of the project cycle: project appraisal, budgeting for investment, and project selection. ### Investment Planning — overview - Detailed assessment provided for Armenia’s public investment management institutions, each with an aggregate score for institutional design (Figure 27) and effectiveness, followed by supporting evidence. - Medium-term fiscal framework (MTEF) presents fiscal projections broken down to recurrent and capital expenditure and each program and ongoing and new project, but medium-term ceilings face challenges accurately planning capital spending for a medium term. ### 1. Fiscal principles or rules (Design— High; Effectiveness—Medium) Findings: - New fiscal rules target central government debt sustainability and provide an effective anchor for fiscal policy. - Previous rules (until 2017) included: debt ceiling of 60 percent of GDP and a debt brake of 50 percent of GDP; when the debt brake was triggered, the deficit was required to be below 3 percent of GDP. - Previous rules did not provide adequate mechanisms to implement counter-cyclical fiscal policy and increase public investments; when the debt brake was triggered in 2016, a large downward adjustment of the deficit in the original 2017 budget was achieved mainly by cutting capital expenditure. - Amendments to the Budget System and State Debt Laws replaced the previous rules with: a ceiling on central government debt of 60 percent of GDP and corrective mechanisms that prioritize capital expenditures (Table 3). Planned measures: - Government plans to introduce a decree to set ceilings on growth of aggregate current expenditures and require preparation of a debt reduction program as part of the MTEF. Subnational borrowing: - Community borrowing limits defined in the Budget System Law; outstanding borrowing is minimal. - Community borrowing from outside the general government is subject to MoF approval and limited to infrastructure development. - Total debt servicing expenditures 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 in-year borrowing from central government or other communities for cash management. - Currently, there is only one outstanding external loan taken by a community (Yerevan City financing agreement with the European Investment Bank for the Yerevan Energy Efficiency project: EUR 7 million). Tabled corrective measures under new fiscal rule (as presented in the source): - Expenditure Path / Action Plan / Debt / Capital / Current - > 40%: Cannot be less than deficit -- No - > 50%: Increase limited to long-term growth rates Yes - > 60%: Increase limited to long-term growth rates and level to revenue collection (exc. debt service) Yes ### 2. National and sectoral plans (Design - Medium; Effectiveness - Low) Findings: - Existing strategic documents: Prospective Development Strategy (PDS) for 2014–25; Government Program (GP) for 2017–22; Annual Action Plan for 2018; additional sectoral strategies and community regional development plans. - Strategic documents are published on government websites and include projects implemented by PCs or through PPPs. - Planning horizons are not synchronized across strategic plans and budget documents; some sectoral strategies extend beyond PDS planning horizon (example: Long-Term Power System extends to 2036). - Lack of synchronization can result in project selection without consistency with national strategy or fiscal constraints. - Some flagship projects omitted from some planning documents (example: North-South Corridor project started in 2009 was not mentioned by the Sustainable Development Program (SDP) 2008). - Strategic documents include costing of major projects but are not constrained by resource envelopes and do not present life cycle costs. Example: Armenia-Georgia Transmission project costing in sector strategies exceeded the PDS energy sector resource envelope. - Costing optimism noted: total cost of North-South Corridor project has tripled since original estimate in 2008. - Strategic documents present sector-level target indicators, but these are not project-specific and rely on public and private investments plus non-investment policies. Examples of sectoral and communal documents (as named in source): - Energy Strategy of Armenia: Accomplishments, Challenges, Next Steps - Armenian Transport Sector Development Strategy (TSDS) 2020 - Yerevan Development Program for 2018-22 - Yerevan Sustainable Energy Development Action Plan for 2016–20 ### 3. Coordination between entities (Design—Medium; Effectiveness—Medium) Findings: - Community capital investments limited: total capital expenditure of communities has been less than ten percent of total public investments. - Central government finances and implements communities’ major projects (example: Yerevan Subway Reconstruction Project), though included in community budgets. - Excluding major projects, community capital expenditure mainly small capital repairs financed by proceeds of land and real estate sale. - Capital transfers (“capital subventions”) to communities account for only 2 percent of total capital expenditures of communities (Table 4). Table 4. Armenia: Capital Transfers from Central to Community Government (AMD million) - 2014: Capital subventions to communities 407.5; Total municipal capital expenditures 27,522.5; Share of capital subventions (percent of total municipal capital expenditure) 1.5 - 2015: Capital subventions to communities 953.2; Total municipal capital expenditures 16,649.1; Share 5.7 - 2016: Capital subventions to communities 273.0; Total municipal capital expenditures 13,057.8; Share 2.1 - 2017: Capital subventions to communities 215.4; Total municipal capital expenditures 12,289.6; Share 1.8 Coordination mechanisms: - Communities publish capital investment plans on their websites; these are provided to but not formally coordinated with central government. - Formal coordination for projects funded by capital subventions follows law/contracts: communities submit requests to regional governor (“marz”), summarized and submitted to line ministries and Ministry of Territorial Administration and Development (MoTAD); if positive, line ministries include requests in budget proposals to MoF and MoTAD (or Yerevan municipality). New capital transfer program: - 2018 budget created new program to provide capital subventions for community infrastructure development (AMD 500 million). - Project selection criteria/process defined in law include: creation of special appraisal committee; 60 percent of economic infrastructure projects and 40 percent of social projects co-financed by the State budget; amount of capital subvention notified to a community only during a financial year. Contingent liabilities and disclosure: - Annual budget documentation discloses contingent liabilities associated with many, but not all, capital projects of PCs and PPPs. - On-lending by government to PCs financed through IFI borrowing is disclosed and authorized in MTEF and annual budget documentation. - Annual Debt Report discloses list of State guarantees by beneficiary; outstanding guarantees limited to 0.1 percent of GDP in 2017. - Fiscal risks associated with some but not all PCs’ projects and PPPs are discussed along with financial performance of major PCs in energy, water and transportation sectors. ### 4. Project Appraisal (Design—Low; Effectiveness—Medium) Findings: - No standardized requirement for technical, economic and financial analysis of capital projects; appraisal practices differ across line ministries. - Government has not developed a standardized appraisal methodology nor designated an entity to coordinate the process. - Some planning documents require feasibility studies of externally financed major projects, but only on an ad hoc basis. - Appraisal of major capital projects typically performed to meet donor financing agreements: 77 percent of investment projects over AMD 1 billion are externally financed; donor appraisals are available to government but rarely reviewed to decide whether a project should be undertaken. - Appraisals are typically completed after Cabinet presentation and loan agreement signing; donor methodologies differ and limit comparability. - Full-fledged economic assessment of major domestic projects is not systematically undertaken. Domestically funded projects are subject to standardized costing and technical analysis required by law and reviewed by MoF, but not to full-fledged appraisal. - Domestic project portfolio composed almost entirely of very small capital repairs; only a handful of domestic projects would require full appraisal. - Efforts exist to enforce appraisal and develop systematic methodology: MoEDI drafted a Concept Note in 2011 to develop a public investment evaluation system based on good practices, but it has not been approved by the government. ### 5. Alternative infrastructure financing (Design—Medium; Effectiveness—Low) Findings: - Public Services Regulatory Commission (PSRC) is an established independent regulator for electronic communications, energy and water sectors (established 1997; statute amended 2001). - PSRC tariff-setting methodology reviewed in 2016 by international experts. PSRC gives prior approval for individual investments requiring tariff approval. Market structure and regulation: - Mobile telecommunications: competitive market; PSRC does not set prices but licenses require universal coverage which may cause cross-subsidization. - Landline service: single supplier with tariffs set by PSRC. - Electricity sector: PSRC developing arrangements to deregulate; impact limited. Regulated electricity prices reflect cross-subsidization between low and high-cost generators; distribution and trading bundled with a single company buying from generators and distributing electricity. - Gas distribution: regulated private monopoly; border prices set by intergovernmental agreements; PSRC sets tariffs for consumer categories; no plans to deregulate. - Drinking water sector dominated by a PPP that sets tariff basis for first 15 years; PSRC subsequently adjusts tariff for factors like electricity tariffs and inflation. Irrigation sector is regulated by PSRC and is much smaller. PPPs and PCs: - Current legal and policy framework for PPPs not sufficiently clear or strong. Four PPP contracts with total investment commitment of 10.2 percent of GDP were concluded without PPP-specific legal/policy framework. - Government approved PPP Policy Statement in November 2017 as basis for a new PPP law; law prepared but not approved by Parliament. New law will require extensive methodological guidelines to be operational. - PCs: PC-driven investment represented more than 50 percent of total public investment in 2016, but only partial information on financial performance and investment plans is prepared and published. - State Property Management Department reports aggregate and company-level outturn data but not investment plans or financial projections. - SFRs in MTEF and annual state budget documentation analyze financial condition of several PCs but do not focus on investment plans nor disclose stock/change of PCs’ nonfinancial assets. - Line ministries and MoF review PC investment plans, but plans are not credible and projects can be approved outside normal budget process. - Most PCs’ major capital investments are financed by external borrowing of the State budget with on-lending to PCs; significant deviations between budget and outturn of on-lending evidence weaknesses in PC investment planning. ### Recommendations Issue 1: The national and sectoral strategies do not adequately guide investment decisions Recommendation 1: Improve hierarchical structure of investment strategy documents to: - define consistent planning horizons; - ensure consistency of project information; - include resource envelope constraints. Actions: - Issue legislation to make planning periods consistent and ensure sectoral investment plans align with national strategies and that financial details of major projects are consistent with the MTEF and State Budget Law. - Develop a pillared structure for a new long-term national development plan that clarifies and connects priorities. - Develop new or update existing sectoral investment strategies in accordance with the new long-term national development plan, replacing all existing ones. Issue 2: Major projects are selected without using systematic appraisal techniques across funding sources and project implementers Recommendation 2: Develop a unified appraisal methodology to ensure comparability across all major projects regardless of financing sources or implementer. Actions: - Develop a unified appraisal methodology for all major State projects and for communities and PCs that are State-supported to ensure consistency with sector strategies and economic growth objectives. - Formally adopt a government resolution to approve the systematic evaluation process underpinning the unified appraisal methodology. - Ensure that all major projects above AMD 5 billion are subjected to a full-fledged, unified appraisal with consistent economic assumptions, in addition to donor-specific appraisals. *Source: IMF staff assessment as presented in the chapter "18. Armenia’s PIM Institutions perform generally well on aggregate to other countries" from the provided document.* ### 6. Multi-year budgeting (Design—Medium; Effectiveness—Low) ### 6. Multi-year budgeting (Design—Medium; Effectiveness—Low) ### MTEF structure and process - A medium-term expenditure framework (MTEF) was established in Armenia in 2003 and includes many good practices by international standards. - The MTEF is based on a single MTEF/budget calendar institutionalized and legislated through the Budget Systems Law (BSL) and has two main stages: the MTEF process and the detailed annual budget. - Following issuance of MTEF instructions, line ministries provide unconstrained project-level submissions for the budget year and medium term; these are reconciled within the available resource envelope considering debt and deficit rules to form the first set of budget ceilings. - After budget hearings (jointly conducted by the Ministry of Finance and Prime Minister’s Office), the MTEF document is submitted to Parliament for information in July. The detailed annual budget is subsequently formulated, with annexes including the same level of detail as the MTEF document. ### Capital project projections, disclosure, and financing - Projections of capital spending are made for the upcoming fiscal year and two additional years for each ministry at the project level, although ceilings are highly indicative. - Total construction costs of development projects are not published, although line ministries provide total cost information when preparing budget drafts. - For domestically funded projects, total cost information and unit cost certification are standard practice as part of the detailed budget approval process. - For foreign-financed projects, total cost information forms part of standard project preparation and appraisal stages. - Over half of the capital budget is financed by development partners; many major infrastructure projects are implemented by PCs with this support, which account for approximately 10 percent of the total capital expenditure in the state budget. - The MTEF and budget annexes include projects where there has been an on-lending arrangement, but there is no list of investment-related costs undertaken by PCs. - In 2017, the capital expenditure made by extra-budgetary funds was limited to 0.1 percent of GDP (AMD 8.0 billion), a large majority composed of police equipment and civil servant apartments acquired by earmarked revenue. ### Credibility and execution of the MTEF - The MTBF is well-established and closely aligned to Armenia’s fiscal strategy, but it is not a reliable anchor for medium-term planning. - Historical execution patterns show extreme shifts: - Under-execution from 2012 to 2014 and overspending above the MTEF from 2015 onwards. - Average forecast errors reported as negative 26, 30 and 20 for 2012–14 and positive 40 and 45 for 2015 and 2016, arising mainly from budget deviations of loan-financed projects. - These forecast errors undermine the fiscal planning component of the MTEF, as there is no accurate way to assess adherence to stated fiscal targets and rules. ### Baseline estimation problems and largest project distortions - Inaccurate baselines for ongoing projects undermine the credibility of the MTEF. - The Budget Block is not capable of analyzing hundreds of mostly small projects to ensure baseline cost accuracy. - In 2017, there were 354 projects under execution. - Under the MTEF being reviewed by Parliament baseline estimations for these projects were 128 Billion Dram higher than what fiscal space would allow. - Large multi-year projects create the largest distortions: - Examples: North-South Corridor and Gyumri-2 Power Substation exhibited large under-execution during inception followed by significant overspending as projects progressed, exacerbated by poor project management causing interruptions and delays. - Recommendation to improve credibility: - Focus baseline improvements on the largest foreign-financed projects of over USD 5million. - Establish a systematic way of storing information on changes to project costs during implementation (information currently gathered and stored in multiple PIUs). - Enable the Budget Block to strengthen its challenge function by receiving project cost updates during the MTEF/budget cycle. - Require standard parameters on changes to major cost drivers such as inflation, exchange rates, and commodity prices. ### Budget comprehensiveness and unity - Public investments are mostly undertaken through state and municipal budgets. - Capital expenditures by state and municipal NCOs were minimal; total expenditure of these NCOs was limited to 0.6 percent of GDP in 2016, almost entirely wage and recurrent spending. - Capital and recurrent budgets are prepared by the MoF on the proposal of each ministry and presented together in the state budget documents on the basis of program and functional classifications by each ministry. - Coordination occurs at program level but not at the sub-program (policy action) level. - Because Armenia’s program-based budgeting (PBB) system focuses on the policy action level and capital projects are separate policy actions, coordination between capital and related recurrent expenditures may be problematic. - A three-level program classification, as previously recommended by FAD, could help resolve this problem. - All significant capital projects of the budget sector are disclosed individually in the annual state budget documentation, except for PPPs. - Tables 13, 14, and 15 of Annex 1 of the Annual Budget Law (ABL) show each capital project funded by budget resources, external loans, and grants respectively. - Tables 2 and 3 of Annex 4 show on-lending to each capital project of PCs, funded by external loans and grants. - The SFR included in the MTEF published in 2017 discloses information on two but not all PPP contracts. ### Budgeting for investment: legal framework, appropriations, and reallocations - Capital expenditure is appropriated on an annual basis; budget documents do not present total project costs, which have been overshot for some major projects. - Article 21(8) of the Budget System Law requires expenditure for multi-year capital projects be appropriated on an annual basis. - Budget documents present only expenditure for a budget year and do not disclose total project costs or multiannual commitments. - Virement from capital to recurrent expenditure: - Article 23(3) of the Budget System Law requires reallocation between different “programs” be approved by Government Decision signed by the Prime Minister; reallocation within the same program can be made by a spending agency. - Under current classifications, a “program” typically encompasses a single capital project or group of capital projects, meaning reallocation from capital to recurrent expenditure effectively requires the Prime Minister’s approval. - There is a quantitative limit to reallocation between different programs of 3 percent of total expenditure. - There is no mechanism to ensure sufficient funding of domestic projects: - Persistent tendency for budgets for domestic projects to be significantly overspent, driven by extensive use of government reserve funds for financing domestic projects. - In 2017, one-fourth of non-defense domestic projects were financed by government reserve funds. - Many ongoing projects receive limited allocations in the annual budget and must compete with new projects for government reserve funds (example: in 2014, the original budget made no appropriation for domestic projects of the health sector). - Article 19 of the Budget System Law allows the Government (Prime Minister) to use government resource funds for any “unforeseen expenditures,” with a ceiling of 5 percent of total expenditure. In 2017, one-third of resource funds was used for domestic projects, which comprised only four percent of total expenditure. - Externally financed projects lack binding appropriations: - Expenditure for externally financed projects is controlled by borrowing decisions during a year, not the budget. - Article 11(4) of the 2018 State Budget Law allows total expenditure and deficits to be increased without parliamentary approval of supplementary budgets; this has been a main cause of significant over-execution of loan-financed project budgets. - The arrangement requires ongoing projects to compete over borrowing space with new projects added throughout the year. - The government has refrained from using this provision of the annual State Budget Law under Government Decision 1717-2017 for Implementation of the 2018 State Budget, but the decision is not permanent and can be changed easily. ### Maintenance funding: arrangements, execution, and adequacy - Funding requirements for routine and major maintenance are available in different planning documents; standard methodologies are set by laws, though variation exists across sectors. - In roads, the PDS (2014-25) specifies a proportion of GDP for road maintenance supported through Decree 1499, 2011. - The Energy Law (Chapter 4, 2001) states tariffs should provide “reasonable leverage to cover maintenance costs of energy facilities.” - The PSRC has guidelines on setting tariffs for electricity, gas and water sectors using fixed rates of profitability and depreciation (for generation: 10 percent profitability rate of return and 4 percent depreciation; for distribution: 12 and 2 percent). - Maintenance for social infrastructure (schools and health facilities) is not specifically mentioned in the PDS; major repairs done by Ministry of Urban Development (MUD) while routine maintenance is predominantly at provincial and community levels following their own standards (e.g., Government Decision 596-2015). - Visibility and execution: - Expenditures for routine maintenance and major works are visible in the state budget and consistent with GFSM 2014 definitions (Section 6.45). - Execution rates over a five-year period: - Maintenance of major works execution rates were volatile, with execution rate of 86 and 89 percent for three of the past five years. - Routine road maintenance averaged 99 percent execution. - Routine maintenance for all other sectors averaged 94 percent execution. - When compared against the appropriation, execution rates can be significantly higher than 100 percent due to open-ended appropriations. - Adequacy concerns: - Maintenance budgets have not grown sufficiently to cover the growing trend in investment spending and the needs of the capital stock. - Road maintenance spending has been flat in nominal terms; the MoTCIT estimates this is approximately a third of what is required to maintain the current stock of roads. - The 2015 road financing strategy indicated 3,000 km of rural are in urgent need of repair. - Maintenance of other major works has remained flat at 2015 levels despite upward trend in investment spending. - The energy sector requires monitoring due to regulated tariffs and several loss-making PCs: combined losses of AMD 12.1 billion far exceeded the AMD 2.6 billion generated by the profitable corporations. ### Project selection, pipelines, and appraisal - There is no structured selection procedure or criteria for all capital projects before inclusion in the budget. - Externally financed projects are selected during approval and negotiations of financing agreements; domestic projects are selected by line ministries throughout the year without a common procedure. - Defined selection criteria exist for domestic capital repair projects (based on wear and tear and other indicators) but do not exist for externally financed projects. - Financial, technical, and strategic issues are analyzed to some extent at various stages, but results of analysis are not necessarily used or ready when projects are selected for inclusion in the budget—selection of major (mostly donor-financed) projects has been driven by availability of financing. - There is no centralized pipeline of appraised projects accessible to the MoF: - The MoF has only a database of projects currently under implementation. - Some line ministries and PCs have pipelines they plan to implement, but these are not accessible by the MoF or the Ministry of Economic Development and Investments (MoEDI). - Some strategic documents present lists of projects, but these lists are not consistent across documents and do not substitute for a project pipeline. *Source: cr1933-armenia-ta - 6. Multi-year budgeting (Design—Medium; Effectiveness—Low)* ### 62. Projects that are likely to receive external financing can “fast-track” through the ### cr1933-armenia-ta - 62. Projects that are likely to receive external financing can “fast-track” through the ### Project selection and gatekeeping - Current practice: projects likely to receive external financing can “fast-track” through the selection process without a thorough project assessment; line ministries send to the Cabinet project proposals eligible for donor funding without the MoF and the MoEDI having reviewed it. - Full appraisal occurs only after the Prime Minister has approved the project and the loan has been signed; the MoF’s approval is required for financing negotiations and terms but is sought late in the process. - Disadvantages of late MoF involvement: - agreeing to invest in a project that may not be feasible or affordable; - permitting more growth enhancing projects to be crowded out from available resources; - creates a favorable bias for the appraisal process. - Recommendation summary: - Create “gatekeeping roles” for the MoF and MoEDI and consolidate pipeline information in a central database performed before submission of the concept note to the Cabinet (consistent with the 2011 draft Concept Note). - Use a sequenced approach: initially select projects based on simple, weighted averages of certain indicators (easy to calibrate), while MoF develops methodologies, guidelines, and staff training in parallel (Appendix V provides an example design). ### Recommendations (Issues 3–5) - Issue 3: Central agency has no power to reprioritize projects facing feasibility issues or overshooting total costs, undermining MTEF credibility. - Recommendation 3: Establish the MoF’s power to challenge project cost estimate baselines and require reappraisal for reprioritization when budget execution and other factors indicate adjustments are needed. - Actions: - Include in the MTEF and budget message updated total costs of all loan-financed projects (including communities’ and PCs’) with annual breakdown for the entire project period. - Issue legislation requiring major projects (irrespective of funding source or implementer) to go through reassessment and reselection if: (i) implementation is interrupted or significantly delayed; or (ii) updated total costs exceed the original estimate by a certain threshold, integrating project monitoring requirements of the 2017 MoF Order. - Issue 4: Credibility of budget allocations for capital expenditure is undermined because budget appropriations are not binding. - Recommendation 4: Amend the Budget System Law or the State Budget Law to establish restrictions on in-year adjustments to capital expenditure. - Actions to ensure law stipulates: - Appropriations for loan-financed projects and limits to on-lending arrangements financed by external loans are binding and cannot be changed without parliamentary approval of supplementary budgets (except by reallocation). - Government reserve funds are only used in cases of natural disasters or state of emergencies. - Issue 5: No centralized pipeline of appraised projects nor defined selection criteria for major projects; selection driven by availability of financing rather than viability. - Recommendation 5: Establish a project selection process based on a “gateway” approach and a centralized pipeline of ranked projects. - Actions: - Develop and issue legislation that empowers the MoF and MoEDI to veto all major projects at two “gateway” stages: - Stage 1: before project concepts are brought to the Cabinet; include projects that have undertaken pre-feasibility studies through a standardized methodology developed by MoF and MoEDI. - Stage 2: required if total costs exceed a certain threshold; full appraisal presented at the gateway for final approval before financing negotiations; if during appraisal the cost increases above a certain percent, project should be sent back to Stage 1. - Legislation to include all projects implemented by the state, communities, PC, external loans and PPPs, where total project costs exceed AMD 5 Billion. - Develop a pipeline of new projects for selection into the MTBF and annual budget. - Develop a simple prioritization exercise using weighted averages of indicators for scenario analysis to support project selection. ### Procurement (Design—High; Effectiveness—Medium) - Regulatory improvements: - New “Law on Procurement" (PPL) came into force on April 25, 2017; designed to conform to EU and EEU standards. - PPL aims to increase efficiency of public funds and reduce corruption risks; reflects principles such as value for money, equal rights and non-discrimination, competition, transparency and openness, and proportionality. - MoF to enhance capacity among procurement officials, increase shares and volumes of competitive methods, streamline procurement, and fully apply e-procurement methods. - E-government and systems: - Armenian Electronic Procurement System (ARMEPS) covers whole procurement cycle from planning to payment. - Government Financial Management Information System (GFMIS), including a comprehensive e-GP system with a blockchain module, is expected to be developed and rolled out. - Treasury Single Account system and Armenian Public Sector Accounting Standards (APSAS) rollout supported by World Bank for IPSAS implementation. - Progress and coverage: - 300 public procuring entities are registered in ARMEPS and implement procurement electronically. - Mandatory requirement: public disclosure of a statement on a real shareholder of the bidder and a statement on the absence of conflict of interests. - Institutional framework: - Actors: (i) MoF (procurement regulations, policy, coordination, services); (ii) procurement appeal officers under MoF; (iii) procuring entities (state governance entities, municipalities, state-owned enterprises and foundations); (iv) Chamber of Audit (external audit). - Appeals and transparency: - Procurement complaints increased by 35 percent since establishment of current process; appeal meetings broadcast online; accepted complaints, minutes, decisions and annual reports published on the MoF website. - Possible improvements: analytical/statistical work on procurement complaints; introduce automatic suspension of process when complaints submitted. - System weaknesses: - Business intelligence tool (developed with EBRD support) complies with the “Open Contracting Data Standard” (OCDS) but is not publicly available; data open to a limited group. - Procurement officers’ capacity still needs strengthening. - Limited competition and extensive use of single source methods remain concerns: - Use of single source procurement and negotiation procedures without advertisement has decreased since 2014 for State budget. - Use of single source procurement in total (“sole source, special or exclusive rights” methods per Government Decrees 168-N and 526-N) has slightly increased during the same period. - Increase associated with recurrent spending for utilities and communications rather than capital expenditure; reflects challenge of Armenia’s small economy and limited supplier competition. ### Availability of Funding (Design – High; Effectiveness - High) - Treasury and accounts: - Almost all payments for general government capital expenditure are currently made from the Treasury Single Account (TSA) at the Central Bank of Armenia (CBA). - Central and local government non-commercial organizations (NCOs) currently execute capital expenditures through commercial bank accounts, but their proportion is minor; these expenditures will soon also be executed through the TSA. - Bank accounts for donor-funded projects, including those in foreign currencies, have been sub-accounts of the TSA since 2012; sub-accounts are under control of line ministry Project Implementation Units (PIUs) operating per agreements with donors. - Cash planning and allocations: - For capital expenditures funded by general state budget resources, monthly cash flow forecasts at aggregate and line ministry levels are prepared for the fiscal year; forecasts used as basis of quarterly budget allocations approved by government following parliamentary appropriation. - Forecasts updated monthly based on actual inflows and outflows; broken down by month and week; cash planning structured around weekly meetings. - Line ministry commitment limits are the annual appropriations; contractual commitments may have payment horizons up to one year but payments are subject to quarterly payment limits equal to quarterly budget allocations. - Line ministries may request adjustments to limits if warranted (e.g., contractors submitting payments certificates on different schedules). - Centralized cash planning and commitment control does not apply to donor-funded capital expenditures (subject to donors’ cash planning and commitment controls). - Timeliness of payments: - Since 2009 crisis, no significant problems in releasing cash for capital expenditures in a timely manner. - PIU TSA sub-accounts are usually pre-funded by donors so contractor invoices are paid promptly. - Treasury maintains a cash buffer and uses automated cash forecasting and commitment control systems, so supplier invoices are usually paid on time. ### Portfolio management and oversight (Design – Medium; Effectiveness - Medium) - Monitoring practices: - MoF monitors annual project costs and physical progress at a detailed level; reporting required monthly for loan financed projects and quarterly for others. - Reporting includes outlays broken down to project components and economic classifications, volume of works by contractor, materials/services procured from each supplier, cash balances, and descriptions of physical progress of each project component (Government Decision No. 429-1998). - Total project costs reported in MTEF applications; monitoring intensified for loan financed projects in 2017 (MOF Regulation on Externally Supported Project Monitoring and Risk Management). - Limited control powers: - MoF has limited powers to address implementation problems; monitoring results of domestic projects have been used mainly for permitting overspending through reserves or budget revisions. - Reallocation practices: - Article 23(2) of the Budget System Law gives spending agencies flexibility to reallocate between projects within the same program. - Example: program “major renovation of educational facilities in Yerevan City” — reallocation limited to 10 percent of the original budget of the program for the past three years. - Reallocations are recorded in the Treasury system, published in Gazette regularly, and reported in budget execution reports. - Ex-post reviews: - No systemic requirement for ex-post project reviews covering all major projects regardless of funding source. - Full ex post reviews typically conducted for externally financed projects per donors’ requirements. - State Inspectors attached to sector ministries undertake some systemic ex-post reviews in certain sectors (e.g., State Energy Inspectorate inspects energy projects focusing on technical aspects). ### Management of project implementation (Design – Medium; Effectiveness – Low) - Domestic projects: - Project management arrangements for domestic projects are relatively standardized and clear: implemented by departments or NCOs of line ministries which select projects based on MoF resource envelope, monitor implementation, reallocate funds if necessary, and ensure works meet specifications. - Example: Armenia Road Directorate under MoTCIT responsible for capital repairs and maintenance of roads. - These units comply with the Budget and Procurement Laws and are subject to ex-post audits by the Audit Chamber. - Externally-financed projects: - Implementation arrangements are more convoluted with additional stakeholders and unclear allocation of responsibilities. - PIUs oversee project implementation but other stakeholders may advise on project evolution; procurement processes can vary by donor policy. - PIUs report to all stakeholders, but it is unclear who takes action when implementation plans go off-track. - Credibility and reappraisal gaps: - Implementation plans submitted as part of MTEF applications; significant deviations exist between MTEF, budget appropriations, and actual spending due to under- and over-execution. - No requirements for major projects to be reappraised after selection even when total costs and execution deviate substantially: - North-South Corridor example: total cost has more than doubled since 2008; budget execution rate was only 13 percent on average for the first four years and 237 percent on average for the last three years. - In 2017, the revised budget for the same project was highly under-executed despite large increases to address countercyclical issues. - Combination of cost overshooting and persistent significant deviations from budgets and implementation plans should have triggered reappraisal and revision before further resources were allocated, but reappraisal and reprioritization did not occur. *IMF staff report content as provided.* ### 82. Some major capital projects have been subject to ex-post audit by the Audit ### cr1933-armenia-ta - 82. Some major capital projects have been subject to ex-post audit by the Audit ### Audit coverage and institutional change - Some major capital projects have been subject to ex-post audit by the Audit Chamber; audit results are published and discussed by the National Assembly. - The Audit Chamber (supreme audit institution) undertakes compliance, financial, performance audits of capital projects based on quantitative, qualitative, timeframe and cost related indicators. Findings and recommendations are presented in regular and annual reports submitted to the National Assembly and published by the Chamber on timely manner. - The new Law on the “Audit Chamber” converted the Control Chamber into the Audit Chamber and is effective since April 9, 2018. The law shifted the key mandate from control to audits and expanded responsibilities to audit all public expenditures, including donor-funded projects, following the INTOSAI standards. - Procurement-related monitoring and ex-post review are also undertaken by internal audits of the MoF and respective line ministries. Currently, donor organizations conduct procurement ex-ante and post reviews independently. - The capacity of the Audit Chamber needs further strengthening to ensure financial, operational and administrative independence. Subject to improvements to staff capacity, procurement post review of WBG funded projects will be provided to the Chamber. ### Monitoring of public assets — registers, coverage, and valuation - Asset registers of the government are not comprehensive; several registers are maintained by different agencies with different coverages and are typically updated at a reasonable interval. - Armenian Road Directorate maintains a database of all roads (except community roads) that stores survey results of road conditions. A bi-annual survey covers 1,500 km each time; and all roads will be surveyed every five years. Road-condition scores from this database will be used to prioritize maintenance projects. - MUD is developing a database of the seismic assessment of school buildings. - Table 5 (summary of registers): - State Property Register (SPMD): Central Gov’t coverage; Roads, buildings, structures, reservoirs, water pipes, intangible assets, vehicles, shares; Update: Annual; Value: Building only. - Community Property Register (Community): Community coverage; Roads, buildings, lands (Varies); Update: Building only. - State Register of Property Rights (State Cadaster Committee): All economy coverage; Lands; Update: (Rolling basis); Value: N/a. - “HDM4” (Armenian Road Directorate): Central Gov’t coverage; Roads; Update: 2 years; Value: N/a. - There is no fiscal report that includes the stock value of non-financial assets of the government. Annual government or community accounts are prepared on a cash-basis and include no data on stock of nonfinancial assets. The national accounts or government finance statistics produced by the State Statistics Committee also do not include stock of nonfinancial assets. - The annual SOE report prepared by the SPMD includes stock of fixed assets broken down to each enterprise, using an accrual basis. - National accounts include depreciation of government fixed assets based on statistical estimates; consumption of fixed assets of the public administration is presented in the annual national accounts. The State Property Register records depreciation of buildings; revaluation has not been made since the 1990s. ### Gaps in legal framework for project planning, appraisal, and selection - Legal framework includes significant gaps in planning and selection of major projects. For smaller projects (capital repairs) requirements of costing and technical analysis exist but are fragmented. Legal framework exists for procurement of major and small projects, but significant gaps remain in planning, appraisal and selection of major projects. - Article 14 of the Budget System Law requires the government to issue a decree on public investment procedure, but existing decrees focus on reporting financial and physical progress. - Table 6 (selected gaps): - Strategic planning (Constitution): No legislation establishing a hierarchy of national and sectoral strategic plans or synchronizing planning horizons. Draft Protocol Decision No. 42 to streamline strategic documents into three levels exists but has not been assented by the President. - Project appraisal (Various Gov’t Decisions and Ministerial Orders; Statues of MoF and MoEDI): Several decrees require costing and technical analysis, but no legislation requires economic or financial analysis of major projects. Neither MoF nor MoEDI has a formal mandate to establish appraisal methodologies. Examples of decrees: Government Decisions 879-2011 and 596-2015; MUD Order 19-2008. - Project selection (Law on International Treaties): Existing law permits major projects to be selected without involving the MoF. The Law on International Treaties requires an LM to obtain a go-ahead from the Prime Minister before the MoF begins negotiations; this provision is interpreted to allow the Prime Minister to select a major project without requiring MoF evaluation of its pre-feasibility study. No criteria are mentioned for such go-ahead. ### IT systems and project databases - Existing IT systems do not capture information throughout all phases of a project lifecycle; most attention has concentrated on budget preparation and execution phases. TOD, debt management and other MoF systems capture detailed information on budget execution, physical progress, and financial projections mainly for MTEF periods. Reports on budget execution and physical progress are automatically collected from PIUs’ systems interfaced with TOD. An expanded database capturing all project cycles is necessary for MoF prioritization. - There is no database that works as a pipeline of projects from which projects can be selected into the budget. For new projects, neither the MoF nor the MoEID have a database of all project proposals including those rejected. Project information is only received when external financing must be finalized or when preparing the upcoming year’s budget. Assessment against strategic priorities or appraisal analysis are not systemically recorded. Updated total and life-cycle costs or ex-post reviews may be kept in paper-based formats and not uploaded into a system. - Table 7 (gaps in project databases accessible by the MoF): - Project outline: Some data missing (e.g., updated start and end dates and geographic information may not be captured). - Link to strategic documents: No information (no record of which priority in a strategic document a project falls within). - Appraisal information: No information (appraisal documents and costing and technical analysis seem to be kept on a paper-base). - Parameters for project selection: No information (no record of whether selection criteria are met). - Financial requirements: Some data missing (no record of life cycle costs; updated total costs and annual breakdowns may not be uploaded). - Execution and monitoring: Some data missing (original and revised budgets, actual expenditure, and physical progress are stored into TOD at a very detail level, but there may not be comprehensive records of multiannual commitments and contracts). - Ex-post evaluation: No information (ex-post review documents seem to be kept on a paper-base, if delivered to the MoF). ### Staff capacity for project scrutiny and monitoring - MoF and MoEID have limited resources dedicated to scrutiny and monitoring of major projects. The MoF has the Capital Expenditure Division composed of five staff, focused on the budget process for domestically financed projects. Externally financed projects are covered by the Budget Process Management Department. The MoEID’s Strategic Planning and Monitoring Department prepares national long-term development plan. Neither MoF nor MoEID has a dedicated unit for scrutinizing new proposals or controlling implementation of major externally financed projects. - Creating gatekeeping roles requires additional resources and capacity. Options: expand the Capital Expenditure Division to cover both domestic and externally financed projects; second staff from other line ministries with large project portfolios; seek assistance from universities and independent experts. ### Key recommendations (Issues 6–8 and cross-cutting) - Issue 6: A comprehensive e-procurement system is yet to be integrated into the GFMIS and weaknesses exist in procurement officers’ capacity and strategic procurement. - Recommendation 6: Improve the system and capacity for public procurement associated with capital projects: - Develop the comprehensive e-Tendering system to incorporate the requirements of the new PPL and integrate it into the GFMIS; - Address capacity shortage at the level of procurement officers by developing KPIs; - Reconsider the design of the country level strategic procurement and establish mechanisms for strategic procurement planning. - Issue 7: Project implementation plans can be easily modified within the year, leading to substantial budget deviations and limiting the government’s ability to request corrective actions; and the Audit Chamber’s mandate is yet to be fully shifted from the control to the audit. - Recommendation 7: Establish a constraint on in-year changes in project implementation plans and complete the transformation of the Audit Chamber from the Control Chamber: - Develop legislation requiring that changes to project implementation plans should not increase the capital budget of the responsible line ministry; - Provide the Audit Chamber with the necessary resources to fully implement the new Law on Audit Chamber. - Issue 8: While the MoF has the Capital Expenditure Division covering domestically financed projects, it has limited resources for scrutinizing and controlling externally financed projects. - Recommendation 8: Establish in the MoF a dedicated unit covering all domestic and externally financed projects to ensure consistent appraisal and selection prior to funding negotiations and inclusion in the budget: - Explore expanding the mandate of the Capital Expenditure Division to cover both domestic and externally financed projects (excluding defense projects); - Identify needs for additional resources for scrutinizing new major projects and controlling ongoing major projects in accordance with the proposed gateway approach; - Discuss with development partners possible funding to obtain assistance from outside government, including universities and independent entities and experts. ### Action plan highlights (selected items and timing) - Recommendation 2: Begin a full-fledged appraisal of all major projects above AMD 5 with consistent economic assumptions, in addition to donor-specific appraisals. Responsible: MoF, MoEDI. - Recommendation 3: Include in the MTEF and budget message updated total costs of all loan-financed projects with annual breakdown for the entire project period; issue legislation requiring reappraisal and reprioritization when adjustments are needed. Responsible: MoF, MoEDI. - Recommendation 4: Amend the Budget System Law or the State Budget Law to establish restrictions on in-year adjustments to capital expenditure; make binding appropriations for loan-financed projects and on-lending limits and prevent use of contingency reserves for projects. Responsible: MoF. - Recommendation 5: Establish a project selection process based on a “gateway” approach with a centralized pipeline of projects; issue legislation to empower MoF and MoEDI to veto major projects at two gateway stages; develop a pipeline of new projects before 2020 budget preparation. Responsible: MoF, MoEDI. - Recommendation 6: Initiate development of the comprehensive e-Tendering system as part of the GFMIS envisaged under the PSMP 3 project; complete integration in GFMIS. Responsible: MOF. - Recommendation 7: Include in the 2019 budget the requirement that changes to project implementation plans should not increase the capital expenditure of the responsible line ministry; plan necessary resources and capacity development for the Audit Chamber to implement the new audit law. Responsible: MoF; Audit Chamber; Government of Armenia. - Recommendation 8: Assess institutional set-up options, operationalize the dedicated unit in MoF, mobilize additional resources (possibly through secondment), obtain external assistance, and hire/increase staff. Responsible: MoF. - Overall action plan timeline spans 2018, 2019, 2020, 2021 with responsibilities assigned to MoF, MoEDI, line ministries, Audit Chamber, Government of Armenia, MOF, GOA as specified. *Source: IMF staff mission summary based on the provided text in cr1933-armenia-ta - 82.* ### Appendix II. Key Components of the Concept Note on Public ### Appendix II. Key Components of the Concept Note on Public Investment Management ### Standardization and templates - Rationale: Addresses heterogeneity in presentation of project information. - Expected effect: A standardized template helps identify which information gaps need to be filled and signals which projects are better prepared and more likely to be completed on time and within the budget. ### Independent assessment body - Rationale: Provides independent gatekeeping. - Functions: - Ensure projects are consistent with the country/sector development strategy. - Ensure projects have undergone all required analysis for approval. - Assess projects across sectors and analyze projects as part of a broader portfolio rather than as standalone initiatives. ### Two-step appraisal process - Rationale: Multiple rounds of review to filter pipeline. - Design: - First round could include identification of project risks. - Second round could include quantification and management strategies. - Expected effect: Remove projects that do not meet criteria and focus appraisal resources on projects with higher likelihood of approval. ### Synchronization with the budget cycle - Rationale: Increase coordination between project development and budget preparation. - Expected effect: Provide greater information to the MoF for allocation of the resource envelope. ### Methodologies and guidelines - Rationale: Address lack of methodologies for large domestic projects and differences between third party assessments, particularly for donor-funded projects. - Expected effect: Standardize appraisal approaches and improve comparability. --- ### Appendix III. Developing the Project Gatekeeping Role — current process and proposed changes ### Key features of the current selection process for externally funded investment projects - Government entities prepare project proposals with active donor participation and initial concessional funding conditions. - The MoF and MoEDI play a secondary role: provide Cabinet opinions on project’s broad growth impact and whether funding conditions are concessional. - Fiscal impact analysis is not considered: availability of space in the MTEF and analysis of fiscal risks are not performed. - Prime Minister decides to reject, request adjustments, or approve the proposal. - MoF’s secondary role in loan negotiation: submitting formal loan applications and signing negotiated agreement. - Full project appraisal and feasibility studies occur after project selection and loan approval. - Consequences: Project selection can be driven by availability of funding; full appraisal occurs too late; no detailed assessment of fiscal “space”. ### Mission’s proposed changes (high-level) - Two gateways introduced: - Gateway 1: review project proposals before submission to Cabinet. - Gateway 2: review project proposals after full appraisal and feasibility study for projects with total costs over AMD 5 billion. - MoF and MoEDI take leading roles: - In Gateway 1: provide thorough analysis on impact on development indicators, consistency with MTEF, implications on fiscal risks, and possible sources of funding. - MoF to lead negotiation of financial conditions of loans. - Full appraisal and feasibility study required for projects above the AMD 5 billion threshold after Prime Minister approval; MoF provides sponsoring entity resources to undertake full appraisal. - Donor support limited to financing and/or technical advice on appraisal and feasibility study; funding negotiations start only after full appraisal. - Expected benefits: Incorporate fiscal sustainability issues early; complete comprehensive studies before commitments. - Implementation requirements: - Increase capacity at the MoF and MoEDI on project analysis. - Develop methodologies, guidelines and timetables for presentation of project information. - Link project selection with the budget process. --- ### Appendix IV. Country examples of gatekeeping functions for project selection - Chile: - Has a public investment evaluation system used to control projects entering the national budget. - Published guidelines for how projects must be prepared, appraised and presented to the Ministry of Social Development. - All projects must undergo this process supported by a comprehensive IT system for stakeholder submissions. - Uganda: - In 2016 the Ministry of Finance, Planning and Economic Development issued the Development Committee Guidelines to improve PIM processes. - Guidelines add stages and gateways to review projects for technical, strategic and economic consistency. - Methodologies and specific formats were developed; projects not meeting requirements are ineligible for the budget even if loan/grant funding is available. - Mozambique: - Directorate of Studies and Economic Research at the Ministry of Economy and Finance reviews appraisal of selected capital projects. - Projects with investment cost above MT 50 million are prioritized and selected by a higher-level government body. - Methodologies and guidelines require projects be selected on consistent criteria. --- ### Appendix V. Developing a simple project prioritization exercise ### Purpose and placement - Strengthen project selection by prioritizing new initiatives proposed for inclusion in the MTEF for the next fiscal year. - Forms part of MoF’s role at the “first gateway”. ### Core steps to implement - Create a list of projects to be prioritized; information for all initiatives must be available at the same time. - Determine variables for prioritization, divided into: - Standardized classification/aggregation data (e.g., sponsor, sector, link to development strategy). - Project- or sponsor-specific information (e.g., project financial variables, recent budget execution levels). - Assign weights to each variable reflecting government investment priorities; weights can be modified during budget preparation to generate scenarios. - Define available resource envelope to determine which projects can be included. - Build a pipeline: projects not selected remain in the database for future vintages. - Minimum standard of data required for all projects; submissions that do not meet minimum should not be considered. ### Example parameters and weights (illustrative) - The impact of this project will be primarily on? — 10.0% - To which pillar of the PDS is the project related? — 15.0% - Better Social Infrastructure 4.0 - Increased economic productivity 3.0 - Better infrastructure 5.0 - Efficient public administration 1.0 - Environmental Protection 3.0 - Human Capital Development 5.0 - Infrastructure 4.0 - Public Administration 2.0 - Regional Development 1.0 - Will the project require contracting new debt? — 25.0% - Does the project have a feasibility analysis? — 10.0% - Yes 0.0 - No 5.0 - What is the objective of the investment? — 25.0% - Cost optimization 4.0 - New capital formation 3.0 - Renovation 5.0 - What is the average budget execution rate of the line ministry’s projects in 2017? — 15.0% - 75% < X 5.0 - 50% < X <= 75% 3.0 - 25% < X <= 50% 1.0 - X <= 25% 0.0 ### Scoring methodology - Each project receives a score between 0 and 5 for six dimensions. - Each dimension has a weight; final project score is the weighted sum. - Example emphasis: two dimensions (Will the project require contracting new debt? and What is the objective of the investment?) each weighted 25.0%. - Note on interpretation: The maximum score for each of these two dimensions is 1.25 (25%*5). Therefore, projects that do not require new debt and focus on renovation will receive 2.5 points across those two dimensions; projects that require external financing and focus on new investments will receive 0.75 points across those two dimensions. ### Illustrative scoring of three hypothetical projects - Project 1: New school construction with support of IFI - Objective (25%): New capital formation (3) => 0.75 - PDS pillar (15%): Human Capital Development (5) => 0.75 - Impact (10%): Better Social Infrastructure (4) => 0.40 - Feasibility analysis (10%): No (0) => 0.00 - 2017 execution (15%): 25%<2017 Execution <=50% (1) => 0.15 - Requires new debt (25%): Yes (0) => 0.00 - Total score: 2.05 - Project 2: Renovation of warehouses to promote grain exports - Objective (25%): Renovation (5) => 1.25 - PDS pillar (15%): Infrastructure (4) => 0.60 - Impact (10%): Economic Productivity (3) => 0.30 - Feasibility analysis (10%): Yes (5) => 0.50 - 2017 execution (15%): 50%<2017 Execution <=75% (3) => 0.45 - Requires new debt (25%): Yes (0) => 0.00 - Total score: 3.10 - Project 3: Purchase of scanners for the customs office - Objective (25%): Cost Optimization (4) => 1.00 - PDS pillar (15%): Modern Public Administration (2) => 0.30 - Impact (10%): Public Administration (1) => 0.10 - Feasibility analysis (10%): No (0) => 0.00 - 2017 execution (15%): Execution <=75% (5) => 0.75 - Requires new debt (25%): No (5) => 1.25 - Total score: 3.40 - Interpretation of the illustrative results: - Project 3 ranks highest (3.40) and would be first included in the MTEF and budget, as it does not require debt and optimizes costs despite being in a less emphasized sector. - Project 2 scores 3.10 and Project 1 scores 2.05; allocation among them depends on the resource envelope. - Changing weights alters rankings: if the weight for the PDS relationship is increased to 25.0% and the debt weight reduced to 10.0%, Project 3’s score reduces to 2.90 and Project 2’s score increases to 3.65. ### Practical note - Such prioritization exercises can serve as short-term solutions while regulations, methodologies, and capacities for full PIM systems are developed. *Fiscal Affairs Department, International Monetary Fund* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/cr1933-armenia-ta.pdf_