## 1armea2023005

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### Inflation Targeting Track Record and CBA Framework
- Armenia adopted inflation targeting in 2006.
- Inflation target: 4 percent with tolerance bands of 1.5 percentage points.
- Forecasting cadence: macroeconomic projections every quarter for the upcoming 12 quarters with an endogenous policy path to minimize inflation deviations from the target within the 3-year medium-term horizon.
- CBA decision authority: CBA Board determines the CBA refinancing rate (repo rate).
- Recent CBA measures:
  - facilitating the introduction of an over-the-counter commercial trading platform for the overnight repo market;
  - prohibiting foreign exchange mortgage loans to residents under an amendment of the law on “Currency Regulation and Currency Control”;
  - developing an enhanced communication strategy and seeking technical assistance on strengthening governance arrangements.
- Planned reform: CBA preparing to introduce a major reform of the monetary policy decision-making process, prioritizing uncertainty through a risk-management approach to price stability and replacing the traditional baseline scenario with scenario analysis.
- Strengths and alignment with best principles:
  - Clear legal mandate and operational independence to implement the framework.
  - Price stability as primary objective with a numerical target.
  - CBA considers implications of policy on output and financial stability.
- Inflation targeting performance:
  - CBA’s inflation management fares well compared to many peers.
  - Current inflation has often deviated from its target, with deviations occasionally persisting for extended periods.
  - Consensus forecasts one year ahead have generally moved around the CBA’s inflation target; 2- and 3-year forecasts have been very close to the CBA’s target.
  - Over the last 10 years, Armenia performs strongly among its peer group when assessing deviations of average annual inflation from its target.
- Transmission weaknesses:
  - Government bond yields have shown progressively stronger correlation with the policy rate, marking a significant improvement over the past two years.
  - Short-term lending and deposit rates demonstrate limited reaction to changes in policy rates.
  - Structural impediments: weak bank competition, absence of a well-established benchmark yield curve, shallow and illiquid capital markets.
  - Financial dollarization remains significant, despite a downward trend driven by prudent macroeconomic and macroprudential measures and the floating exchange rate.
- Transparency and forecasting:
  - CBA communication toolkit: press release, minutes from the Board's rate-setting meeting, and a quarterly Inflation Report.
  - CBA routinely publishes brief information on alternative scenarios in its quarterly Inflation Reports.
  - CBA’s outlook forecasts have generally outperformed consensus forecasters across key indicators, particularly inflation and current account balances.
  - CBA’s transparency index stands favorably versus peers but lags exemplars such as New Zealand, Czech Republic, and Chile.

### FPAS Mark II — Risk Management Approach to Price Stability
- FPAS background:
  - FPAS = Forecasting and Policy Analysis System, in use since 2006; combines a formal economic model with a broader structured framework for data gathering, analysis, scenario design, and decision-making.
- FPAS Mark II features:
  - Combines FPAS elements with a risk management approach to uncertainty.
  - Explicitly accounts for uncertainty by considering several "plausible" outlook scenarios.
  - Does not prepare a baseline forecast; moves away from optimizing policy based on a single baseline scenario.
  - Transitions central bank role from "expert forecaster" to "risk manager."
  - Expected start: 2024.
- Policymaking cycle under FPAS Mark II:
  - Sketching and selecting ingredients: decision makers outline qualitative scenarios A and B.
  - Building and quantifying scenarios: staff constructs quantitative scenarios based on decision makers’ qualitative inputs.
  - Decision-making: decision makers set the policy rate by referring to these scenarios.
  - Case A: policy rate path needs to be higher than market expectations (hawkish).
  - Case B: policy rate path needs to be lower than market expectations (dovish).
- Practical challenges in Armenia:
  - Incorporating market expectations is challenging due to underdeveloped financial markets and low liquidity.
  - Government bond yields may not reflect true market expectations because of limited instrument diversification, thin trading volumes, and government influence (Ministry of Finance sets a cap on government bond yields at issuance).
  - Reliance on market forecasts could be a step-back compared to a central-bank-prepared baseline in such market conditions.
- Communication and decision risks:
  - Constructing multiple scenarios does not guarantee increased accuracy; unforeseen shocks remain possible.
  - How FPAS Mark II’s decision-making process—which results in a single rate decision—will crystallize and communicate contingent policy reactions if different scenarios materialize is "yet to be fleshed out in practice."
  - Publishing illustrative scenarios risks a scenario being perceived as a de facto baseline by the public.
  - The communication strategy must be robust and spell out contingent policy reactions if risks materialize.

### Governance, Legal Issues, and Operational Capacity
- Legal and governance concerns:
  - Some CBA Law provisions may impinge on functional autonomy:
    - requirement to consult with the government when drafting the monetary policy program (Article 7-3);
    - authorization to issue short-term securities pursuant to “the procedure agreed upon with the authorized body of the Government” (Article 10-3).
  - The legal mandate to equally pursue price and financial stability may require further clarification.
  - CBA has requested IMF technical assistance on governance arrangements and legal framework.
- Board responsibilities and capacity:
  - CBA Law allocates three functions to the CBA Board; central bank laws typically allocate four decision-making roles.
  - Board members are overburdened by regulatory issues, jeopardizing effective policy formulation and oversight.
  - Elevating Board engagement under FPAS Mark II will likely raise the burden on Board members’ time during the 28-day policymaking round.
  - Recommendation: comprehensive review and reform of CBA governance structure to ensure achievement of price and financial stability, especially if FPAS Mark II is operationalized; upcoming technical assistance is an opportunity to determine the most appropriate decision-making structure.
- Operational framework priorities:
  - Strengthen management of short-term interest rates.
  - Continue developing financial markets and establishing a robust yield curve.
  - Continue measures to reduce dollarization by strengthening macro fundamentals.
  - Implement remaining elements of the capital market development strategy.
  - Launch of OTC trading platform for overnight repo and the “Action Plan on the Money, Foreign Exchange, Government Bond and Derivatives Markets Development” are positive steps but require further implementation.
- Transparency improvements needed:
  - A regular press conference regarding interest rate decisions is yet to target a wider audience.
  - Individual votes (or distribution of votes) remain confidential.
  - The projected interest rate path is not made public in Armenia.
- Independent expert assessment:
  - A comprehensive published expert assessment of the CBA’s monetary policy framework is currently absent.
  - Engaging external central bank Board members and market participants would help assess implications of a risk-based approach and prioritize needed reforms.
  - Publishing a comprehensive expert assessment would guide reforms and raise credibility.

### Role of Baseline Projections and Policy Coordination
- Functions of a baseline scenario:
  - Serves as a reference point in forecasting and internal policy decision-making and provides a necessary reference for assessing potential deviations.
  - For outside stakeholders, a well-defined baseline projection offers a clear and comprehensible anchor for the macroeconomic outlook.
- Risks of discontinuing baseline projections in Armenia:
  - In a country with limited independent analytical capacity, absence of central bank baseline projections may:
    - deanchor fiscal and broader economic policies;
    - undermine overall policy credibility;
    - reduce transparency and complicate coordination of monetary and fiscal policy, creating undue reasons for finger-pointing and political pressure on the central bank.
  - CBA “has generally performed well” in considering implications of monetary policy on output and financial stability during recent tightening, but discontinuing the baseline scenario could undermine this objective.
- Policy implication: strengthen forecasting capacity of other independent entities (for example, creating a fiscal council) to preserve overall policy credibility if baseline projections are discontinued.

### Potential Growth Methodology, Baseline Assumptions, and Projections
- Potential output estimation: production function Ŷt = Ât L̂t(α) Kt(1−α).
- Labor L: product of working-age population (15–64), labor force participation, and employment rates.
- Capital stock K: perpetual inventory method with annual depreciation rate of 7.4 percent.
- Share of labor α: estimated at 55 percent (Penn World Table).
- TFP A: residual; HP-filter trends used to extract underlying potential for labor and productivity.
- Table of key assumptions (averages, percent*):
  - Labor force participation, aged 15–64: 70.9 (Past 10 years), 72.0 (Past 5 years)
  - Growth of working age population: -1.0 (Past 10 years), -1.2 (Past 5 years)
  - Share of labor in nominal GDP: 56.9 (Past 10 years), 55.7 (Past 5 years)
  - Total factor productivity/TFP growth: 2.9 (Past 10 years), 2.7 (Past 5 years)
  - Capital depreciation (single data point): 7.4
  - Public capital: 3.5
  - Private capital: 8.1
- Note on long-term growth: With TFP growth at 2.7–2.9 percent per year, labor share 55–57 percent, and working-age population decline about 0.5 percent, long-term growth is projected to be around 4.5 percent.
- Transition dynamics:
  - Contribution of capital expected to rise in line with staff projection of an increase of public investments to GDP ratio of about 2 percent during 2023–28.
  - Contribution of labor projected to be negative per UN medium-term population projections (UN, 2022).

### Migration, Assumptions, and Estimated Impact on Potential Growth
- Migration assumptions and figures:
  - Estimated 90,000 foreign workers relocated to Armenia (staff estimates); 57 percent already have a fulltime job; 43 percent expected to enter the labor force in 2023–27.
  - Implied increase: 3.5 percent in the size of the country’s labor force relative to 2021 levels, or 0.5 percent increase relative to a counterfactual with no inflow of labor migrants.
  - About 75 percent of the estimated 100,000 NK refugees are assumed to be of working age and would gradually be integrated into the labor market during 2024–28.
  - Around 40 percent of migrants from Russia have tertiary education and many are engaged in the ICT sector.
  - Human Capital Index (HCI) in Russia is about 14 percent higher than the HCI in Armenia; learning-adjusted schooling in Russia is about 2–3 years higher than in Armenia.
  - The median of the simulated elasticity interval (0.71) is taken as reference for TFP responsiveness to additional workers with tertiary education.
- Estimated effects:
  - Armenia’s potential GDP growth could be on average 0.5 percent higher relative to a no-migration scenario.
  - Effects are substantial but diminishing over time; most residual impact on productivity and labor accrues in 2023–24.
  - In outer years, growth is projected to slow to the no-migration levels (approximately 4.5 percent) toward the end of the projection horizon once labor force dynamics revert to the long-term pre-Ukraine war trend.
- Modeling notes:
  - Effects of migration on TFP and labor are assumed to accrue linearly over 2023–28.
  - Productivity impact from NK refugees is assumed to be the same as that of Armenian workers.
- Caveats:
  - Higher productivity of migrants relative to the local population could yield additional TFP gains, especially if flows are permanent and generate spillovers.
  - The higher HCI in Russia implies productivity impact may be more than proportional to the number of workers with tertiary education.
  - A faster than expected decline in the labor force or reversal in migration (e.g., due to persistent regional insecurity) could add downward pressures on potential growth.

### Structural Reforms to Raise Long-Term Potential — Scenarios, Calibrations, and Quantified Impacts
- Overview:
  - Reforms assessed are part of the Government’s 2021–26 program and aim to: (i) increase labor force participation; (ii) enhance access to credit; and (iii) raise the efficiency of public capital spending.
  - Impact simulated using a calibrated general equilibrium model (small open economy with price and wage rigidities, two sectors, two household types).
- Labor force participation scenario:
  - Assumed positive shock of 7.4 percent in the labor supply (equally distributed across tradable and non-tradable sectors) during 2024–28.
  - Equivalent to decline in Armenia’s female and youth unemployment in line with historical averages observed for 2017–22 in emerging economies in Eastern Europe and Central Asia.
- Public capital investments scenario:
  - Assumed further increase of the public investments to GDP ratio of 2 percent for the duration of the program (0.8 percent in 2024, 0.1 percent in 2025–26), relative to the baseline.
  - Assumed increase in efficiency of public investments by about 25 percent (calibrated as the distance from an efficiency frontier).
- Access to finance scenario:
  - Reforms include bankruptcy reform and a revised corporate governance code.
  - Captured by assuming a decline in the marginal costs for final good producers of 5.5 percent the size of the rented capital used in production (equivalent to the difference in collateral requirements relative to peers, scaled by number of credit-constrained firms).
- Quantified medium-term impacts (2023–28), cumulative effect on potential GDP (difference vs augmented baseline where migrants remain):
  - Labor market reforms only: cumulative effect on potential GDP = 0.9 percent.
  - Labor market reforms + improved public investment efficiency: cumulative effect = 1.9 percent.
  - Full package including improved access to credit: cumulative effect = 3.3 percent.
- Corresponding effect on 2024–28 potential growth: about 0.5 percent, on average, relative to the augmented baseline projections.
- Composition effects:
  - Growth in private investments under full reform implementation estimated at about 2.2 percent, with initial gains concentrated in the tradable sector.
  - Growth in consumption is positive but lower than investment gains.
- Implementation risks and uncertainties:
  - Estimates subject to measurement errors in model parameters, external shocks, or implementation challenges.
  - Faster-than-expected implementation and complementarities with other measures in the 2021–26 Government Program could enhance gains.
- Policy implications and priorities:
  - Timely implementation of structural reforms under the SBA-supported program is important to support long-term growth.
  - Specific measures:
    - Reduce unemployment and enhance labor force participation, including through investment in health.
    - Enhance execution rates for public investments and improve public investment management.
    - Enhance access to finance (strengthen creditors’ rights, improve insolvency processes, corporate governance) to raise productivity and investments and rebalance growth toward export-oriented sectors.

### Strengthening Armenia’s Social Safety Net (SSN) — Key Findings, Metrics, and Reforms
- Social assistance spending (2021):
  - Armenia social assistance spending in 2021 = 2.6 percent of GDP (including Covid-19 and 2020 war support).
  - CCA mean = 2.7 percent of GDP.
  - OECD mean = 12.9 percent of GDP.
  - Family Benefit Program, childbirth and other child benefits, and temporary Covid-19 & war-related social assistance spending each received the highest share = 0.5 percent of GDP.
- Coverage metrics (2021):
  - Overall social assistance coverage in 2021 = 26.1 percent; CCA mean = 18.6 percent.
  - Coverage of poorest quintile (Q1) = 65.6 percent; CCA mean = 33.3 percent.
  - Coverage of richest quintile (Q5) = 10.1 percent; CCA mean = 11.6 percent.
  - Family benefits reach the poor but family benefit coverage for the poorest quintile = 41 percent.
- Adequacy (transfers as share of total income):
  - Overall population beneficiaries = 20 percent; CCA average = 14 percent.
  - Quintile 1 (poorest) = 32 percent.
  - Quintile 5 (richest) = 9 percent.
  - CCA averages for Q1 and Q5 = 26 percent and 5 percent, respectively.
  - Suggested adequate range (benchmark) = 25–30 percent.
- Targeting and incidence:
  - Poorest quintile received 56 percent of all social assistance transfers; CCA = 47 percent.
  - Richest quintile received 7.5 percent; CCA = 12 percent.
  - Aside from the Family Benefit Program, benefit incidence is relatively even across quintiles, indicating scope to improve targeting of other programs.
- Beneficiary incidence and program universality:
  - Beneficiary incidence at the poorest quintile (Q1) for Armenia: 50 percent (better than the CCA average of 40 percent).
  - Around 17 percent of beneficiaries reside in the richer two quintiles.
  - Partial universality observed for childbirth and childcare benefits and some stipends.
  - Authorities working with World Bank and UNICEF to adopt a new methodology for family vulnerability assessment and administrative improvements; aim to improve targeting, minimize inclusion and exclusion errors, and encourage employment activation.
  - Childcare benefit since 2022: size differs depending on whether the parent is employed or unemployed and whether employed in urban or rural areas.
- Coverage, under-coverage, leakage, and targeting differential (2021) — key program-level metrics:
  - All social assistance: Coverage of the poor (1) = 52.9; Under-coverage (2) = 47.1; Leakage (# of beneficiaries) (3) = 36.1; Leakage (benefits) (4) = 32.6; Targeting differential (5) = 16.7.
  - Family benefit: Coverage = 32.3; Under-coverage = 67.7; Leakage (#) = 29.4; Leakage (benefits) = 31.3; Targeting differential = 2.9.
  - Childcare: Coverage = 8.9; Under-coverage = 91.1; Leakage (#) = 42.5; Leakage (benefits) = 46.7; Targeting differential = -33.6.
  - Other benefits: Coverage = 3.3; Under-coverage = 96.7; Leakage (#) = 52.6; Leakage (benefits) = 54.3; Targeting differential = -49.3.
  - Stipendium/Scholarship: Coverage = 3.4; Under-coverage = 96.6; Leakage (#) = 58.6; Leakage (benefits) = 68.6; Targeting differential = -55.2.
  - Old-age, disability, and survivor allowances: Coverage = 1.6; Under-coverage = 98.4; Leakage (#) = 25.9; Leakage (benefits) = 11.0; Targeting differential = -24.3.
- Impact on poverty and inequality (2021):
  - Reduction in Poverty Headcount Index: 20 percent (Armenia) vs 8 percent (CCA mean).
  - Reduction in Poverty Gap Index: 72 percent (Armenia) vs 20 percent (CCA mean).
  - Reduction in Gini Index: 11 percent (Armenia) vs 3 percent (CCA mean).
  - Post-transfer indicators and indicators without listed transfer:
    - Post-transfer: Poverty headcount = 0.262; Poverty Gap = 0.047; Squared Poverty Gap = 0.014; Gini = 0.232.
    - Without all social assistance: Poverty headcount = 0.315; Poverty Gap = 0.081; Squared Poverty Gap = 0.035; Gini = 0.259.
    - Without Family benefit: Poverty headcount = 0.286; Poverty Gap = 0.063; Squared Poverty Gap = 0.023; Gini = 0.245.
    - Without Childcare: Poverty headcount = 0.270; Poverty Gap = 0.050; Squared Poverty Gap = 0.015; Gini = 0.234.
    - Without Other benefits: Poverty headcount = 0.264; Poverty Gap = 0.048; Squared Poverty Gap = 0.014; Gini = 0.233.
    - Without Stipendium/Scholarship: Poverty headcount = 0.263; Poverty Gap = 0.047; Squared Poverty Gap = 0.014; Gini = 0.232.
  - Interpretation: Social assistance programs substantially reduce poverty incidence, poverty depth, and inequality in Armenia and perform better on these measures than the CCA average.
- Cost-effectiveness and benefit-cost ratios (2021) — in billions of Armenian drams:
  - All social assistance: Simulated poverty gap without transfer = 293.2; Actual poverty gap = 241.1; Difference (dPG) = 52.1; Total amount spent (X) = 68.0; Benefit-Cost (dPG0/X) = 0.77.
  - Family benefit: Simulated gap = 265.0; Actual gap = 241.1; dPG = 23.9; X = 28.7; Benefit-Cost = 0.83.
  - Childcare: Simulated gap = 246.4; Actual gap = 241.1; dPG = 5.3; X = 6.7; Benefit-Cost = 0.79.
  - Other benefits: Simulated gap = 242.4; Actual gap = 241.1; dPG = 1.2; X = 1.7; Benefit-Cost = 0.71.
  - Stipendium/Scholarship: Simulated gap = 241.7; Actual gap = 241.1; dPG = 0.6; X = 0.9; Benefit-Cost = 0.61.
  - Old-age, disability and survivor allowances: Simulated gap = 243.7; Actual gap = 241.1; dPG = 2.5; X = 3.9; Benefit-Cost = 0.65.
  - Overall benefit-cost ratio for social assistance programs: near 0.8 overall.
  - Definition: Benefit-cost ratio = poverty gap reduction in a unit of local currency for each 1 unit spent on the social program.
- Ongoing and planned SSN reforms (policy measures and timelines):
  - Improve targeting:
    - Hybrid Means Testing based on incomes and assets for vulnerability assessment for the family benefit program planned to be rolled out by January 2024.
    - New system expected to improve targeting by 10–15 percentage points, decrease the number of beneficiaries through better targeting, and increase program effectiveness.
    - Introduction of PIT declaration system to reduce informality and better assess beneficiaries' incomes.
  - Enhance adequacy and coverage:
    - Mandatory activation for all persons able to work aged 18–62.
    - Support for skill upgradation via employment strategy and active labor market programs to reduce beneficiary numbers and increase coverage and adequacy.
  - Modernize and improve system efficiency:
    - Modernization of social assistance laws to expand types of services, improve shock responsiveness, and strengthen a unified social system.
    - Preparation of a Strategy on integrated Social Services to improve overall efficiency.
  - Strengthen SSNs for disabled persons:
    - Disability reforms to switch from medical model to functional model of assessment.
    - Introduction of E-disability platform to improve employment activation and system efficiency.
- Policy rationale and fiscal context:
  - COVID-19 underscored importance of strong SSN; authorities expanded SSNs using good international practice.
  - Adequacy of benefits in 2020 was unusually high and needs normalization to avoid creating disincentives to work post COVID.
  - Potential distortions to address:
    - High participation tax (steep benefit withdrawal rates when beneficiaries become employed).
    - Strong income effect from generous benefits may encourage low-income workers to stop looking for jobs.
  - Reforms should improve SSN efficiency and complement revenue mobilization and expenditure prioritization to support medium-term fiscal sustainability, including accommodating emergency humanitarian and development spending pressures from recent refugee inflow.
- Conclusions on SSN:
  - Armenia’s social assistance programs are cost-effective with high benefit-cost ratios and have helped contain poverty, the poverty gap, and inequality.
  - Leakage and under-coverage remain very high for many programs.
  - Social assistance spending in Armenia is still very low compared with other emerging and advanced economies despite favorable performance relative to CCA peers.
  - Recommended focus: expand coverage, improve adequacy, strengthen targeting, and encourage activation and transition to the labor market through planned reforms.

### Annex — Selected Program Eligibility and Sizes (as of end 2021)
- Family Living Standards Enhancement Benefits:
  - Family allowance (vulnerable families with minors, registered, above threshold): basic benefit AMD 18,000 and supplementary benefit AMD 5,500–8,000 a month per eligible child depending on location and vulnerability score.
  - Social allowances (vulnerable families without minors): AMD 18,000.
  - Emergency lump sum allowances for eligible family allowance recipients: (1) childbirth - AMD 50,000, (2) Child of school entry age - AMD 25,000, (3) Diseased family member - AMD 50,000.
  - Allowance for a quarter (vulnerable families with vulnerability score above 0 facing urgent distress): equals social allowance and is paid for 3 months.
- Childcare benefits up to 2 years of age:
  - All parents: AMD 26,500 per month, per child.
- Other benefits:
  - Child benefits (all citizens): 1st and 2nd child - AMD 300,000; 3rd and 4th child - AMD 1,000,000; 5th and following child - AMD 1,500,000.
  - Housing assistance programs for families with children: 2020–23 programs include one-time financial assistance for purchasing an apartment in regional settlements; assistance for prepaying mortgage liability insurance; assistance to families repaying mortgage loan once a child is born.
  - Maternity leave: employed citizens – pregnancy and childbirth period is 140 days, amount depends on average salary; unemployed citizens – AMD 156,600.
  - Childcare and upbringing support to foster families: general-type receive minimum monthly salary; specialized-type receive minimum monthly salary plus 30 percent; crisis-care foster families receive average monthly salary pro rata.
  - Funeral allowance: AMD 200,000 for death of person receiving pension/allowance/benefit.
  - Stipendiums: depend on vulnerability score of student's family and tuition amount.
  - Old age, disability, and survivor allowances: AMD 26,500.
- Note: After 2021, base benefit, old age and other benefits have increased and eligibility criteria for some programs have been modified. In addition, government introduced financial support program for families with 3 or more children.

*Source: IMF staff report excerpt — “ENHANCING ARMENIA’S MONETARY POLICY FRAMEWORK” and IMF staff analysis as reflected in the provided chapter text.*

### 1. Inflation Targeting Track Record _____________________________________________________ 5

### 1. Inflation Targeting Track Record

### Introduction
- Armenia adopted inflation targeting in 2006.
- The inflation target is set at 4 percent with tolerance bands of 1.5 percentage points.
- The Forecasting Team presents macroeconomic projections every quarter for the upcoming 12 quarters with an endogenous policy path to minimize inflation deviations from the target within the 3-year medium-term horizon.
- The CBA Board determines the level of the CBA refinancing rate (repo rate).
- The CBA has recently taken measures including:
  - facilitating the introduction of an over-the-counter commercial trading platform for the overnight repo market;
  - prohibiting foreign exchange mortgage loans to residents under an amendment of the law on “Currency Regulation and Currency Control”;
  - developing an enhanced communication strategy and seeking technical assistance on strengthening governance arrangements.
- The CBA is preparing to introduce a major reform of the monetary policy decision-making process, prioritizing uncertainty through a risk-management approach to price stability and replacing the traditional baseline scenario with scenario analysis.

### The CBA’s Monetary Policy Framework — Track Record and Transmission
- Strengths and alignment with best principles:
  - Clear legal mandate and operational independence to implement the framework.
  - Price stability established as the primary objective with a numerical target.
  - The CBA considers implications of policy on output and financial stability.
- Inflation targeting performance:
  - CBA’s inflation management fares well compared to many peers.
  - Current inflation has often deviated from its target, with deviations occasionally persisting for extended periods.
  - Consensus forecasts one year ahead have generally moved around the CBA’s inflation target; 2- and 3-year forecasts have been very close to the CBA’s target.
  - When assessing deviations of average annual inflation from its target over the last 10 years, Armenia is a strong performer among its peer group.
- Transmission mechanism weaknesses:
  - Government bond yields have shown progressively stronger correlation with the policy rate, marking a significant improvement over the past two years.
  - Short-term lending and deposit rates demonstrate limited reaction to changes in policy rates.
  - Structural impediments include weak bank competition, absence of a well-established benchmark yield curve, and shallow and illiquid capital markets.
  - Financial dollarization remains significant, despite a downward trend driven by prudent macroeconomic and macroprudential measures and the floating exchange rate.
- Transparency and forecasting:
  - The CBA’s communication toolkit includes a press release, minutes from the Board's rate-setting meeting, and a quarterly Inflation Report.
  - The CBA routinely publishes brief information on alternative scenarios in its quarterly Inflation Reports.
  - The CBA’s outlook forecasts have generally outperformed consensus forecasters across key indicators, particularly inflation and current account balances.
  - The CBA’s transparency index stands favorably versus peers but still lags exemplars such as New Zealand, Czech Republic, and Chile.

### The Risk Management Approach to Price Stability (FPAS Mark II)
- FPAS background:
  - FPAS is the Forecasting and Policy Analysis System (FPAS), in use since 2006, a collection of tools and processes to assist forward-looking monetary policy.
  - FPAS incorporates a formal economic model but is a broader structured framework for data gathering, analysis, scenario design, and decision-making.
- FPAS Mark II features:
  - Combines elements of FPAS with a risk management approach to uncertainty.
  - Will explicitly account for uncertainty by considering several "plausible" outlook scenarios.
  - Will not prepare a baseline forecast; moves away from optimizing policy based on a single baseline scenario.
  - Transitions the central bank role from "expert forecaster" to "risk manager."
  - FPAS Mark II (Expected to start in 2024).
- Policymaking cycle under FPAS Mark II:
  - Sketching and selecting ingredients (decision makers outline qualitative scenarios A and B).
  - Building and quantifying scenarios (staff constructs quantitative scenarios based on decision makers’ qualitative inputs).
  - Decision-making (decision makers set the policy rate by referring to these scenarios).
  - Case A: policy rate path needs to be higher than market expectations (hawkish).
  - Case B: policy rate path needs to be lower than market expectations (dovish).
- Practical challenges in Armenia:
  - Incorporating market expectations is ideal but may be challenging due to underdeveloped financial markets and low liquidity.
  - Government bond yields may not reflect true market expectations because of limited instrument diversification, thin trading volumes, and government influence (the Ministry of Finance sets a cap on government bond yields at issuance).
  - Reliance on market forecasts could be a step-back compared to a central-bank-prepared baseline in such market conditions.

### Considerations and Policy Recommendations for Enhancing the Monetary Policy Framework
- Core recommendation: enhancements should follow best principles, including those outlined in IMF guidance (Strengthening Monetary Policy Frameworks in the CCA (IMF, 2023) and Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries (IMF, 2015)).
- Priority areas to strengthen before or alongside operationalizing FPAS Mark II:
  - Transparency and communication improvements.
  - Governance and legal framework clarification.
  - Operational framework strengthening, especially management of short-term interest rates.
- Legal and governance issues:
  - Some provisions in the CBA Law may impinge on functional autonomy:
    - requirements to consult with the government when drafting the monetary policy program (Article 7-3);
    - authorization to issue short-term securities pursuant to “the procedure agreed upon with the authorized body of the Government” (Article 10-3).
  - The legal mandate to equally pursue price and financial stability may require further clarification.
  - The CBA has requested IMF technical assistance on governance arrangements and legal framework.
- Operational and market development priorities:
  - Continue efforts to develop financial markets and establish a robust yield curve.
  - Continue measures to reduce dollarization by strengthening macro fundamentals.
  - Implement remaining elements of the capital market development strategy.
  - The launch of the over-the-counter commercial trading platform for the overnight repo market and the “Action Plan on the Money, Foreign Exchange, Government Bond and Derivatives Markets Development” are positive steps, but more implementation is needed.

*Source: IMF staff report excerpt — “ENHANCING ARMENIA’S MONETARY POLICY FRAMEWORK”*

### 19. Second, a critical objective of the central bank is to consider the implications of

### 19. Second, a critical objective of the central bank is to consider the implications of 

### Role of a baseline projection for monetary policy and stability
- The baseline scenario functions as a reference point in forecasting and internal policy decision-making and provides a necessary reference point for assessing potential deviations.
- For outside stakeholders, a well-defined baseline projection offers a clear and comprehensible anchor for the macroeconomic outlook.
- In a country with limited independent analytical capacity like Armenia, the absence of baseline projections prepared by the central bank may:
  - deanchor fiscal and broader economic policies;
  - undermine overall policy credibility;
  - reduce transparency and complicate coordination of monetary and fiscal policy, creating undue reasons for finger-pointing and political pressure on the central bank.
- The CBA “has generally performed well” in considering implications of monetary policy on output and financial stability during recent tightening, but discontinuing the baseline scenario could undermine this objective.

### FPAS Mark II, risk focus, and implications for policy formulation
- FPAS Mark II emphasizes focusing on risks; scenarios are crafted to elucidate policy-relevant risks rather than simply project potential future outcomes.
- Key caveats and practical challenges:
  - Constructing multiple scenarios does not guarantee increased accuracy in projections; unforeseen shocks remain possible.
  - How FPAS Mark II’s decision-making process—which results in a single rate decision—will crystallize and communicate contingent policy reactions if different scenarios materialize is "yet to be fleshed out in practice."
  - FPAS Mark II seeks to avoid misleading communication from a single baseline projection, but publishing illustrative scenarios risks a scenario being perceived as a de facto baseline by the public.
- Policy implication: the communication strategy must be robust and failproof to the policy decision the CBA wants to communicate, and must spell out contingent policy reactions if risks materialize.

### Governance, Board responsibilities, and operational capacity
- Central bank laws typically allocate four key decision-making roles to one or more bodies; the CBA Law currently allocates three functions to the CBA Board.
- Concerns:
  - Board members are overburdened by regulatory issues, jeopardizing effective policy formulation and oversight.
  - Elevating Board engagement under FPAS Mark II will likely raise the burden on Board members’ time during the 28-day policymaking round.
  - Increased Board engagement can build capacity and accountability over time but may constrain other Board functions.
- Recommendation:
  - The CBA’s governance structure needs a comprehensive review and reform to ensure the CBA achieves its core objectives of price and financial stability, especially if FPAS Mark II is operationalized.
  - Upcoming technical assistance is an opportunity to determine the most appropriate decision-making structure.

### Communication and transparency
- Areas for improvement:
  - A regular press conference regarding interest rate decisions is yet to target a wider audience.
  - Individual votes (or the distribution of votes) remain confidential.
  - The projected interest rate path is not made public in Armenia.
- FPAS Mark II specific challenge:
  - Avoiding public misperception of illustrative scenarios as a baseline requires a well-tested communication strategy that explains both the decision process and contingent responses to realized risks.

### Need for independent expert assessment
- A comprehensive expert assessment of the CBA’s monetary policy framework is currently absent; such published assessments are increasingly common.
- Engaging external central bank Board members and market participants would help assess implications of a risk-based approach and prioritize needed reforms.
- Publishing a comprehensive expert assessment would guide reforms and raise the credibility of an enhanced framework.

### Conclusions on monetary framework reform
- Improvements should be guided by best principles; despite substantial improvements over the past decade, structural weaknesses persist.
- The risk management approach to price stability would be more effective only if it leverages enhancements in transparency, communication, governance, and the operational framework.
- Operationalizing the risk management approach while baseline projections are discontinued may present important challenges, particularly if:
  - market participants are not prepared for the change;
  - financial markets remain shallow;
  - there is no alternative independent forecasting authority.
- Strengthening forecasting capacity of other independent entities (for example, creating a fiscal council) would be critical to preserve overall policy credibility.
- Emphasis on risks is useful only when there is clarity about policy responses if shocks materialize; the communication strategy should detail decision-making and how policy will respond if risks materialize.

### Armenia’s potential growth: methodology and baseline assumptions
- Potential output estimated using production function: Ŷt = Ât L̂t(α) Kt(1−α).
- Labor L: product of working-age population (15–64), labor force participation, and employment rates.
- Capital stock K: perpetual inventory method with annual depreciation rate of 7.4 percent.
- Share of labor α: estimated at 55 percent (Penn World Table).
- TFP A: computed as the residual; HP-filter trends used to extract underlying potential for labor and productivity.
- Table of key assumptions (averages, percent*):
  - Labor force participation, aged 15–64: 70.9 (Past 10 years), 72.0 (Past 5 years)
  - Growth of working age population: -1.0 (Past 10 years), -1.2 (Past 5 years)
  - Share of labor in nominal GDP: 56.9 (Past 10 years), 55.7 (Past 5 years)
  - Total factor productivity/TFP growth: 2.9 (Past 10 years), 2.7 (Past 5 years)
  - Capital depreciation (single data point): 7.4
  - Public capital: 3.5
  - Private capital: 8.1
- Note: With TFP growth at 2.7–2.9 percent per year, labor share 55–57 percent, and working-age population decline about 0.5 percent, long-term growth is projected to be around 4.5 percent.
- Transition period: contribution of capital expected to rise in line with staff projection of an increase of public investments to GDP ratio of about 2 percent during 2023–28.
- Contribution of labor projected to be negative per UN medium-term population projections (UN, 2022).

### Migration and its estimated impact on potential growth
- Assumptions and figures:
  - Estimated 90,000 foreign workers relocated to Armenia (staff estimates); 57 percent already have a fulltime job; 43 percent expected to enter the labor force in 2023–27.
  - This implies an increase of 3.5 percent in the size of the country’s labor force relative to 2021 levels, or 0.5 percent increase relative to a counterfactual with no inflow of labor migrants.
  - About 75 percent of the estimated 100,000 NK refugees are assumed to be of working age and would gradually be integrated into the labor market during 2024–28.
  - Around 40 percent of migrants from Russia have tertiary education and many are engaged in the ICT sector.
  - Human Capital Index (HCI) in Russia is about 14 percent higher than the HCI in Armenia; learning-adjusted schooling in Russia is about 2–3 years higher than in Armenia.
  - The median of the simulated elasticity interval (0.71) is taken as reference for TFP responsiveness to additional workers with tertiary education.
- Estimated effects:
  - Armenia’s potential GDP growth could be on average 0.5 percent higher relative to a no-migration scenario.
  - Effects are substantial but diminishing over time; most residual impact on productivity and labor accrues in 2023–24.
  - In outer years, growth is projected to slow to the no-migration levels (approximately 4.5 percent) toward the end of the projection horizon once labor force dynamics revert to the long-term pre-Ukraine war trend.
- Modeling notes:
  - Effects of migration on TFP and labor are assumed to accrue linearly over 2023–28.
  - Productivity impact from NK refugees is assumed to be the same as that of Armenian workers.

*Source: IMF staff analysis as reflected in the provided chapter text.*

### 7. The above estimates are subject to several caveats. On one hand, higher productivity of

### 7. The above estimates are subject to several caveats.

### Caveats on estimates and migration effects
- Higher productivity of migrants relative to the local population could yield additional TFP gains relative to the baseline, especially if migration flows are permanent and generate spillovers to other sectors.
- The higher HCI in Russia implies productivity impact may be more than proportional to the number of workers with tertiary education.
- A faster than expected decline in the labor force or a reversal in migration (e.g., due to persistent regional insecurity) could add downward pressures on potential growth.

*Source: text beginning "7. The above estimates are subject to several caveats."*

### Raising long-term potential with structural reforms: overview
- Reforms assessed are part of the Government’s 2021–26 program and aim to: (i) increase labor force participation; (ii) enhance access to credit; and (iii) raise the efficiency of public capital spending.
- Impact simulated using a calibrated general equilibrium model (small open economy with price and wage rigidities, two sectors, two household types) building on Babajanyan, Baksa et al. (2022).
- Three reform areas explicitly modeled: labor force participation, public capital investments, and access to finance.

### Labor force participation: scenario and calibration
- Effect captured by assuming a positive shock of 7.4 percent in the labor supply (equally distributed in the tradable and non-tradable sectors) during 2024–28.
- This shock is equivalent to a decline in Armenia’s female and youth unemployment in line with historical averages observed for 2017–22 in emerging economies in Eastern Europe and Central Asia.

### Public capital investments: scenario and calibration
- Modeled by assuming:
  - a further increase of the public investments to GDP ratio of 2 percent for the duration of the program (0.8 percent in 2024, 0.1 percent in 2025–26), relative to the baseline; and
  - an increase in the rate of efficiency of public investments by about 25 percent (calibrated as the distance from an efficiency frontier).

### Access to finance: scenario and calibration
- Reforms include bankruptcy reform and a revised corporate governance code.
- Implementation captured by assuming a decline in the marginal costs for final good producers of 5.5 percent the size of the rented capital used in production (equivalent to the difference in collateral requirements relative to peers, scaled by number of credit-constrained firms).

### Quantified medium-term impacts of reform scenarios (2023–28)
- Three modeled scenarios and cumulative effect on potential GDP (difference vs augmented baseline where migrants remain):
  - Labor market reforms only: cumulative effect on potential GDP = 0.9 percent.
  - Labor market reforms + improved public investment efficiency: cumulative effect = 1.9 percent.
  - Full package including improved access to credit: cumulative effect = 3.3 percent.
- Corresponding effect on 2024–28 potential growth: about 0.5 percent, on average, relative to the augmented baseline projections.
- Impact on composition:
  - Growth in private investments under full reform implementation estimated at about 2.2 percent, with initial gains concentrated in the tradable sector.
  - Growth in consumption is positive but lower than investment gains.

### Implementation risks and uncertainties
- Estimates subject to significant uncertainties: measurement errors in model parameters, external economic shocks, or implementation challenges may limit gains.
- Faster-than-expected implementation and complementarities with other measures in the 2021–26 Government Program could enhance gains.

### Policy implications and recommended priorities
- Timely implementation of structural reforms under the SBA-supported program is important to support long-term growth.
- Specific policy measures highlighted:
  - Reduce unemployment and enhance labor force participation, including through investment in health.
  - Enhance execution rates for public investments and improve public investment management.
  - Enhance access to finance (e.g., strengthen creditors’ rights, improve insolvency processes, corporate governance) to raise productivity and investments and rebalance growth toward export-oriented sectors.

### Strengthening Armenia’s Social Safety Net (SSN): key findings
- Social assistance spending:
  - Armenia social assistance spending in 2021 = 2.6 percent of GDP (including Covid-19 and 2020 war support).
  - CCA mean = 2.7 percent of GDP.
  - OECD mean = 12.9 percent of GDP.
  - Family Benefit Program, childbirth and other child benefits, and temporary Covid-19 & war-related social assistance spending each received the highest share = 0.5 percent of GDP.
- Coverage:
  - Overall social assistance coverage in 2021 = 26.1 percent; CCA mean = 18.6 percent.
  - Coverage of poorest quintile (Q1) = 65.6 percent; CCA mean = 33.3 percent.
  - Coverage of richest quintile (Q5) = 10.1 percent; CCA mean = 11.6 percent.
  - Family benefits reach the poor but family benefit coverage for the poorest quintile = 41 percent.
- Adequacy (transfers as share of total income):
  - Overall population beneficiaries = 20 percent; CCA average = 14 percent.
  - Quintile 1 (poorest) = 32 percent.
  - Quintile 5 (richest) = 9 percent.
  - CCA averages for Q1 and Q5 = 26 percent and 5 percent, respectively.
  - SSN adequacy for overall population and for certain quintiles is low; suggested adequate range = 25–30 percent (quoted as benchmark).
- Targeting (benefit incidence):
  - Poorest quintile received 56 percent of all social assistance transfers; CCA = 47 percent.
  - Richest quintile received 7.5 percent; CCA = 12 percent.
  - Aside from the Family Benefit Program, benefit incidence is relatively even across quintiles, indicating scope to improve targeting of other programs.

### SSN policy priorities from the analysis
- Strengthen coverage, adequacy, and targeting of social assistance programs to build automatic stabilizers and support fiscal sustainability.
- Reduce program fragmentation and beneficiary overlaps; improve cost-effectiveness.
- Ensure financial sustainability within the overall fiscal envelope and consistency with other social protection programs.

*Italic: Source — Republic of Armenia: IMF staff analysis as presented in the supplied content.*

### 8. Most programs could also be better targeted towards beneficiaries among the poorest

### 8. Most programs could also be better targeted towards beneficiaries among the poorest

### Beneficiary incidence and program universality
- Beneficiary incidence at the poorest quintile (Q1) for Armenia: 50 percent (better than the CCA average of 40 percent).
- Around 17 percent of beneficiaries reside in the richer two quintiles.
- Beneficiary incidence is more even across quintiles for all programs other than the family benefit program, reflecting partial universality (e.g., childbirth and childcare benefits and some stipendium distributed regardless of income status).
- Authorities are working with the World Bank and UNICEF to adopt a new methodology for family vulnerability assessment and administrative improvements (unified information systems) to improve targeting, minimize inclusion and exclusion errors, and encourage employment activation.
- Note on childcare benefit since 2022: size differs depending on whether the parent is employed or unemployed and whether they are employed in urban or rural areas.

### Coverage, under-coverage, leakage, and targeting differential (2021)
- Definitions:
  - Under-coverage: percent of poor individuals that do not receive social assistance.
  - Leakage: percent of individuals that receive transfers and are not poor.
  - Targeting differential: difference between the coverage rate and the participation rate for the non-poor.
- Key program-level metrics (Table 2):
  - All social assistance: Coverage of the poor (1) = 52.9; Under-coverage (2) = 47.1; Leakage (# of beneficiaries) (3) = 36.1; Leakage (benefits) (4) = 32.6; Targeting differential (5) = 16.7.
  - Family benefit: Coverage = 32.3; Under-coverage = 67.7; Leakage (#) = 29.4; Leakage (benefits) = 31.3; Targeting differential = 2.9.
  - Childcare: Coverage = 8.9; Under-coverage = 91.1; Leakage (#) = 42.5; Leakage (benefits) = 46.7; Targeting differential = -33.6.
  - Other benefits: Coverage = 3.3; Under-coverage = 96.7; Leakage (#) = 52.6; Leakage (benefits) = 54.3; Targeting differential = -49.3.
  - Stipendium/Scholarship: Coverage = 3.4; Under-coverage = 96.6; Leakage (#) = 58.6; Leakage (benefits) = 68.6; Targeting differential = -55.2.
  - Old-age, disability, and survivor allowances: Coverage = 1.6; Under-coverage = 98.4; Leakage (#) = 25.9; Leakage (benefits) = 11.0; Targeting differential = -24.3.
- Observations:
  - Under-coverage of the poor for the family benefit program: 68 percent; leakage of benefits around 31 percent (family benefit fares better than many other programs).
  - Several programs have very large under-coverage (>90 percent) and high leakage because they target specific socio-economic groups (e.g., families with children) rather than poverty per se.

### Impact on poverty and inequality (2021)
- Aggregate simulated impacts of social assistance transfers (Table 3):
  - Reduction in Poverty Headcount Index: 20 percent (Armenia) vs 8 percent (CCA mean).
  - Reduction in Poverty Gap Index: 72 percent (Armenia) vs 20 percent (CCA mean).
  - Reduction in Gini Index: 11 percent (Armenia) vs 3 percent (CCA mean).
- Simulated impacts of removing programs (Table 4; Post-transfer indicators and indicators without listed transfer):
  - Post-transfer indicators: Poverty headcount = 0.262; Poverty Gap = 0.047; Squared Poverty Gap = 0.014; Gini = 0.232.
  - Indicators without all social assistance: Poverty headcount = 0.315; Poverty Gap = 0.081; Squared Poverty Gap = 0.035; Gini = 0.259.
  - Indicators without Family benefit: Poverty headcount = 0.286; Poverty Gap = 0.063; Squared Poverty Gap = 0.023; Gini = 0.245.
  - Indicators without Childcare: Poverty headcount = 0.270; Poverty Gap = 0.050; Squared Poverty Gap = 0.015; Gini = 0.234.
  - Indicators without Other benefits: Poverty headcount = 0.264; Poverty Gap = 0.048; Squared Poverty Gap = 0.014; Gini = 0.233.
  - Indicators without Stipendium/Scholarship: Poverty headcount = 0.263; Poverty Gap = 0.047; Squared Poverty Gap = 0.014; Gini = 0.232.
- Interpretation: Social assistance programs substantially reduce poverty incidence, poverty depth, and inequality in Armenia and perform better on these measures than the CCA average.

### Cost-effectiveness and benefit-cost ratios (2021)
- Overall benefit-cost ratio for social assistance programs: near 0.8 overall.
- Family Benefit Program: benefit-cost ratio exceeded 0.8 and contributed most to reducing the poverty gap.
- Table 5 (In billions of Armenian drams):
  - All social assistance: Simulated poverty gap without transfer = 293.2; Actual poverty gap = 241.1; Difference (dPG) = 52.1; Total amount spent (X) = 68.0; Benefit-Cost (dPG0/X) = 0.77.
  - Family benefit: Simulated gap = 265.0; Actual gap = 241.1; dPG = 23.9; X = 28.7; Benefit-Cost = 0.83.
  - Childcare: Simulated gap = 246.4; Actual gap = 241.1; dPG = 5.3; X = 6.7; Benefit-Cost = 0.79.
  - Other benefits: Simulated gap = 242.4; Actual gap = 241.1; dPG = 1.2; X = 1.7; Benefit-Cost = 0.71.
  - Stipendium/Scholarship: Simulated gap = 241.7; Actual gap = 241.1; dPG = 0.6; X = 0.9; Benefit-Cost = 0.61.
  - Old-age, disability and survivor allowances: Simulated gap = 243.7; Actual gap = 241.1; dPG = 2.5; X = 3.9; Benefit-Cost = 0.65.
- Definition: Benefit-cost ratio is the poverty gap reduction in a unit of local currency for each 1 unit spent on the social program and is a function of effective targeting and generosity of the program.

### Ongoing and planned SSN reforms (policy measures and timelines)
- Improve targeting:
  - Hybrid Means Testing based on incomes and assets for vulnerability assessment for the family benefit program planned to be rolled out by January 2024.
  - The new system is expected to improve targeting by 10–15 percentage points, decrease the number of beneficiaries through better targeting, and increase program effectiveness (e.g., enabling families with high dependency ratio to overcome extreme poverty).
  - Introduction of PIT declaration system to reduce informality and better assess beneficiaries' incomes to improve beneficiary and benefit incidence.
- Enhance adequacy and coverage:
  - Mandatory activation for all persons able to work aged 18–62.
  - Support for skill upgradation by putting in place an employment strategy and active labor market programs to reduce beneficiary numbers for various programs (including family benefit) and help increase coverage and adequacy.
- Modernize and improve system efficiency:
  - Modernization of social assistance laws to expand types of social assistance services, improve shock responsiveness, and strengthen a unified social system.
  - Preparation of a Strategy on integrated Social Services to improve overall efficiency.
- Strengthen SSNs for disabled persons:
  - Disability reforms to switch from medical model to functional model (health, education, etc.) of assessment to enable better targeting.
  - Introduction of E-disability platform to improve employment activation and system efficiency.

### Policy rationale and fiscal context
- COVID-19 lessons:
  - COVID-19 underscored importance of strong SSN; authorities expanded SSNs using good international practice.
  - Adequacy of benefits in 2020 was unusually high and needs normalization to avoid creating disincentives to work post COVID.
- Potential distortions to address:
  - High participation tax (steep benefit withdrawal rates when beneficiaries become employed).
  - Strong income effect from generous benefits may encourage low-income workers to stop looking for jobs, risking poverty traps.
- Reforms should improve efficiency of SSN and complement revenue mobilization and expenditure prioritization to support medium-term fiscal sustainability, including accommodating emergency humanitarian and development spending pressures from recent refugee inflow.

### Conclusions
- Armenia’s social assistance programs are cost-effective with high benefit-cost ratios and have helped contain poverty, the poverty gap, and inequality.
- Leakage and under-coverage remain very high for many social assistance programs.
- Social assistance spending in Armenia is still very low compared with other emerging and advanced economies despite favorable performance relative to CCA peers.
- Recommended focus: expand coverage, improve adequacy, strengthen targeting, and encourage activation and transition to the labor market through planned reforms (vulnerability assessment improvements, legal/policy modernization, and integrated social services).

### Annex: Selected program eligibility and sizes (as of end 2021)
- Family Living Standards Enhancement Benefits:
  - Family allowance (vulnerable families with minors, registered, above threshold): basic benefit AMD 18,000 and supplementary benefit AMD 5,500–8,000 a month per eligible child depending on location and vulnerability score.
  - Social allowances (vulnerable families without minors): AMD 18,000.
  - Emergency lump sum allowances for eligible family allowance recipients: (1) childbirth - AMD 50,000, (2) Child of school entry age - AMD 25,000, (3) Diseased family member - AMD 50,000.
  - Allowance for a quarter (vulnerable families with vulnerability score above 0 facing urgent distress): equals social allowance and is paid for 3 months.
- Childcare benefits up to 2 years of age:
  - All parents: AMD 26,500 per month, per child.
- Other benefits:
  - Child benefits (all citizens): 1st and 2nd child - AMD 300,000; 3rd and 4th child - AMD 1,000,000; 5th and following child - AMD 1,500,000.
  - Housing assistance programs for families with children: 2020–23 programs include one-time financial assistance for purchasing an apartment in regional settlements; assistance for prepaying mortgage liability insurance; assistance to families repaying mortgage loan once a child is born.
  - Maternity leave: employed citizens – pregnancy and childbirth period is 140 days, amount depends on average salary; unemployed citizens – AMD 156,600.
  - Childcare and upbringing support to foster families: general-type receive minimum monthly salary; specialized-type receive minimum monthly salary plus 30 percent; crisis-care foster families receive average monthly salary pro rata.
  - Funeral allowance: AMD 200,000 for death of person receiving pension/allowance/benefit.
  - Stipendiums: depend on vulnerability score of student's family and tuition amount.
  - Old age, disability, and survivor allowances: AMD 26,500.
- Note: After 2021, base benefit, old age and other benefits have increased and eligibility criteria for some programs have been modified. In addition, government introduced financial support program for families with 3 or more children.

*Source: Integrated Living Conditions Survey and IMF staff estimates as presented in the supplied chapter.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1armea2023005.pdf_