## _cr05175 ## Source details **Canonical URL:** [_cr05175](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05175.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05175.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05175.pdf.json) --- ### Preface — overview and implementation steps - In August 2003, the Government of the Republic of Armenia adopted the Poverty Reduction Strategy Paper (PRSP); in January 2004, approved an action plan to implement the PRSP’s program during 2004-2006, including mechanisms for quarterly reporting by governmental agencies. - PRSP elaboration: wide participation of governmental agencies, private sector, civil society, and donor community; government efforts to ensure wide participation in implementation. - Report organization: (i) comparative analysis of poverty and inequality outcomes against PRSP targets, (ii) macroeconomic framework and sectoral policies (education, health, social security, infrastructures, agriculture), (iii) public finance and mid-term intentions, (iv) participation of civil society, private sector, and donors, (v) development and introduction of PRSP monitoring and evaluation system. ### Progress in poverty and inequality (2001–2004) — key findings - Significant reduction in the number of the poor and ongoing reduction among the extremely poor in 2001-2003. - Economic growth outperformed PRSP projections: - PRSP projected GDP annual growth rates of 7% for 2003 and 6% for 2004. - Actual rates: 13.9% in 2003 and 10.1 in 2004. - Gini outcomes (household survey 2003): - Current income Gini coefficient: 0.438. - Expenditure (consumer aggregate) Gini coefficient: 0.271. - PRSP had envisaged reaching the 2003 level of the current income Gini only by 2015. - Selected comparative milestones: - Actual GDP per capita 2003 corresponds to PRSP 2004 target. - Actual GDP per capita 2004 corresponds to PRSP 2006 target. - 42.9% indicator for the poor was envisaged for 2005; 7.4% indicator for the extremely poor was envisaged for 2013; actual 7.4% outcome in 2003. ### Household income and expenditure dynamics (selected exact figures) - Annual average incomes of population (household survey data), thousand drams per capita: - 1999: 95.1; 2001: 134.6; 2002: 117.4; 2003: 159.9; 2003 % 1999: 168.1; 2003 % 2001: 118.8. - Annual average incomes of population (NSS macroeconomic data), thousand drams per capita: - 1999: 195.7; 2001: 234.6; 2002: 265.8; 2003: 362.2; 2003 % 1999: 185.0; 2003 % 2001: 154.3. - Household survey incomes as % of NSS indicator: - 1999: 48.6; 2001: 57.4; 2002: 44.1; 2003: 44.2. - Annual average expenditures (household survey), thousand drams per capita: - 1999: 140.4; 2001: 143.4; 2002: 143.8; 2003: 172.8; 2003 % 1999: 123.0; 2003 % 2001: 120.5. - Annual average expenditures (NSS macro data), thousand drams per capita: - 1999: 197.2; 2001: 233.1; 2002: 257.9; 2003: 360.7; 2003 % 1999: 182.9; 2003 % 2001: 154.7. - Quintile examples (household survey, thousand drams per capita): - Poorest quantile incomes: 1999: 14.1; 2001: 27.4; 2002: 26.4; 2003: 37.0; 2003 % 1999: 262.4; 2003 % 2001: 135.0. - Richest quantile incomes: 1999: 423.5; 2001: 474.2; 2002: 385.5; 2003: 492.3; 2003 % 1999: 116.2; 2003 % 2001: 103.8. - Poorest quantile expenditures: 1999: 50.1; 2001: 51.8; 2002: 53.6; 2003: 72.5; 2003 % 1999: 144.7; 2003 % 2001: 140.0. - Richest quantile expenditures: 1999: 340.0; 2001: 347.3; 2002: 339.3; 2003: 389.4; 2003 % 1999: 114.5; 2003 % 2001: 112.1. ### Factors behind the 2002–2003 change in Gini coefficients - Three conditioning factors: - A higher growth of the income of the poor. - An inadequate coverage of the income of the non-poor in recent integrated surveys of the living conditions of households. - A halving of the income inequality from the sale of agricultural products. - Income from sale of agricultural products: - Average in 2003: 1691 drams per month. - Average in 2001: 1754 drams per month. - Gini coefficients by income type (selected as presented): - Current income: 1999-2001: 0.593; 2002-2003: 0.535 0.451 0.438. - Labor income: 1999-2001: 0.529 0.422; 2002-2003: 0.451 0.470. - Social transfers: 1999-2001: 0.119 0.108; 2002-2003: 0.097 0.11. - Agricultural sales incomes: 1999-2001: 0.737 0.731; 2002-2003: 0.418 0.399. - Domestic and foreign transfers: 1999-2001: 0.718 0.734; 2002-2003: 0.749 0.732. - Other incomes (including property income): 1999-2001: 0.476 0.578; 2002-2003: 0.547 0.547. - Income structure (% of total) (selected as presented): - Labor income share: 1999-2001: 35.19 42.33; 2002-2003: 53.21 55.2. - Social transfers: 1999-2001: 9.33 9.61; 2002-2003: 11.53 9.91. - Income from sale of agricultural products: 1999-2001: 32.11 15.64; 2002-2003: 6.41 2.69. ### Income concentration and distributional shifts — selected observations - Labor income: - Labor income share rose substantially; in 2003 labor income exceeded half of total income in almost all quantiles except the poorest 20% (labor income = 30.6% of total income for poorest 20%). - Sharp increase in labor income concentrated in the highest income group (10th decile): 2003 monthly labor income for richest decile: 28.7 thousand drams; total income for richest decile in 2003: 58.0 thousand drams vs. 56.5 thousand drams in 2001. - Social transfers: - Inequality and share in total income: no significant changes; absolute social transfers increased in all income groups except the poorest (1st decile) and wealthiest (10th decile). - Transfers and other incomes: - Inequality did not undergo significant changes, though their share in total income decreased. ### Employment, structural shifts, and sectoral contributors to growth (2002–2004) - Employed population (NSS data): - 2001: 1089.4 thousand; 2002: 1106.4 thousand; 2003: 1111.6 thousand; First quarter 2004 employed: 1111.9 thousand (increase of 0.5% compared with 2002). - Sectoral shifts and contributors to 2004 GDP growth (10.1% y-o-y in 2004): - Construction: value added increased by 13.4% in 2004; represented around 2.1% of the 10.1% GDP growth. - Industry: contributed 0.4 percentage points to the 10.1% GDP growth; value added in industry increased by 2.1% in 2004; excluding diamond processing, industrial production volumes increased by 7% y-o-y in 2004. - Chemical industry +54.9%; mining +8.7%; electricity, gas, and water +9.9%. - Agriculture: value added increased by 14.5% y-o-y in 2004; gross production growth in agricultural farming (except vegetables) +20.1%; cattle breeding +8.0%. - Services: contributed 4.3 percentage points to GDP’s annual 10.1% growth; transport and communication value added +17.0% y-o-y in 2004 (against 8.2% in 2003). - Trade and catering: grew at +15% annually on average over the last three years. - Structural shares (2004 vs earlier): - Construction share increased by 2.7 percentage points to 15.3%. - Agriculture share decreased by 0.9 percentage points (22.5% in 2004). - Industry share increased by 0.8 percentage points (19.7% in 2004). - Service sector share decreased by 1.3 percentage points (34.1% of GDP in 2004). ### 2004 macroeconomic and price developments - GDP per capita (nominal): 2003 = 873 US dollars; 2004 = 1104 US dollars; PRSP planned indicator (de jure): about 850 US dollars. - Prices and wages: - CPI average annual change 2004: 7.0%; December 2004 vs December 2003: consumer prices increased by 2.0%. - Average salary in 2004: 42.0 thousand drams; real terms (deflated by average CPI) increased by 15.06% y-o-y. - Incomes from hired labor (per capita) compared with 2002 grew by 36.0%; incomes from social transfers grew by about 17%. - Exchange rate: - Armenian dram appreciated against the US dollar by 7.8% in 2004 (as opposed to envisaged 1.8% depreciation); nominal exchange rate (period average) dram/US dollar: 2004 Actual = 533.5; 2003 = 578.8. ### Fiscal sector outcomes (2003–2004) — aggregated figures - State budget nominal values (2004): - State budget revenues in 2004: 301.1 bn drams. - State budget expenditures in 2004: 344.7 bn drams. - Ratios (2004 actual vs 2003): - Actual total revenues-to-GDP ratio declined by 2.1 percentage points and consisted 15.9%. - Actual total expenditures-to-GDP ratio declined by 1.1 percentage points and consisted 18.2%. - External support and deficit: - Role of external support decreased: 3.1% net of GDP in 2004 compared with 5.9% for 2003. - Overall budget deficit-to-GDP ratio improved from 4.3% in 2001 to about 2.3% in 2004. - Note on tax revenues: High GDP growth not fully reflected in tax revenues because higher growth largely in tax-exempted sectors, especially agriculture; government continues measures to improve tax administration. ### External sector and balance of payments (selected) - Exports/imports and current account (2004 actual): - Exports of goods and services: 30.2% of GDP (2003: 32.2%). - Imports of goods and services: 47.2% of GDP (2003: 50.1%). - Current account balance: -6.0% of GDP (2003: -6.8%). - First 9 months 2004 vs first 9 months 2003: - Exports growth: 5.6%; Imports growth: 6.5%; planned annual indicators were 9.4% (exports) and 7.4% (imports). - Compensation of employees (net) increased by 27.9%; private transfers grew by 84.5%. - Current account deficit for first 9 months of 2004: 137.3 mn US dollars (or 6.0% of GDP). - Gross foreign reserves by end of ninth months of 2004: 484 mn US dollars (equivalent to 5.3 months of imports). - Gross foreign reserves decreased by 18 mn US dollars compared to December 2003 (at the actual exchange rate). - Public external debt: - 2003: public external debt 39.1% of GDP; current value debt-to-GDP ratio 26.1%. - 2004: public external debt 33.3% of GDP; current value debt-to-GDP ratio 20% (improvement due in part to a debt-equity swap with the Russian Federation). ### Key numeric indicators (selection as reported) - Poverty and vulnerability: - Population below poverty line, %: 1999: 55.1; 2001: 50.9; 2002: 49.7; 2003: 42.9. - Population below food poverty line, %: 2002: 13.1; 2003: 7.4. - Extremely poor level: 7.4%. - Gini coefficient of income concentration: 2002 = 0.451; 2003 = 0.438. - Households with three or more children: 154% of country average poverty level (2003). - Households headed by an unemployed person: 14.0% above average (2003). - Households headed by a woman: 0.9% above average (2003). - Households with six or more members: 32.9% above average (2003). - Households with children aged five or under: 25.6% above average (2003). - Absolute risk reductions (2001–2003): 18% (households with six or more members); 22.3% (households with children aged five or under). - Macroeconomic: - Real GDP year-on-year % change: 2003 = 13.9; PRSP = 6.0; 2004 Actual = 10.1. - Gross domestic product, billion drams: 2003 = 1,623; PRSP = 1,609; 2004 Actual = 1,893. - Gross domestic product, million US dollars: 2003 = 2,805; PRSP = 2,731; 2004 Actual = 3,549. - GDP per capita, US dollars: 2003 = 873; PRSP = 850; 2004 Actual = 1104. - Consumer price index (period average), year-on-year % change: 2003 = 4.7; PRSP = 3.0; 2004 Actual = 7.0. - Nominal exchange rate (period average), dram/US dollar: 2003 = 578.8; PRSP = 589.3; 2004 Actual = 533.5. - Final consumption (% of GDP): 2003 = 94.3; PRSP = 94.6; 2004 Actual = 97.7. - Gross capital formation (% of GDP): 2003 = 24.7; PRSP = 20.6; 2004 Actual = 23.7. - Exports/imports: 2003 exports = 32.2% of GDP; 2003 imports = 50.1% of GDP; 2004 actual exports = 30.2% of GDP; 2004 imports = 47.2% of GDP. - Public external debt: 2003 = 39.1% of GDP; PRSP = 40.4%; 2004 Actual = 33.3%. - Gross foreign reserves (end period, months of imports): 2003 = 4.3; PRSP = 4.6; 2004 Actual = 5.3. ### Education — objectives, spending, and reforms - PRSP objectives: insure availability of education and increase quality of general education; government to increase spending directed towards education to meet PRSP objectives. - Consolidated budget expenditures on education: - 2003 actual: 35.1 bn drams (increase of 19% vs 2002). - 2004 allocations exceed 2003 actual by 40%; 2005 budget exceeds 2004 by 26%. - 2004 preliminary actual: total 51.9 billion drams; in % of GDP 2.7; in % of consolidated budget total expenditure 12.7; year-on-year % change 46.6. - Primary/basic/secondary 2004 preliminary: 34.7 billion drams; year-on-year % change 49.6. - Teacher salaries and labor policy: - 2004 budget: average monthly salary for a full-time teacher set at 30.6 thousand drams (about 70% above previous year). - 2005 budget plan: average monthly salary planned to be 50.5 thousand drams (planned equal to GDP per capita rate). - Pupil/teacher ratio: 11 (2003) → 13.1 (2004). - Average class size: 21 (2003) → 22.2 (2004). - Infrastructure and capital investment: - 2004 state budget: 25 school buildings constructed and 187 schools fundamentally renovated via state budget; Armenian Social Investment Fund supported 16 buildings constructed and 148 schools renovated. - June 2004 budget revision: additional 7 bn drams for education, overwhelmingly for capital expenditures. - Curriculum, training, and ICT: - 28,000 teachers trained in 2004. - “General Education State Standards” designed; Assessment and Testing Center created. - World Bank “Education Quality and Relevance” credit (2004) envisages modernizing content, assessment, ICT introduction, teacher training. ### Health care — objectives, spending, and service delivery - PRSP objective: improve availability and quality of health services by focusing on primary unit and mitigating regional imbalances; increase public expenditures and improve management and efficiency. - Public expenditures: - 2003 actual: 19.6 billion drams (+23% vs 2002). - 2004 State Budget provided increase up to 25 billion drams (nominal 28% increase vs 2003 actual). - Table 10 2004 preliminary: total 24.7 billion drams; in % of GDP 1.3; in % of state budget total expenditures 6.0; year-on-year % change 26.0. - Primary care focus: - PRSP/MTEF aim: increase share of public spending on primary unit to around 35% (1.7 percentage points higher than 2003) and foresee 40% in 2006; MTEF 2005-2007 indicates around 42 percent for 2006. - 2004 allocation to ambulatory/pilot projects: 8.7 billion drams (exceeding 2003 by 2.2 billion drams). - Price of outpatient medical center visits: 450 dram (2003) → 823 dram (2004). - 2004 financing for obstetric/gynecologic care exceed previous year by 20%. - Service utilization and access (selected): - Patients registered in hospitals per 100 people: 2001: 4.9; 2002: 6.1; 2003: 6.9; 2004 preliminary: 6.9. - Visits to outpatient medical centers (average visits per resident): 2001: 1.8; 2002: 1.9; 2003: 2.0; 2004 preliminary: 2.1. - Frequency of patient visits to health institutions increased to 40% in 2003 (up 8 percentage points vs 2002). - Average medical care expenditure per family member decreased from 119 drams (2002) to 85 drams (2003). ### Social protection, family benefits, and pensions — spending and reforms - Consolidated budget expenditures on social security and social insurance (2003–2004, selected): - Total actual 2003: 82.6 billion drams; preliminary 2004: 101.0 billion drams. - in % of GDP: Actual 2003: 5.1; Preliminary 2004: 5.3. - State Social Insurance Fund (preliminary 2004): 64.7 billion drams; year-on-year % change 49.8 (preliminary 2004). - Family benefits: - 2003 expenditures in family benefits: 16.1 billion drams (0.8% of GDP) or 17% of public spending in the sector. - Since January 2004, base amount of family benefit set at 4500 drams (increase of 500 drams). - Allowances to minors in families with vulnerability unit between 35.01 and 38.00: 2500 drams; vulnerability unit 38.01 or more: 3000 drams; previous (2003) allowance: 2000 drams. - One-off childbirth benefit since October 2003: 35 000 drams (previously 5900 drams). - Planned 2005 changes: reduce minimum score from 35 to 34; set base family benefit at 6000 dram; allowances for children up to age 18 to range from 3000-4500 dram differentiated by poverty and residence; one-time childbirth expense benefit set to be 70.000 dram for families in program. - Pensions: - 2003 pension expenditures: 47.0 billion drams (Actual 2003); 2004 Budget: 50.9 billion drams. - Average monthly insurance pension in 2003: 7452 drams (about 34% higher than previous year). - Average pension size in 2004 set to be 8672 drams (increase of 28% vs 2003). - Pension system reforms: introduce individual (personalized) registration system; changes in insured length of service valuation (annual value: 100 drams in Q1–Q3 2003; 120 drams Q4 2003; since October 2004: 160 drams). ### Infrastructure, water management, roads, energy, and gas distribution - Water management: - 2004 state budget provision for water management: around 21.9 billion drams; PRSP provision 21.6 billion drams. - State budget allocation for subsidies: 5.8 billion drams (PRSP provision for subsidies: 4.4 billion drams). - Access to centralized water supply, %: 2001: 85.0; 2002: 89.1; 2003: 91.0. - Urban centralized water access, %: 2001: 94.2; 2002: 97.0; 2003: 97.8. - Rural centralized water access, %: 2001: 64.7; 2002: 77.0; 2003: 80.6. - World Bank “Irrigation System Development” project: two stages in Vayots Dzor with expenditures estimated at 7.6 and 3.8 million US dollars; envisaged completion of two stages in 2006. - Water management investments and energy savings: - Three gravity-flow irrigation systems (Ayrum, Aygedzor, Vayots Dzor) under construction/operation; annual electricity savings around 48 million kilowatt/hours (about 20% of electricity consumed in the system). - Yerevan Water and Sewer Company: individual water meters installed about 273 thousand (about 86.6% of consumers) as of end-December 2004. - New potable water tariffs since April 1, 2004: Yerevan Water and Sewer Company = 90.2 drams/m3; Armenian Water and Sewer Company = 100.4 drams/m3. - Roads: - 2003 actual road construction expenditure (excluding loan/grant programs): 2.3 billion drams. - 2004 state budget allocation for road construction: 6.5 billion drams. - World Bank Transportation Project (2004): fundamental repair of about 88 km of inter-state and national roads costing about 4.8 billion drams. - Energy and gas distribution: - Reconstruction projects for substations and transmission lines; Alaverdi-2 substation reconstruction project initiated. - Gas distribution: number of customers almost 187 thousand (38%); 121 thousand consumers supplied with gas in 2004 (planned 117.2 thousand; exceeded by 3 percent). ### Agriculture — output, prices, and insurance initiatives - Gross agricultural output (billion drams): 2001: 351.0; 2002: 377.6; 2003: 410.1; 2004: 504.1. - Gross agricultural output year-on-year % change (sequence preserved as presented): 11.64.4 4.314.5. - Crop production year-on-year % change sequence: 19.0 4.6 4.4 20.1. - Rural poverty and incomes: - 2003 rural poverty: 47.5%; urban poverty: 39.9%. - Per capita revenues in rural areas about 36.3% lower than urban areas. - Revenues from hired work share in rural areas in 2003: 18.8%; in urban areas: 51%. - Agricultural insurance: - Government implementing program to assess agricultural insurance risks; if successful, prerequisites for agricultural insurance system introduction starting in 2005. - Policy adoption: - “Agriculture Sustainable Development Strategy of RA” adopted by Government Decree No. 682-N on April 14, 2004. ### Fiscal framework, consolidated budget operations, and public expenditure policy (2002–2005) - Consolidated budget revenues and expenditures (selected): - Total revenues and grants (billion drams): 2002 Actual: 305.6; 2003 Actual: 348.9; 2004 Actual (Jan–Sep): 367.1. - Consolidated budget expenditures: increased from 318 billion drams (2002) to 363 billion drams (2003) and 409 billion drams (2004). - Consolidated budget overall balance: deficit of 0.9% and 2.2% of GDP in 2003–2004 respectively, instead of planned 2.5% deficit. - Capital expenditures: - 2003 capital expenditure total actual: 82,520.8 million drams (vs Total Budget 99,022.0). - External sources actual capital: 64,549.7 million drams. - Social sector expenditures: - 2003 social sector expenditures: 128 billion drams (+20% vs previous year). - 2004 social sector expenditures: 177.6 billion drams (+38.9% vs previous year). - Share of social expenditures in consolidated budgetary spending: increased to 43.4% in 2004. - Social expenditures-to-GDP ratio: 2003: 7.9%; 2004: 9.4%. - External financing requirements (in % of GDP): - External financing requirements (Annex 5) for latest series: 4.0; 6.2; 3.5; 5.6; 4.5; 3.1 (table sequence preserved). ### 2005 budget formulation, MTEF alignment, and medium-term priorities - 2005 state budget elaborated based on PRSP ideology; resource package changed due to macro developments Q2 2004 and new external assistance data. - Budget quantitative adjustments: - Revenues revised upward by 63.9 billion drams relative to PRSP target. - Expected externally financed special-purpose capital grants negatively revised by 24.4 billion drams. - Total expenditures nominally exceed PRSP indicator by around 53 billion drams (current expenditures +35 billion; capital +15 billion). - Planned annual budget ratios (as stated): - Planned annual budget revenues-to-GDP ratio: 20.2 percent (text also references 19.9% earlier). - Planned annual budget expenditures-to-GDP ratio: 22.6% of GDP. - Planned annual budget deficit-to-GDP ratio: 2.3%. - MTEF 2005-2007 alignment with PRSP: - MTEF developed with PRSP as guiding document; tax revenue forecasts revised upward; capital grants excluded from resource package due to uncertainty. - Government view: consolidated budget operations should be around 24-25% of GDP in next few years, requiring increased tax revenues and inter-sectoral redistributions favoring PRSP priorities. - Social expenditures projected in MTEF/PRSP tables (selected): - Total social expenditures (bn drams): PRSP 2004 = 100.4; PRSP 2005 = 120.0; PRSP 2007 = 155.0. MTEF 2005 = 107.2; MTEF 2007 = 150.0; MTEF 2007 (alternate) = 176.1. - Education (bn drams): PRSP 2005 = 47.9; MTEF 2005 = 45.7. - Health (bn drams): PRSP 2005 = 30.8; MTEF 2005 = 25.0. - Social security and social insurance (bn drams): PRSP 2005 = 41.4; MTEF 2005 = 36.5. - Family benefits (bn drams): PRSP 2005 = 20.2; MTEF 2005 = 16.1. ### Budget reforms, program budgeting, capacity building, and forecasting - Transition to result-based budgeting initiated since 2001; MTEF 2003-2005 first attempt; law amendments in 2003 require a three-year public expenditure strategy to be presented to National Assembly. - Structural budgeting action plan agreed with World Bank in 2003; pilot program transformations applied to MLSI, Ministry of Health, Ministry of Education and Science, Ministry of Culture and Youth Affairs. - Capacity building: Ministry of Finance and Economy Training Center courses run with UK DFID assistance. - Short-term forecasting: government emphasizes improving short-term forecasting capacities due to repeated deviations between forecasts and actual results. ### PRSP monitoring, participation, and donor coordination - PRSP monitoring and evaluation system: - Development initiated August 2003; task team established November 2003; system adopted by government decision N 1780-n, 11.11.2004. - Monitoring system includes 177 indicators: 36 objective indicators and 141 perceiving indicators. - Indicators classified into six groups: (i) poverty reduction and improved welfare; (ii) education; (iii) health care; (iv) basic social services and housing conditions; (v) social and civil dissociation and inequality; (vi) sustainable environmental development. - Activities planned to reconcile PRSP monitoring and MTEF indicators. - Participation and information dissemination: - Presentation meetings in ten regions and Yerevan (Nov–Dec 2003): eleven meetings attended by 1200 participants; 1200 booklets distributed. - Simplified PRSP version published with 10 000 print run. - Website created (www.prsp.am) providing PRSP texts, news, monitoring info, and donor participation information. - Action Plan and reporting: - Government adopted Action Plan (2004–2006) with 298 activities; quarterly reporting by public administration bodies required. - Participatory monitoring system established; PRSP Steering Committee, PRSP Working Group, and PRSP Open Forum created. - Partnership Agreement signed October 30, 2004 with three main priorities: (1) improve business environment and MSME promotion targeting employment, (2) strengthen social protection and human development directed to poverty reduction, (3) life support infrastructure development in rural areas with environmental consideration. - Donor coordination: - Donors aligning country assistance with PRSP priorities: World Bank, IMF (PRGF adjustments), UN, EU (TACIS), UK DFID, USAID, and Millennium Challenge Fund eligibility noted. ### Indicator revisions, scenarios, and timing of PRSP revision - Need for revisions: - Favorable economic developments in 2003–2004 require revising forecasts for main structural indicators and PRSP mid-term forecasts. - Forecast: 2004–2007 growth rate "will be 1-2 percentage points higher than the PRSP macroeconomic framework target." - Government to take conservative approach to inequality revisions and await 2004 household survey results. - Poverty and population adjustments: - Poverty indicators to be revised based on 2003 actuals and 2004 household survey; next PRSP revision supposed to take place in 2005. - Population forecasting to be adjusted for positive natural growth trends and resident population basis. - Monitoring system and indicator counts: - Total indicators in monitoring system: 177; Objective indicators: 36; Perceiving indicators: 141. - Table 20 summary by group preserved as presented in source. *Source: _cr05175 — PRSP Progress Report (excerpts).* ### Preface ................................................................................................................ ### Preface ### Overview and implementation steps - In August 2003, the Government of the Republic of Armenia adopted the Poverty Reduction Strategy Paper (PRSP) and, in January 2004, approved an action plan to implement the PRSP’s program during 2004-2006, including mechanisms for quarterly reporting by governmental agencies on progress. - The PRSP was elaborated with wide participation of all stakeholders (governmental agencies, private sector, civil society, and donor community). The government is making efforts to ensure wide participation in the PRSP implementation stage. - The report presents an overview of actions undertaken by the government within the 2003-2004 PRSP implementation and analysis of results, organized into: (i) comparative analysis of poverty and inequality outcomes against PRSP targets, (ii) macroeconomic framework and sectoral policies (education, health, social security, infrastructures, agriculture), (iii) public finance and mid-term intentions, (iv) participation of civil society, private sector, and donors, and (v) development and introduction of a PRSP monitoring and evaluation system. ### Progress in poverty and inequality (2001–2003) - There was a significant reduction in the number of the poor, and an on-going reduction among the extremely poor, in 2001-2003. - The economic growth rate was roughly double that projected by the PRSP: the PRSP projected GDP annual growth rates of 7% for 2003 and 6% for 2004; the actual rates were 13.9% in 2003 and 10.1 in 2004. - The reduction in poverty and inequality in 2001-2003 was mostly conditioned by progressive growth of labor income of the poor and social transfers. - Actual outcomes in 2003 for Gini coefficients indicated a real reduction of inequality: current income Gini coefficient 0.438 and expenditure (consumer aggregate) Gini coefficient 0.271 (household survey carried out in 2003). The PRSP had envisaged reaching the 2003 level of the current income Gini only by 2015. ### Selected comparative indicators and milestones (high-level synthesis) - The report notes that: - The actual indicator of GDP per capita in 2003 corresponds to the PRSP 2004 target. - The actual indicator of GDP per capita in 2004 corresponds with the PRSP 2006 target indicator. - The 42.9% indicator for the poor was envisaged for 2005. - The 7.4% indicator for the extremely poor was envisaged for 2013; the 7.4% outcome in 2003 indicates a remarkable reduction among the extremely poor. - The report records that almost all targets of the main indicators projected by PRSP for 2003 were significantly bettered, mainly because economic growth exceeded projections. ### Household income and expenditure dynamics (1999–2003) — selected exact figures from Table 2 - Annual average incomes of population (household survey data), thousand drams per capita: - 1999: 95.1 - 2001: 134.6 - 2002: 117.4 - 2003: 159.9 - 2003 % 1999: 168.1 - 2003 % 2001: 118.8 - Annual average incomes of population (NSS macroeconomic data), thousand drams per capita: - 1999: 195.7 - 2001: 234.6 - 2002: 265.8 - 2003: 362.2 - 2003 % 1999: 185.0 - 2003 % 2001: 154.3 - Annual average incomes of population (household surveys), % of corresponding NSS macroeconomic indicator: - 1999: 48.6 - 2001: 57.4 - 2002: 44.1 - 2003: 44.2 - Annual average expenditures of population (household survey data), thousand drams per capita: - 1999: 140.4 - 2001: 143.4 - 2002: 143.8 - 2003: 172.8 - 2003 % 1999: 123.0 - 2003 % 2001: 120.5 - Annual average expenditures of population (NSS macroeconomic data), thousand drams per capita: - 1999: 197.2 - 2001: 233.1 - 2002: 257.9 - 2003: 360.7 - 2003 % 1999: 182.9 - 2003 % 2001: 154.7 - Annual average expenditures of population (household surveys), % of corresponding NSS macroeconomic indicator: - 1999: 71.2 - 2001: 61.5 - 2002: 55.8 - 2003: 47.9 - Annual incomes by quintile (household survey data), thousand drams per capita (selected): - Poorest quantile: 1999: 14.1; 2001: 27.4; 2002: 26.4; 2003: 37.0; 2003 % 1999: 262.4; 2003 % 2001: 135.0 - Richest quantile: 1999: 423.5; 2001: 474.2; 2002: 385.5; 2003: 492.3; 2003 % 1999: 116.2; 2003 % 2001: 103.8 - Annual expenditures by quintile (household survey data), thousand drams per capita (selected): - Poorest quantile: 1999: 50.1; 2001: 51.8; 2002: 53.6; 2003: 72.5; 2003 % 1999: 144.7; 2003 % 2001: 140.0 - Richest quantile: 1999: 340.0; 2001: 347.3; 2002: 339.3; 2003: 389.4; 2003 % 1999: 114.5; 2003 % 2001: 112.1 ### Key issues identified and next steps - Despite overall favorable trends, issues requiring further action include differences in regional development and the well-being of socially vulnerable groups. - The government intends to make adjustments to future programs to address these issues. - Development and introduction of a PRSP monitoring and evaluation system is a critical priority; the government took steps over the last year toward this end and summarizes the results in the report. - Based on first-year PRSP implementation and possible new medium-term trends, there is a need to revise and adjust the main target indicators of the PRSP; the report presents the government’s considerations and future intentions on these adjustments. *Source: _cr05175 - Preface ................................................................................................................* ### 15. Such a change in the Gini coefficients in 2002-2003 was conditioned by three factors: ### _cr05175 - 15. Such a change in the Gini coefficients in 2002-2003 was conditioned by three factors: ### Factors behind the 2002-2003 change in Gini coefficients - Three conditioning factors: - A higher growth of the income of the poor. - An inadequate coverage of the income of the non-poor in recent integrated surveys of the living conditions of households (see Table 2). - A halving of the income inequality from the sale of agricultural products (see Table 3). ### Income and expenditure growth by population quantiles (household survey findings) - 1999-2003: incomes and expenditures of the poorest quantile grew most rapidly; the richest quantile had almost no increase in incomes in 2001-2003 and the lowest growth of spending among five quantiles. - In 2002-2003, main factor in reduction of inequality: unprecedented reduction of income from the sale of agricultural products. - Average income from sale of agricultural products in 2003: 1691 drams per month. - Average income from sale of agricultural products in 2001: 1754 drams per month. ### Income concentration — Gini coefficients by income type (Table 3) - Gini coefficient for current income: - 1999-2001: 0.593 - 2002-2003: 0.535 0.451 0.438 - Gini coefficient for labor income: - 1999-2001: 0.529 0.422 - 2002-2003: 0.451 0.470 - Gini coefficient for social transfers: - 1999-2001: 0.119 0.108 - 2002-2003: 0.097 0.11 - Gini coefficient for incomes from sale of agricultural products: - 1999-2001: 0.737 0.731 - 2002-2003: 0.418 0.399 - Gini coefficient for domestic and foreign transfers: - 1999-2001: 0.718 0.734 - 2002-2003: 0.749 0.732 - Gini coefficient for other incomes (including property income): - 1999-2001: 0.476 0.578 - 2002-2003: 0.547 0.547 ### Structure of income (% of total) (from Table 3) - Total: 100 100 100 100 - Labor income: - 1999-2001: 35.19 42.33 - 2002-2003: 53.21 55.2 - Social Transfers: - 1999-2001: 9.33 9.61 - 2002-2003: 11.53 9.91 - Income from sale of agricultural products: - 1999-2001: 32.11 15.64 - 2002-2003: 6.41 2.69 - Transfers: - 1999-2001: 19.32 18.55 - 2002-2003: 18.71 5.86 - Other incomes (including property income): - 1999-2001: 4.05 13.87 - 2002-2003: 10.16 6.34 ### Analysis of income types and distributional changes - Labor income inequality: - Increased in 2003 relative to 2001. - Labor income share rose substantially compared with other income types. - In 2003, labor income exceeded half of total income in almost all quantiles except the poorest 20% (labor income = 30.6% of total income for poorest 20%). - Sharp increase in labor income concentrated in the highest income group (10th decile): - 2003 monthly labor income for richest decile: 28.7 thousand drams. - Total income for richest decile in 2003: 58.0 thousand drams vs. 56.5 thousand drams in 2001. - Social transfers: - Inequality and share in total income: no significant changes. - Absolute social transfers increased in all income groups except the poorest (1st decile) and wealthiest (10th decile). - Transfers and other incomes: - Inequality did not undergo significant changes, though their share in total income decreased. ### Household survey vs NSS statistics and income levels (Table 4 highlights) - Average monthly per capita income, dram: - 1999: 7929 - 2001: 11217 - 2002: 9781 - 2003: 13324 168.0 (note: values presented in source table) - Including labor income (average monthly per capita): - 1999: 2790 - 2001: 4748 - 2002: 5204 - 2003: 7355 263.6 - Average monthly per capita income for poorest quantile, dram: - 1999: 1178 - 2001: 12286 - 2002: 2197 - 2003: 3086 262.0 - (Source table contains further detailed quantile figures including labor income and social transfers by quantile.) ### Poverty reduction drivers and PRSP implications - Main factors of poverty reduction identified for 2002-2003: - Progressive growth of labor income for the poor through economic growth. - Increase in social transfers aligned with PRSP social policies. - 2002-2003: progressive growth of labor income and reduced poverty occurred within stabilizing employment conditions. - Labor income growth: - 1999-2003: labor income for all five quantiles grew faster than average income according to income statistics (185%). - 2004 preliminary: second quarter monthly labor income = 8682 drams, an increase of 18% compared with corresponding indicators for 2003. ### Employment and sectoral shifts - Employed population (NSS data): - 2001: 1089.4 thousand - 2002: 1106.4 thousand - 2003: 1111.6 thousand - First quarter 2004 employed: 1111.9 thousand (increase of 0.5% compared with 2002). - Structural shifts: - Reforms in public administration, education, health: incomes rose while employment fell in those sectors. - Privatization of electricity distribution: employment in energy sector reduced. - Significant employment increases in construction and trade. - 2002-2003 economic growth created sufficient jobs to absorb workforce from non-competitive sectors; other jobs were cut through reforms. ### 2004 outcomes and PRSP target implications - 2004 results (reported): - 10.1% y-o-y economic growth. - Progressive growth of population income. - Further stabilization of employment. - Conclusion: PRSP target indicators of poverty and inequality reduction were already exceeded in 2004; main target indicators to be revised during the first PRSP update by the end of 2005. ### Urban-rural and regional poverty patterns (Table 5 and Table 6 highlights) - Urban vs rural: - 1999-2003: poverty reduced in both urban and rural areas. - Second quarter 2004 income gap between rural and urban increased to 51.4%. - Preliminary 2004 household survey incomes (second quarter): - Urban population per capita income: 22.7 thousand drams. - Rural population per capita income: 11.7 thousand drams. - Table 5 selected figures: - Population below the poverty line, %: - 1999: 55.1 - 2001: 50.9 - 2002: 49.7 - 2003: 42.9 - 2003/1999, %: 77.9 - 2003/2001, %: 84.3 - Urban population below the poverty line, %: - 1999: 58.3 - 2003: 39.7 - 2003/1999, %: 68.1 - 2003/2001, %: 76.5 - Yerevan below the poverty line, %: - 1999: 55.2 - 2003: 43.8 - 2003/1999, %: 29.6 - 2003/2001, %: 63.4 - Rural population average monthly incomes, drams: - 1999: 8636 - 2001: 11843 - 2002: 7027 - 2003: 9960 115.3 84.1 - Urban population average monthly incomes, drams: - 1999: 7397 - 2001: 10913 - 2002: 11656 - 2003: 15647 211.5 143.4 - Average income of rural population as % of average income of urban population: - 1999: 116.8 - 2001: 108.5 - 2002: 60.3 - 2003: 63.7 - Poverty line, dram/month: - 1999: 11735 - 2001: 12019 - 2002: 12261 - 2003: 12629 107.6 105.0 - Regional outcomes (Table 6, 2001-2003): - Shirak: share below poverty line: 2001: 57.8; 2002: 73.6; 2003: 72.2; 2003/2001, %: 124.9 (rank by poverty level: 4, 1, 1). - Gegharkunik: 2001: 62.2; 2002: 47.2; 2003: 59.9; 2003/2001, %: 96.3 (rank 1, 6, 2). - Aragatsotn: 2001: 60.3; 2002: 72.1; 2003: 57.0; 2003/2001, %: 94.5 (rank 2, 2, 3). - Kotayk: 2001: 50.5; 2002: 55.9; 2003: 52.5; 2003/2001, %: 104.0 (rank 8, 3, 4). - Armavir: 2001: 53.7; 2002: 51.6; 2003: 48.3; 2003/2001, %: 89.9 (rank 6, 5, 5). - Vayots Dzor: 2001: 51.1; 2002: 53.2; 2003: 42.9; 2003/2001, %: 83.9 (rank 7, 4, 6). - Ararat: 2001: 44.7; 2002: 45.4; 2003: 42.8; 2003/2001, %: 95.7 (rank 10, 7, 7). - Syunik: 2001: - ; 2002: 32.7; 2003: 34.6; 2003/2001, %: 105.8 (rank -, 11, 8). - Lori: 2001: 54.2; 2002: 44.6; 2003: 34.0; 2003/2001, %: 62.7 (rank 5, 8, 9). - Tavush: 2001: 59.7; 2002: 42.2; 2003: 30.7; 2003/2001, %: 51.4 (rank 3, 10, 10). - Yerevan: 2001: 46.7; 2002: 43.8; 2003: 29.6; 2003/2001, %: 63.4 (rank 9, 9, 11). - Government response: - PRSP update (2005) will envisage relevant regional policy measures to accelerate development in poorest regions. ### Poverty among socially vulnerable groups (Table 7 highlights) - Overall: despite reductions, more than 40% of population remains poor. - Single pensioners: - Monthly consumption expenditure: - 1999: 13573 - 2001: 14182 - 2002: 14818 - 2003: 19275 142.0 135.9 - Poverty level: - 1999: 46.6 - 2001: 30.8 - 2002: 29.2 - 2003: 18.7 40.1 60.7 - Average monthly pension in 2003: 7452 drams. - Pension change: 2003 vs 2001 represents increase of 62.9%. - 2004 estimated average monthly pension: 8200 dram (increase of 28% compared with 2003). - Households headed by an unemployed person: - Monthly consumption expenditure: - 1999: 9791 - 2001: 9321 - 2002: 10826 - 2003: 13035 133.1 139.8 - Poverty level: - 1999: 66.5 - 2001: 60.1 - 2002: 57.8 - 2003: 48.9 73.5 81.4 - Households with six or more members: - Monthly consumption expenditure: - 1999: 9241 - 2001: 9572 - 2002: 9401 - 2003: 11298 122.2 118.0 - Poverty level: - 1999: 66.4 - 2001: 64.7 - 2002: 61.6 - 2003: 57.0 85.8 88.1 - Households with three or more children (0-14 years): - Monthly consumption expenditure: - 1999: 10367 - 2001: 9383 - 2002: 10829 - 2003: 10724 103.4 114.3 - Poverty level: - 1999: 62.2 - 2001: 65.3 - 2002: 67.4 - 2003: 66.1 106.3 101.2 - Households with pensioners: - Monthly consumption expenditure: - 1999: 10846 - 2001: 10785 - 2002: 11126 - 2003: 12969 119.6 120.3 - Poverty level: - 1999: 61.1 - 2001: 56.8 - 2002: 51.6 - 2003: 46.8 76.6 82.4 - Households headed by a woman: - Monthly consumption expenditure: - 1999: 11109 - 2001: 11278 - 2002: 11970 - 2003: 14416 129.8 127.8 - Poverty level: - 1999: 58.9 - 2001: 55.1 - 2002: 51.4 - 2003: 43.3 73.5 78.5 - Households with children aged five or under: - Monthly consumption expenditure: - 1999: 9962 - 2001: 10595 - 2002: 10266 - 2003: 12966 130.2 122.4 - Poverty level: - 1999: 60.0 - 2001: 58.5 - 2002: 58.1 - 2003: 53.9 89.8 92.1 - Country average: - Monthly consumption expenditure: - 1999: 11705 - 2001: 11949 - 2002: 11983 - 2003: 14404 123.1 120.5 - Poverty level: - 1999: 55.1 - 2001: 50.9 - 2002: 49.7 - 2003: 42.9 77.9 84.3 *Source: National Statistical Service; 1998/99, 2001, 2002 and 2003 household surveys.* ### 42. Table 7 indicates that except for single pensioners, whose poverty rate is significantly lower tha ### _cr05175 - 42. Table 7 indicates that except for single pensioners, whose poverty rate is significantly lower tha ### Poverty findings and vulnerable groups - Except for single pensioners (whose poverty rate is significantly lower than the average for the country) and households with three or more children (whose poverty rate in 2003 increased and now comprises 154% of the country average poverty level), all remaining socially vulnerable groups fall into two categories: those whose poverty rate has decreased relative to the average, and those whose rate has increased. - Group with reduced vulnerability (2003 vs earlier years): - Households headed by an unemployed person: poverty level in 2003 was 14.0% higher than the average – as opposed to 20.7% in 1999, and 18% in 2001. - Households headed by a woman: poverty level in 2003 was 0.9% above the average – as opposed to 6.9% in 1999, and 8.3% in 2001. - Households with pensioners: poverty level in 2003 was 9% greater than the average – as opposed to 10.9% in 1999, and 11.6% in 2001. - Group with increased relative risk (2003 vs earlier years): - Households with six or more members: poverty rate in 2003 was 32.9% above the average – as opposed to 20.5% in 1999, and 27.1% in 2001. - Households with children aged five or under: poverty rate in 2003 was 25.6% above the average – as opposed to 8.9% in 1999, and 14.9% in 2001. - Despite absolute risk reductions (households with six or more members reduced by 18% in 2001-2003; households with children aged five or under reduced by 22.3%), their relative risk of poverty increased. - Children continue to be the most vulnerable group in the population (observed in 1999, 2001, and 2003). ### Policy recommendations: family benefit reforms - Major direction: incrementally shift the family allowance system to families with children and big households (i.e., to poor families in the broad sense), taking into account trends of reduction of extreme poverty which is most likely to continue in the coming years. - Based on household survey results for 2004: - Lower the need threshold of the family poverty benefit (note: current threshold referenced is 35 points, as compared with 36 points in 2003). - Increase the amount of additional payments per child in eligible families. - Rationale note: The present 7.4% level of the extremely poor makes it possible to integrate more poor families in the family benefits system. Assuming that 100% of such families receive a family benefit, in 2003, more than half of the benefit-receiving families will comprise poor families: those whose income is above the food poverty line. ### Macroeconomic framework and main 2004 developments - GDP growth: - 2002: 13.2% y-o-y - 2003: 13.9% y-o-y - 2004: 10.1% y-o-y (surpassing PRSP scenario projection of 6%) - Income composition and poverty/inequality impact: - In 2003, 46.9% of household’s per capita average monthly income was generated from hired labor and self-employment, against 40.7% in 2002. - Major factor for exceeding planned poverty and inequality reduction indicators was the increase of income from hired labor and self-employment. - Sectoral contributors to 2004 growth: - Construction: value added increased by 13.4% in 2004; represented around 2.1% of the 10.1% GDP growth in 2004. - Industry: contributed 0.4 percentage points to the GDP’s annual 10.1% growth; value added in industry increased by 2.1% in 2004 as compared with 2003. - Excluding diamond processing, industrial production volumes increased by 7% y-o-y in 2004. - Chemical industry production volumes increased by 54.9%; mining by 8.7%; electricity, gas, and water production and distribution by 9.9%. - Agriculture: value added increased by 14.5% y-o-y in 2004; gross production growth in agricultural farming (except vegetables) +20.1%; cattle breeding +8.0%. - Services: contributed 4.3 percentage points to GDP’s annual 10.1% growth; transport and communication recorded 17.0% y-o-y increase of value added in 2004 (against 8.2% in 2003). Trade and catering sector grew at +15% annually on average over the last three years. ### Structural shifts and GDP per capita - Sector shares (2004): - Construction share increased by 2.7 percentage points to 15.3% (compared with 2002). - Agriculture share decreased by 0.9 percentage points (22.5% in 2004). - Industry share increased by 0.8 percentage points (19.7% in 2004). - Service sector share decreased by 1.3 percentage points (34.1% of GDP in 2004). - GDP per capita (nominal): - 2003: 873 US dollars - 2004: 1104 US dollars - PRSP planned indicator (re-estimated based on de jure population): about 850 US dollars - Difference attributed mainly to higher actual GDP growth and partially lower depreciation of the dram against the US dollar. ### Prices, wages, and exchange rate developments (2004) - Consumer prices: - CPI average annual change: 7.0% - December 2004 vs December 2003: consumer prices increased by 2.0% - Wages and incomes: - Average salary in 2004: 42.0 thousand drams; in real terms (deflated by average CPI) increased by 15.06% y-o-y. - Incomes from hired labor (per capita) compared with 2002 grew by 36.0%. - Incomes from social transfers grew by about 17%. - Exchange rate: - Armenian dram appreciated against the US dollar by 7.8% in 2004 (as opposed to the envisaged 1.8% depreciation), partly due to increased foreign currency and remittance inflows and international depreciation of the US dollar. ### Fiscal sector outcomes (2004) - State budget nominal values (2004): - State budget revenues in 2004: 301.1 bn drams. - State budget expenditures in 2004: 344.7 bn drams. - Nominal growth rates of budget revenues and expenditures were lower than nominal GDP growth rate. - Ratios (2004 actual vs 2003): - Actual total revenues-to-GDP ratio declined by 2.1 percentage points and consisted 15.9%. - Actual total expenditures-to-GDP ratio declined by 1.1 percentage points and consisted 18.2%. - External support and deficit: - Role of external support decreased: 3.1% net of GDP in 2004 compared with 5.9% for 2003. - Overall budget deficit-to-GDP ratio improved from 4.3% in 2001 to about 2.3% in 2004. - Note on tax revenues: High GDP growth was not fully reflected in tax revenues because higher growth was largely in tax-exempted sectors, especially agriculture. Government continues measures to improve tax administration. ### External sector and balance of payments (2004) - Trade and current account: - Exports of goods and services (2004 actual): 30.2% of GDP (2003: 32.2%). - Imports of goods and services (2004 actual): 47.2% of GDP (2003: 50.1%). - Current account balance (2004 actual): -6.0% of GDP (2003: -6.8%). - Exports and imports growth (first 9 months 2004 vs first 9 months 2003): - Exports growth: 5.6% - Imports growth: 6.5% - Planned annual indicators were 9.4% (exports) and 7.4% (imports). - Remittances and transfers: - Compensation of employees (net) increased by 27.9% compared with first 9 months of 2003. - Private transfers grew by 84.5%; in 2003 they amounted to 110.2 mn US dollars (compensation) and 203.4 mn US dollars (private transfers). - Current account and reserves: - Current account deficit for first 9 months of 2004: 137.3 mn US dollars (or 6.0% of GDP), an improvement of 2.4 percentage points compared with the previous year. - Gross foreign reserves by end of ninth months of 2004: 484 mn US dollars (equivalent to 5.3 months of imports of goods and services). - Gross foreign reserves decreased by 18 mn US dollars compared to December 2003 (at the actual exchange rate). - Public external debt: - 2003: Public external debt 39.1% of GDP; current value of debt-to-GDP ratio 26.1%. - 2004: Public external debt 33.3% of GDP; current value of debt-to-GDP ratio 20% (improvement due in part to a debt-equity swap with the Russian Federation). ### Key numeric indicators (as reported) - Poverty and vulnerability figures: - Households with three or more children: 154% of country average poverty level (2003). - Households headed by an unemployed person: 14.0% above average (2003); 20.7% (1999); 18% (2001). - Households headed by a woman: 0.9% above average (2003); 6.9% (1999); 8.3% (2001). - Households with pensioners: 9% above average (2003); 10.9% (1999); 11.6% (2001). - Households with six or more members: 32.9% above average (2003); 20.5% (1999); 27.1% (2001). - Households with children aged five or under: 25.6% above average (2003); 8.9% (1999); 14.9% (2001). - Absolute risk reductions: 18% (households with six or more members, 2001-2003); 22.3% (households with children aged five or under, 2001-2003). - Extremely poor level: 7.4%. - Macroeconomic and sectoral figures: - Real GDP year-on-year % change: 2003 = 13.9; PRSP = 6.0; 2004 Actual = 10.1. - Gross domestic product, billion drams: 2003 = 1,623; PRSP = 1,609; 2004 Actual = 1,893. - Gross domestic product, million US dollars: 2003 = 2,805; PRSP = 2,731; 2004 Actual = 3,549. - GDP per capita, US dollars: 2003 = 873; PRSP = 850; 2004 Actual = 1104. - Consumer price index (period average), year-on-year % change: 2003 = 4.7; PRSP = 3.0; 2004 Actual = 7.0. - Nominal exchange rate (period average), dram/US dollar: 2003 = 578.8; PRSP = 589.3; 2004 Actual = 533.5. - Value added by main sector year-on-year % change (Industry, Agriculture, Construction, Transport and communications, Trade, Other sectors): - Industry: 2003 = 15.4; PRSP = 8.0; 2004 Actual = 2.1. - Agriculture: 2003 = 4.3; PRSP = 2.8; 2004 Actual = 14.5. - Construction: 2003 = 44.4; PRSP = 0.4; 2004 Actual = 13.4. - Transport and communications: 2003 = 8.2; PRSP = 6.0; 2004 Actual = 17.0. - Trade: 2003 = 14.5; PRSP = 11.4; 2004 Actual = 10.5. - Other sectors: 2003 = 7.6; PRSP = 6.8; 2004 Actual = 12.2. - Final consumption (in % of GDP): 2003 = 94.3; PRSP = 94.6; 2004 Actual = 97.7. - Of which private: 2003 = 84.1; PRSP = 82.9; 2004 Actual = 86.1. - Gross capital formation (in % of GDP): 2003 = 24.7; PRSP = 20.6; 2004 Actual = 23.7. - Consolidated Budget (on a commitment basis) in % of GDP (2003, PRSP): - Total revenues and grants: 21.5; PRSP = 21.5. - Of which tax revenues: 17.2; PRSP = 18.8. - Grants: 3.2; PRSP = 2.1. - Total expenditure and net lending: 22.4; PRSP = 24.1. - Of which current expenditure: 16.7; PRSP = 18.3. - Capital expenditure: 5.2; PRSP = 5.4. - Overall balance: -0.9; PRSP = -2.6. - External sector (in % of GDP): - Exports of goods and services: 2003 = 32.2; PRSP = 30.7; 2004 Actual = 30.2. - Imports of goods and services: 2003 = 50.1; PRSP = 46; 2004 Actual = 47.2. - Current account balance: 2003 = -6.8; PRSP = -5.8; 2004 Actual = -6.0. - Public external debt: 2003 = 39.1; PRSP = 40.4; 2004 Actual = 33.3. - Gross foreign reserves (end of period), in months of imports: 2003 = 4.3; PRSP = 4.6; 2004 Actual = 5.3. - Other specific numeric notes: - In 2004, average salary: 42.0 thousand drams; real increase 15.06% y-o-y. - Compensation of employees and private transfers in 2003: 110.2 and 203.4 mn US dollars respectively. - Current account deficit for first 9 months of 2004: 137.3 mn US dollars (6.0% of GDP). - Gross foreign reserves at end of ninth months of 2004: 484 mn US dollars (5.3 months of imports). - External debt current value to GDP ratio in 2004: 20%; in 2003: 26.1%. - State budget 2004 nominal values: revenues 301.1 bn drams; expenditures 344.7 bn drams. *Source: National Statistical Service, Central Bank of Armenia, Ministry of Finance and Economy and PRSP projections.* ### 61. In the sphere of education, the PRSP’s major goals are to insure the availability of education a ### _cr05175 - 61. In the sphere of education, the PRSP’s major goals are to insure the availability of education a ### Education — overall objectives and spending trends - PRSP major goals in education: to insure the availability of education and to increase the quality of general education. - Government policy: assumed increase of government spending directed towards education to meet PRSP objectives. - Actual consolidated budget expenditures on education: - 2003 actual: 35.1 bn drams (increase of 19% compared with 2002). - 2004 allocations exceed 2003 actual indicator by 40%. - 2005 budget exceeds 2004 budget indicator by 26%. - Distribution of 2004 planned growth: 36 percentage points (of the planned 40% growth in 2004) directed towards general education. - June 2004 budget revision: additional 7 bn drams allotted to education, overwhelmingly directed to capital expenditures to improve school building conditions in the general education network. - Effect of reallocations: a section of consolidated budget expenditures targeted for education was enlarged and within education the allocation for general education increased; this caused inter- and inner-shifts of budget structure vis-à-vis PRSP plans. - Anticipation: with higher-than-planned GDP growth for the year, the expenditures-GDP correlation target defined by PRSP for education is expected to be optimally close. - Table 9 key figures (2003–2004): - Total, billion drams: 35.2 (PRSP 2003) 42.8 (PRSP 2004) — Actual 35.4 (2003) 51.9 (2004 preliminary) - in % of GDP: 2.4 (PRSP 2003) 2.7 (PRSP 2004) — Actual 2.2 (2003) 2.7 (2004 preliminary) - in % of consolidated budget total expenditure: 9.4 (PRSP 2003) 11.0 (PRSP 2004) — Actual 9.7 (2003) 12.7 (2004 preliminary) - year-on-year % change: 18.3 (PRSP 2003) 21.6 (PRSP 2004) — Actual 19.1 (2003) 46.6 (2004 preliminary) - Primary/basic/secondary education, billion drams: 23.0 (PRSP 2003) 30.2 (PRSP 2004) — Actual 23.2 (2003) 34.7 (2004 preliminary) - in % of GDP (primary/basic/secondary): 1.6 (PRSP 2003) 1.9 (PRSP 2004) — Actual 1.4 (2003) 1.8 (2004 preliminary) - in % of consolidated budget total expenditures on education: 65.4 (PRSP 2003) 70.5 (PRSP 2004) — Actual 65.5 (2003) 66.9 (2004 preliminary) - year-on-year % change (primary/basic/secondary): 23.2 (PRSP 2003) 31.0 (PRSP 2004) — Actual 23.4 (2003) 49.6 (2004 preliminary) - Data sources: National Statistical Service, Ministry of Finance and Economy, and PRSP projections. ### Teacher salaries, labor policy, and productivity measures - Government view: increasing teacher and administrative personnel salaries in general education is an important prerequisite to raise quality. - Salary changes: - 2004 budget: average monthly salary for a full-time teacher set at 30.6 thousand drams — exceeding the previous year’s figure by about 70%. - Teacher average salary and planned GDP per capita correlation: 0.7. - 2005 budget plan: average monthly salary of a teacher planned to be 50.5 thousand drams; planned to be equal to the GDP per capita rate. - Teacher relocation and incentives: - New regulations adopted concerning relocation of teachers to remote, frontier, and mountainous areas. - During 2004, 149 teachers were relocated. - Productivity and institutional autonomy: - 2003: every school redefined as a state non-commercial legal entity under decentralization and increased institutional autonomy. - By 2005: planned completion of financing schools on a per pupil basis (except for government-approved listed schools). - Measures taken: establish number of teachers, increase teacher workloads, optimize school network. - Redundancy support program: Ministry of Education and Science with Center for Education Projects and Ministry of Labor and Social Affairs implemented a support program; 50 million drams allocated from World Bank credit funds for this end. - Productivity indicators (2003 vs 2004): - Pupil/teacher ratio in general schools: 11 (2003) → 13.1 (2004). - Average class size: 21 (2003) → 22.2 (2004). ### School infrastructure, heating, and capital investment - Priority: solve building facilities and heating problems to ensure uninterrupted education and raise attendance. - 2004 state budget outcomes: - 25 school buildings constructed and 187 schools fundamentally renovated via state budget. - With Armenian Social Investment Fund support: 16 school buildings constructed and 148 schools totally renovated. - Heating measures: - Since 2003, quantity of fuel for heating and duration of heating season increased differentially according to topological and climatic conditions. - Government intends to extend heating system network of local schools with state budget expenditures. - International credits and grants considered important for these investments. ### Curriculum, teacher training, ICT, and external assistance - Quality and uniformity measures: - 28,000 teachers incorporated in training sessions in 2004. - “General Education State Standards” designed and the Assessment and Testing Center created to modernize curriculum and assessment. - World Bank “Education Quality and Relevance” credit (2004) envisages: - modernize content of general education; - introduce contemporary assessment of educational process and learner’s knowledge; - expand introduction of Information Communication Technologies; - encourage teacher training and professional development. ### Preschool and vocational education developments - Preschool: - “Program on Elaboration and Piloting of the Pre-school Educational program” adopted; program elaboration started. - First-stage pilot involved 180 children in additional pre-school services. - Pilot in Gegharkunik marz with UNICEF support decided to be expanded. - 2004 training organized for 65 head masters of pre-schools and 320 teachers. - Copy-books and methodological manuals for 6-year-old children published. - Vocational education: - Training for 50 teachers in vocational education institutions realized in 2004. - Educational standards elaborated for 6 health care sector specializations in vocational education sphere. - RA Law on “Higher and Post-graduate Eduaction” has been adopted. ### Health care — objectives and expenditure trends - PRSP main health objective: improve availability and quality of health services by focusing on primary unit and mitigating regional imbalances; increase public expenditures and improve management and efficiency. - Public expenditures in health care: - 2003 actual: 19.6 billion drams — exceeded 2002 by 23%. - 2004 State Budget provided for an increase in allocations to health care up to 25 billion drams (a nominal 28% increase compared with 2003 actual). - Government notes some deviations in expenditure-to-GDP ratio reflecting higher-than-planned actual economic growth in 2003 and 2004. - Government intends to follow PRSP scenario in medium term, expressed in MTEF 2005-2007. - Table 10 key figures (2003–2004): - Total, billion drams: 21.0 (PRSP 2003) 24.9 (PRSP 2004) — Actual 19.6 (2003) 24.7 (2004 preliminary) - in % of GDP: 1.4 (PRSP 2003) 1.5 (PRSP 2004) — Actual 1.2 (2003) 1.3 (2004 preliminary) - in % of state budget total expenditures: 6.5 (PRSP 2003) 7.6 (PRSP 2004) — Actual 6.3 (2003) 6.0 (2004 preliminary) - year-on-year % change: 31.2 (PRSP 2003) 18.6 (PRSP 2004) — Actual 22.8 (2003) 26.0 (2004 preliminary) - Source for figures: National Statistical Service, Ministry of Finance and Economy, and PRSP projections. - Household survey health indicators (2003 vs 2002): - Frequency of patient visits to health institutions increased by 8 percentage points compared with 2002 to 40% in 2003. - Average medical care expenditure per family member decreased from 119 drams (2002) to 85 drams (2003) — may infer reduction of unofficial expenditures. ### Primary care, equipment, and regional balance - Primary care emphasis: - PRSP/MTEF aim to increase share of public spending on primary unit to around 35% (1.7 percentage points higher than 2003) and foresee 40% in 2006; MTEF 2005-2007 indicates around 42 percent for 2006. - Government adopted “2003-2008 Strategy for Primary Health Care of the Population of the Republic of Armenia” to introduce family medicine and improve availability. - 2004 allocation to ambulatory/pilot projects: 8.7 billion drams from state budget — exceeding 2003 by 2.2 billion drams. - Price of outpatient medical center visits: 450 dram (2003) → 823 dram (2004). - 2005 financing increases envisaged to exceed 2004 indicators by 28%. - Hospital and diagnostic investments: - Large-scale renovation and reequipment realized in 80% of medical centers/hospitals. - In 2004, medical equipment purchased at total price of 1 billion dram from health care sector budget. - Contracts concluded with regional polyclinics to provide costly diagnostic services. - Rural emergency services: - About 82 rural ambulance stations assigned; provided with ambulances through World Bank-financed credit program; service emergency aid calls by state mandate. ### Maternal/child health and disease control programs - Maternal and child health PRSP priorities aim to meet Millennium Declaration objectives. - Government approved “2003-2015 Strategy for Maternal and Children's Health Care” in 2003, defining objectives including reducing maternal and child mortality, reducing number of under-weight neonates, ensuring a 95% (or higher) vaccination rate, and improving exclusive breastfeeding indicators. - Positive trends observed in maternal and children's mortality; statistical registration issues to be resolved jointly by Ministry of Health, Ministry of Justice, and National Statistical Service. - Obstetric/gynecologic care expenditures: - 2004 budget expenditures in obstetric and gynecologic care exceed previous year by 20 percent. - Planned individual delivery expenses: 44.0 thousand drams (2004 plan) compared with 36.0 thousand drams (previous year). - Donor organizations and governments provide sizable input to these projects. - Disease control programs: - “National Program to Fight Tuberculosis” approved in 2003 for prevention, detection, and treatment; provision for anti-tuberculosis drugs. - Malaria cases decreasing annually but additional efforts required for complete elimination. - “Program for AIDS/HIV Prevention” implemented via improved knowledge, preventive work among risk groups, information center, and voluntary units for consultation and examination. ### Health system management and efficiency reforms - Reform objectives: improve management and efficiency across primary and hospital units; transfer load from expensive hospital unit to less expensive primary unit; concentrate scarce resources on a minimum number of hospitals. - Consolidation and optimization: - 2004: state mandate placed in a selected number of multi-profile hospitals per Ministry of Health criteria. - Focus on enlarging institutions through mergers, especially in Yerevan. - 2003 optimization in Yerevan: nine consolidated units created through merger of 34 health care institutions — based on locale and medical services criteria to improve efficiency and utilization of capacities and staff potential. *PRSP PROGRESS REPORT (excerpts).* ### 81. In the result of target policy implementation in the health care sector the number of appliance o ### _cr05175 - 81. In the result of target policy implementation in the health care sector the number of appliance o ### Health care access and utilization - Number of patients registered in hospitals per 100 people: - 2001: 4.9 - 2002: 6.1 - 2003: 6.9 - 2004 (preliminary data): 6.9 - Number of visits to outpatient medical centers (average visits per resident): - 2001: 1.8 - 2002: 1.9 - 2003: 2.0 - 2004 (preliminary data): 2.1 - Ongoing problems: early diagnosis, detection of illnesses, and prevention of spread of illnesses; forthcoming activities will be directed toward these problems. - UN Population Fund contribution: maternity institutions in Armavir and Spitak provided with mobile reanimation units for emergency obstetric assistance; services to be made available primarily in remote areas. ### Social protection system — overview and spending - Social policy priorities: reduce inequality and material poverty via improved targeting in family benefit system; provide targeted/high-quality social services to disabled, orphans, refugees, homeless. - Social insurance policy aims: improve system efficiency; raise pensions (differentiated by length of service); introduce individual registration; ensure transition to a pension system based on amount of insurance payments. - Table 11 (Consolidated budget expenditures on social security and social insurance in 2003-2004): - Total, billion drams: - PRSP 2003: 71.48 - Actual 2003: 82.6 - PRSP 2004: 73.01 - Preliminary 2004: 101.0 - in % of GDP: - PRSP 2003: 4.8 - Actual 2003: 5.1 - PRSP 2004: 4.5 - Preliminary 2004: 5.3 - in % of consolidated budget total expenditures: - PRSP 2003: 19.0 - Actual 2003: 21.3 - PRSP 2004: 20.1 - Preliminary 2004: 24.7 - year-on-year % change: - PRSP 2003: 18.4 - Actual 2003: 15.8 - PRSP 2004: 19.7 - Preliminary 2004: 38.4 - State Budget, billion drams: - PRSP 2003: 30.53 - Actual 2003: 36.1 - PRSP 2004: 29.33 - Preliminary 2004: 35.7 - State Budget in % of GDP: - PRSP 2003: 2.1 - Actual 2003: 2.2 - PRSP 2004: 1.8 - Preliminary 2004: 1.9 - State Budget in % of total expenditures in the sector: - PRSP 2003: 42.8 - Actual 2003: 43.7 - PRSP 2004: 40.2 - Preliminary 2004: 35.3 - State Budget year-on-year % change: - PRSP 2003: 29.6 - Actual 2003: 18.2 - PRSP 2004: 23.0 - Preliminary 2004: 21.8 - State Social Insurance Fund, billion drams: - PRSP 2003: 40.84 - Actual 2003: 46.5 - PRSP 2004: 43.26 - Preliminary 2004: 64.7 - State Social Insurance Fund in % of GDP: - PRSP 2003: 2.8 - Actual 2003: 2.9 - PRSP 2004: 2.7 - Preliminary 2004: 3.4 - State Social Insurance Fund in % of total expenditures in the sector: - PRSP 2003: 57.2 - Actual 2003: 56.3 - PRSP 2004: 59.2 - Preliminary 2004: 64.1 - State Social Insurance Fund year-on-year % change: - PRSP 2003: 11.1 - Actual 2003: 13.9 - PRSP 2004: 17.6 - Preliminary 2004: 49.8 - Notes: - Expenditures of the State Social Insurance Fund on system maintenance and development are excluded. - Actual outcomes for 2003 include 409 million drams spent from local budgets; assumed 2004 indicator consistent with 2003 level. - Policy and budgetary adjustments: - Allocations to the sector from the 2004 consolidated budget: 88.3 billion drams (21% higher than 2003). - 2004 budget provisions for the sector are almost 6 billion drams above the PRSP indicator due to higher planned pension expenditures and separate social insurance programs. - Despite higher nominal allocations, PRSP targets for social security and social insurance expenditures to GDP will most probably not be achieved because economic growth has been higher than expected. - Government intends medium-term adjustments to allocation quotas for social protection guided by PRSP priorities and targets. ### Family benefits - 2003 expenditures in family benefits: 12.4 billion drams (0.8% of GDP), or 17% of public spending in the sector. - Table 12 (Public expenditures on family benefits in 2003-2004): - Family benefits, billion drams: - PRSP 2003: 12.7 - Actual 2003: 16.1 - PRSP 2004: 12.4 - Preliminary 2004: 16.1 - in % of GDP: - PRSP 2003: 0.9 - Actual 2003: 1.0 - PRSP 2004: 0.8 - Preliminary 2004: 0.9 - in % of consolidated budget total expenditures: - PRSP 2003: 3.4 - Actual 2003: 4.1 - PRSP 2004: 3.4 - Preliminary 2004: 4.1 - in % of consolidated budget expenditures on social security and social insurance: - PRSP 2003: 17.9 - Actual 2003: 19.5 - PRSP 2004: 16.9 - Preliminary 2004: 16.4 - year-on-year % change: - PRSP 2003: 5.5 - Actual 2003: 26.3 - PRSP 2004: 2.2 - Preliminary 2004: 33.9 - System improvements and parameters: - Family benefits are an efficient instrument for poverty reduction; benefits play a vital role for the lowest quantile. - Since January 2004, base amount of family benefit set at 4500 drams (increase of 500 drams over previous year). - Allowances to minors in families with vulnerability unit between 35.01 and 38.00: 2500 drams. - Allowances to minors in families with vulnerability unit of 38.01 or more: 3000 drams. - Previous (2003) allowance to minors: 2000 drams (no differentiation). - Resources for one-off pecuniary aid reduced from 5% to 3% of total state budget allocations set aside for this purpose; with same number of beneficiary families, these changes will result in an almost 30% increase in benefits compared with 2003. - One-off benefit for childbirth since October 2003: 35 000 drams (previously 5900 drams). - Planned 2005 changes: - Change family benefit scoring system: reduce minimum score from 35 to 34. - Set base family benefit size at 6000 dram (instead of 4500 in 2004). - Allowances for children up to age 18 to range from 3000-4500 dram, differentiated by family poverty and residence in bordering or highland regions. - One-time childbirth expense benefit for families in family benefit program set to be 70.000 dram. ### Pensions and pension system reforms - 2003 pension expenditures increased by around 25% compared with previous year; amounted to 42.6 billion drams (or 2.6% of GDP). - 2004 budget provides an increase in public expenditures in pensions sector (20% more compared with actual 2003 indicator). - Table 13 (Consolidated budget expenditures on pensions in 2003-2004): - Total, billion drams: - PRSP 2003: 40.64 - Actual 2003: 47.0 - PRSP 2004: 42.6 - Budget 2004: 50.9 - in % of GDP: - PRSP 2003: 2.8 - Actual 2003: 2.9 - PRSP 2004: 2.6 - Budget 2004: 3.0 - in % of consolidated budget total expenditures: - PRSP 2003: 10.8 - Actual 2003: 12.1 - PRSP 2004: 11.7 - Budget 2004: 12.9 - in % of consolidated budget expenditures on social security and social insurance: - PRSP 2003: 56.9 - Actual 2003: 56.8 - PRSP 2004: 58.4 - Budget 2004: 57.6 - year-on-year % change: - PRSP 2003: 18.8 - Actual 2003: 15.6 - PRSP 2004: 24.7 - Budget 2004: 19.6 - Labor pensions (based on payment of contributions), billion drams: - PRSP 2003: 38.64 - Actual 2003: 44.2 - PRSP 2004: 40.6 - Budget 2004: 47.9 - Labor pensions in % of GDP: - PRSP 2003: 2.6 - Actual 2003: 2.7 - PRSP 2004: 2.5 - Budget 2004: 2.8 - Social pensions, billion drams: - PRSP 2003: 2.0 - Actual 2003: 2.7 - PRSP 2004: 2.0 - Budget 2004: 3.0 - Social pensions in % of GDP: - PRSP 2003: 0.1 - Actual 2003: 0.2 - PRSP 2004: 0.1 - Budget 2004: 0.2 - Notes: - Excluding state budget expenditures on pensions of military service pensioners and their family members. - Drivers of pension expenditure increase: - Increased revenues of State Social Insurance Fund from mandatory social insurance payments. - Differentiation between social pensions/non-insurance payments and insurance pensions with subsequent separation of their financing: since 2003 social pensions financed from state budget; since 2004, budgetary financing also provided for supplementary payments related to employment periods and other insured activities. - Changes to insured length of service valuation: - First three quarters of 2003: annual value 100 drams (compared with 80 drams in third quarter of 2002). - Fourth quarter of 2003: raised to 120 drams. - Since October 2004: annual value increased to 160 drams. - Average pension levels: - Average monthly insurance pension in 2003: 7452 drams (about 34% higher than previous year). - In 2003 average monthly insurance pension was almost equal to the extreme poverty line; in 2002 it was 75% of that level. - Average pension size in 2004 set to be 8672 drams (increase of 28% compared with the average pension registered during the previous year). - Poverty impact: - Single pensioners' poverty level in 2003: 18.7 percent (12 percentage points lower than 2001). - Households having pensioners: poverty indicators 2.2 percentage points below 2001 level. - Pension system reforms: - Preparations in progress to introduce individual (personalized) registration system to generate reliable data on wages, deposits for social payments, and insured length of service to link wages, accumulated insurance payments, and future pension amount. ### Protection for vulnerable groups and children - Since 2003 new rules established for providing disabled persons with prosthetic-orthopedic devices to enhance controllability, transparency, and enlarge range of free devices. - Targeting and reallocation measures: - Targeted pecuniary aid for veterans, disabled veterans, and families of those killed in action rather than privileges. - Cancellation of free voucher for sanatorium treatments for the disabled; resources rechanneled to regular and timely pension increases. - Children’s social assistance: - Legislative acts adopted in 2003-2004 to address children deprived of parental care. - Procedure approved to provide a home to children deprived of parental care. - Since 2003, program to provide public assistance to graduates of children’s tutoring institutions (1991-2003 graduates) implemented to insure social protection and integration. - Programs implemented to protect rights and legal interests of children deprived of parental care and to promote upbringing and education in family (or family-like) environments. - 2004 budget provision for graduates program: 335 million drams (compared with 200 million drams for previous year). ### Infrastructure — water management and irrigation - Water management objectives: provide accessible, available, and high-quality services; improve accessibility/availability/quality; enhance targeting of subsidies; promote better management and efficacy of companies; increase accountability. - 2004 state budget provision for water management: around 21.9 billion drams (slightly higher than PRSP provision of 21.6 billion drams). - PRSP provision for subsidizing system’s companies: 4.4 billion drams. - State budget allocation for subsidies: 5.8 billon drams. - PRSP investment programs: 17.2 billion drams. - State budget investment programs: 15.4 billion drams. - Government policy aim: gradual reduction of subsidies until complete termination based on improved financial viability of system’s companies; resources released to be channeled to better-focused social programs. - Access to drinking water (household survey results): - Access to a centralized water supply, %: - 2001: 85.0 - 2002: 89.1 - 2003: 91.0 - Urban population, %: - 2001: 94.2 - 2002: 97.0 - 2003: 97.8 - Rural population, %: - 2001: 64.7 - 2002: 77.0 - 2003: 80.6 - Share of households using transported water, %: - 2001: 6.1 - 2002: 5.2 - 2003: 5.9 - Notes on improvements: - In 2003 availability of water mains for potable water improved by 1.9 percentage points overall, mainly driven by rural improvement of about 3.6 percentage points. - Improvements influenced by investment programs by KfW, IFAD, US Department of Agriculture, and Armenian Social Investment Fund in more than forty rural localities; water supply systems restored or constructed. - Caveat: improved indicator may partially reflect statistical error from survey-based calculation. - Policy for households using transported water: - Around 6% of households still use transported water; government policy aims to compensate additional expenses where constructing a water main is economically inefficient. - Irrigation and water channel projects: - World Bank “Irrigation System Development” project: two stages of gravity irrigation system construction covering 4.5 acres in Vayots Dzor started; total expenditures for each stage estimated at 7.6 and 3.8 million US dollars respectively; envisaged completion of two stages in 2006. - Reconstruction of Armavir main water channel continued during 2004; total expenditures of this enterprise: 2.4 million US dollars. - Reconstruction undertaken for most damaged parts of Armavir, Arzni-Shamiram, Talin Shirak and Vorotan (Vorotan reconstruction already completed). - Plan to reconstruct internal network to be provided to water consumers’ companies with condition of 30% participation of water consumers. *Italic: Source: PRSP PROGRESS REPORT (excerpt).* ### 103. One of the important directions of the investment policy in water management, as identified in the ### One of the important directions of the investment policy in water management, as identified in the ### Water management investments and energy savings - Under the World Bank-financed Irrigation System Development Project, construction of three gravity-flow systems has been undertaken. - The construction of the Ayrum and Aygedzor gravity flow system has already been completed; construction of the system in Vayots Dzor was started in July. - With the operation of these three gravity-flow systems, annual savings of electricity will be around 48 million kilowatt/hours. - This represents about 20% of the electricity consumed in the system. - In potable water consumption, amendments to the “Yerevan Water and Sewer Company” CJSC water provision and distribution schemes reduced electricity consumed during the fourth quarter of 2004 by 25% in comparison with the first quarter consumption data. ### Water management accountability and metering - As of the end of December 2004: - Consumers in the service area of the “Yerevan Water and Sewer Company, CJSC” have installed about 273 thousand individual water meters (about 86.6% of consumers). - In the service area of the “Armenian Water and Sewer Company, CJSC” about 112 thousand individual water meters have been installed. - In the area served by the “Nor Akunq, CJSC”, about 11.8 thousand individual water meters have been installed. ### Water tariffs - Since April 1, 2004, new tariffs were established: - The new tariff for potable water supply for the “Yerevan Water and Sewer Company, CJSC” is 90.2 drams per cubic meter. - The rate for the “Armenian Water and Sewer Company, CJSC” is 100.4 drams/cubic meter. - The four branches of the “Irrigation-Water Catchment, CJSC” have as many as eight tariffs subdivided based on the relevant drainage basin. - Even with these higher rates, tariffs are still below the breakeven point. - Future policies will seek to better harmonize tariffs with operational and maintenance expenses. ### Road construction and maintenance allocations - 2003 actual budgetary expenditure on road construction (excluding loan and grant programs): 2.3 billion drams. - 2004 state budget allocation for road construction: 6.5 billion drams (some 2.8 times more than the 2003 level). - 2004 allocations for fundamental repair or operational maintenance of community-important roads: 540 million drams, or about 8% of the total budgetary expenditures on road construction. - Under the World Bank-financed Transportation Project in 2004, fundamental repair of about 88 kilometers of inter-state roads and roads of national significance was accomplished to the tune of about 4.8 billion drams. ### Energy sector: transmission, substations, and gas distribution - Investment priority: restoration and development of the electricity transmission and regulation grid. - Government actions: - Project started for reconstruction of the “Alaverdi-2” substation, financed by funds saved during reconstruction of the “Vanadzor-2” and “Kamo” substations and from proceeds of the loan provided by the German Bank of Development Credits (KfW) under the Caucasian Initiative. - An international tender has been announced to select the contractor; activities on summing up of the results of the tender are currently in process. - Equipment replacement and partial reconstruction (with World Bank credits) occurred in the following 220 V substations: Shinuhayr, Yeghegnadzor, Ararat-2, Shahumyan-2, Zovuni, Marash, Ashnak, and Lich of the “High Voltage Networks. CJSC”. - Pursuant to agreements between Armenia and the Islamic Republic of Iran, assembly work for the second 220 V overhead transmission line from Agarak to Shinuhayr has been completed; operation of this line will provide better opportunities to implement optimal modes of electricity generation. - Gas distribution network: - The number of customers is now almost 187 thousand (38%). - For 2004 it was planned to provide gas to 117.2 thousand consumers; 121 thousand consumers were supplied with gas, i.e. the project had been exceeded by 3 percent. - Due to the latter, by the end of 2004 it became possible to increase the number of gas consumers making it 257 (Note: text states "which, however, is still rather low as compared with the total number of customers in the past"). - Policy will aim to consistently increase the number of customers to the levels of the past. ### Agriculture: output, poverty, prices, and insurance - Gross agricultural product: - In 2003, compared with 2002, increased by around 4.3 percent. - The same growth dynamics were observed during 2004; increase over the same period of the previous year amounted to 14.5 percent. - Household survey 2003 results: - Rural poverty increased by 2.2 percentage points as compared with 2002, although rural revenues grew by about 41.7% over the same period. - Table 15 excerpts (Dynamics of gross agricultural output in 2001 – 2004): - Gross agricultural output, billion drams: 2001 351.0; 2002 377.6; 2003 410.1; 2004 504.1 - Gross agricultural output, year-on-year % change: 2001–2002 11.6; 2002–2003 4.4; 2003–2004 4.3; (table shows sequence "11.64.4 4.314.5" — preserved as presented) - Of which crop production, year-on-year % change: 19.0 4.6 4.4 20.1 - Livestock production, year-on-year % change: 2.3 4.2 4.2 7.9 - Source: National Statistical Service. - Poverty and income: - In 2003 rural poverty: 47.5 percent; urban poverty: 39.9 percent. - Per capita revenues in rural areas are about 36.3% lower than those in urban areas. - Revenues from hired work in rural areas in 2003: share of total monetary revenues was 18.8%; in urban areas the same indicator was 51%. - Price indices: - In 2003, agricultural product price index was 109.9%, and the consumer price index was 104.7%, as compared with the 2002 level. - In 2004, agricultural products price index (compared with 2003 data) constituted 109.6%, whereas the consumption price index was set to be 107.0%. - Labor productivity and production volumes: - In 2003, labor productivity in agriculture increased by 2.5%. - Production volume increases in 2003 (compared with 2002): potatoes +28.8%, vegetables +5.8%, orchards +22.1%, fruits and berries +21.2%. - Agricultural insurance: - Government is implementing a program to assess agricultural insurance risks. - If successfully completed, this will create the prerequisites for the introduction of an agricultural insurance system starting in 2005. - Policy measure: - “Agriculture Sustainable Development Strategy of RA” adopted by Government Decree No. 682-N on April 14, 2004 aimed to contribute to reduction of food insecurity. ### Fiscal framework and public expenditure policy (2002–2005) - The 2004 state budget was the first budget drawn up deriving from PRSP priorities. - In 2003-2004 the authorities sought to increase public expenditures in priority areas by improving tax administration and involving additional resources in the form of external grants, while maintaining budgetary balance and repaying accumulated debts. - Consolidated budget revenues: - Increased by 14.2%: from 306 billion drams in 2002 to 349 billion drams in 2003. - In 2004 consolidated budget revenues increased compared with 2003 by 5.2 percent, constituting 367.1 billion dram. - Internal revenues, particularly tax revenues (including duties), had nominal increases in 2003 and 2004 of 15.3% and 16.8% respectively. - Increase in grants in 2003 reflected receipt of additional capital grants (+30.9% as compared with the previous year), contrasted with reduced receipts from general budget assistance current grants (-31.9%). - Consolidated budget framework table excerpts (in billions of drams): - 1. Total revenues and grants: 2002 Actual 305.6; 2003 PRSP 339.9; 2003 Actual 348.9; 2004 PRSP Preliminary 346.2; 2004 Actual 367.1; 2005 PRSP Budget 383.0; 2005 Preliminary 425.6 (table preserved as presented). - Total revenues: 258.1; 279.0; 297.4; 312.9; 354.2; 349.6; 413.5 - Tax revenues: 242.3; 269.4; 279.3; 302.2; 326.2; 338.8; 383.4 - Non-tax and capital revenues: 15.7; 9.6; 18.0; 10.7; 28.0; 10.9; 30.1 - Grants: 47.5; 61.0; 51.5; 33.3; 12.9; 33.4; 12.1 - (Table includes additional rows for deficit financing, total resources available, total expenditures and net lending, current and capital expenditures and ratios in % of GDP — preserved in the source). - Consolidated budget expenditures: - Increased by 14.4%: from 318 billion drams in 2002 to 363 billion drams in 2003. - In 2004 consolidated budget expenditures increased by 12.6% constituting 409 billion drams. - Both current and capital expenditures increased in 2003 by 11.5% and 33.5% respectively (with an 8.8 and 6.7 percentage point participation in the total increase in expenditures, respectively). - Actual capital expenditure in 2003 was around 15 billion drams below target due to lower-than-planned externally financed expenditures; internally financed capital expenditures were almost fully executed. - State budget capital expenditures in 2003 (million drams): - Domestic Sources Budget 16,884.3; Actual 17,971.0 - including: co-financing of externally funded projects 2,823.5 Budget; 1,581.1 Actual - External Sources Budget 82,137.7; Actual 64,549.7 - Loans/Credits Budget 35,489.6; Actual 24,740.7 - Grants Budget 46,648.1; Actual 39,809.0 - Total Budget 99,022.0; Total Actual 82,520.8 - Ratios to GDP and deviations from PRSP targets: - 2003 revenues and expenses (as a share of GDP) were 21.5% and 22.4% respectively, about 1 percentage point lower than the 2002 level; deviations from PRSP targets by -1.6 and -3.2 percentage points. - 2004 revenues and expenditures (as a share of GDP) constituted 19.4% and 21.6% respectively, deviating from PRSP target indicators by -2.1 and – 2.5 percent. - Budget executed with a deficit of 0.9% and 2.2% of GDP in 2003-2004 respectively, instead of the planned 2.5% deficit. - In 2003 nominal increase of GDP was 19%, instead of the planned 10%; in 2004 nominal increase in GDP increased by 17.7% instead of the 10.2% targeted by the program. - Social sector expenditures: - In 2003 social sector expenditures amounted to 128 billion drams (+20% as compared with the previous year). - In 2004 social sector expenditures reached 177.6 billion dram (+38.9% in comparison with the previous year). - Share of social expenditures within consolidated budgetary spending increased by 1.6 percentage points in 2003 and in 2004 increased by 8.2% and constituted 43.4 percent. - Social expenditures-to-GDP ratio: - 2003: 7.9% (instead of the 8.7 forecast). - 2004: 9.4% (instead of the planned 9.3%), restoring the PRSP target indicator. *Source: PRSP Progress Report (excerpts provided).* ### 129. The 2005 state budget has been elaborated based on the PRSP ideology and developed under the ### _cr05175 - 129. The 2005 state budget has been elaborated based on the PRSP ideology and developed under ### Budget formulation and changes (2005 state budget vs PRSP framework) - The 2005 state budget was elaborated based on PRSP priorities but the resource package underwent changes due to macroeconomic developments in Q2 2004 and newly available data on expected external assistance. - Key quantitative adjustments: - Budget revenues were revised upward by 63.9 billion drams relative to the PRSP budget framework target. - Expected externally financed special-purpose capital grants were negatively revised by 24.4 billion drams, reducing allocations to linked expenditure functions (road construction, housing construction, construction of cultural establishments). - The nominal value of total expenditures in the 2005 state budget exceeds the PRSP indicator by around 53 billion drams; within this: - Current expenditures exceed by 35 billion drams. - Capital expenditures exceed by 15 billion drams. - GDP growth assumptions used in the 2005 budget forecasts were higher than PRSP assumptions: - For 2003: 13.9% (budget forecast) instead of the PRSP’s 7%. - For 2004: 9% (budget forecast) instead of the PRSP’s 6%. - The improved tax administration expectations contributed to upward revenue revisions and allowed maintaining the 2005 forecast revenues-to-GDP ratio approximately within PRSP target bounds (the text cites both 19.9% and a later planned annual budget revenues-to-GDP ratio of 20.2 percent). ### Fiscal indicators and fiscal balance - Planned annual budget ratios (as stated in the text): - Planned annual budget revenues-to-GDP ratio: 20.2 percent (text also references 19.9% earlier). - Planned annual budget expenditures-to-GDP ratio: 22.6% of GDP. - PRSP forecast comparators: revenues-to-GDP ratio 21.8 percent; expenditures-to-GDP ratio 21% of GDP. - Redistribution noted: around 0.4% of GDP reallocated from the available budget balance at the beginning of the year. - Planned annual budget’s deficit-to-GDP ratio: 2.3%. - Financing of the fraction of the deficit equal to 0.4% of GDP will be from the available budget balance. ### Implications for infrastructure and priority sectors - Non-receipt of externally financed special-purpose capital grants constrained capital spending on infrastructure; the document notes infrastructure problems as basic factors slowing economic development and welfare improvement. - Government commitment: continue attending to infrastructure problems with utmost efforts despite resource constraints. - The additional expenditures (around 53 billion drams total increase) were mainly allocated to PRSP-priority sectors such as public governance, social security and social insurance; some functions (transportation, housing and communal services) conformed to PRSP forecasts primarily due to the non-receipt of externally financed grants. ### Medium-Term Expenditure Framework (MTEF) alignment with PRSP - The MTEF 2005-2007 was developed with the PRSP as a key guiding document; major resource package changes were required because of: - A more favorable macroeconomic scenario (notably higher GDP growth in 2003). - Revisions to anticipated external assistance receipts, particularly grants. - Consequences in MTEF 2005-2007: - Tax revenue forecasts were revised upward in nominal terms. - Capital grants were excluded from the resource package for the next three years due to uncertainty, leading to negative changes in linked capital expenditure programs. - Public expenditures were planned in line with PRSP priorities (social sector, infrastructure, modernization of public administration). - In nominal terms there are no deviations between PRSP and MTEF 2005-2007 budget frameworks; significant differences exist in ratios relative to GDP, particularly for tax revenues and capital expenditures (mainly infrastructure). - Government stance on consolidated budget size: - Belief that consolidated budget operations should be around 24-25% of GDP in the next few years, requiring actions particularly to increase tax revenues. - Given resource scarcity, government will implement inter-sectoral redistributions in favor of PRSP priorities to achieve PRSP public expenditure-to-GDP targets in these sectors. ### Social expenditures: priorities and MTEF projections - Social expenditures are a high priority (health care, education, social security and social insurance). - MTEF 2005-2007 redistributes budgetary spending toward social sectors, providing a larger increase in social expenditures than total budgetary spending. - Projected change in share of social expenditures in the state budget: - Increase by around 8 percentage points from 32.6% of the adopted 2004 budget to around 40.6% in 2007 (see Table 19). - Selected MTEF/PRSP social figures (as presented in the document’s Table 19): - Total social expenditures (in billions of drams): PRSP 2004 = 100.4; PRSP 2005 = 120.0; PRSP 2006 = 137.9; PRSP 2007 = 155.0. MTEF 2005 = 107.2; MTEF 2006 = 132.3; MTEF 2007 = 150.0; MTEF 2007 (alternate column) = 176.1 (table includes multiple columns of PRSP vs MTEF projections). - Education (in billions of drams): PRSP 2004 = 39.4; PRSP 2005 = 47.9; PRSP 2006 = 54.8; PRSP 2007 = 62.8. MTEF 2005 = 45.7; MTEF 2006 = 54.9; MTEF 2007 = 59.8; MTEF 2007 (alternate) = 68.1. - Health (in billions of drams): PRSP 2004 = 24.9; PRSP 2005 = 30.8; PRSP 2006 = 35.5; PRSP 2007 = 40.9. MTEF 2005 = 25.0; MTEF 2006 = 31.7; MTEF 2007 = 36.8; MTEF 2007 (alternate) = 50.1. - Social security and social insurance (in billions of drams): PRSP 2004 = 36.1; PRSP 2005 = 41.4; PRSP 2006 = 47.6; PRSP 2007 = 51.3. MTEF 2005 = 36.5; MTEF 2006 = 45.7; MTEF 2007 = 53.5; MTEF 2007 (alternate) = 57.9. - Family benefits (in billions of drams): PRSP 2004 = 16.1; PRSP 2005 = 20.2; PRSP 2006 = 24.9; PRSP 2007 = 27.2. MTEF 2005 = 16.1; MTEF 2006 = 20.2; MTEF 2007 = 24.9; MTEF 2007 (alternate) = 26.8. - Ratios (selected) reported in the table: - Total social expenditures as % of GDP: PRSP 2004 = 6.2; PRSP 2005 = 6.8; PRSP 2006 = 7.2; PRSP 2007 = 7.4. MTEF 2005 = 6.0; MTEF 2006 = 6.8; MTEF 2007 = 7.0; MTEF 2007 (alternate) = 7.6. - Total social expenditures as % of state budget total expenditure: PRSP 2004 = 30.4; PRSP 2005 = 33.6; PRSP 2006 = 35.4; PRSP 2007 = 35.9. MTEF 2005 = 32.6; MTEF 2006 = 37.2; MTEF 2007 = 38.5; MTEF 2007 (alternate) = 40.6. ### Budget reforms, program budgeting, and capacity building - Transition objective: from receipt-based budgeting to result-based budgeting initiated since 2001. - Milestones and institutional changes: - MTEF 2003-2005 initiated the first attempt; capacities expanded in the Ministry of Finance and Economy and sectoral ministries. - Standing higher council of a medium-term public expenditures framework and a standing work-group coordinating MTEF development were established in 2002 by governmental decree. - 2003 amendments to the law “On the Budgetary System of the Republic of Armenia” recognized planning public expenditures as a separate component of the budgetary process; government must present to the National Assembly a document summarizing the strategy of public expenditures for the next three years prior to submitting next year’s draft budget. - MTEF is treated as a key political and consultative document to assist negotiations on international assistance involvement. - Structural budgeting action plan: - Agreement with the World Bank on an action plan for structural budgeting reforms in 2003; supported by the Prime Minister’s decree initiating the 2005 budgeting process. - Action plan requires public bodies to transform programs to consolidate services and to financially assess programs by services to strengthen links between policies and budgets. - Implementation timeline and pilots: - MLSI applied the approach over 2003-2004; from 2004 the approach applied to Ministry of Health, Ministry of Education and Science, and Ministry of Culture and Youth Affairs. - New MLSI program structure publicized in MTEF 2005-2007 and to be included in the 2005 draft state budget. - New expenditure structures for the three ministries to be included in MTEF 2006-2008 and the 2006 draft state budget. - In 2005, program transformation activities planned for all public bodies to enable preparation of 2007-2009 mid-term claims and 2007 budgetary claims in the new program structure. - Capacity building: - Government collaborates with experts invited since 2002 with assistance from the United Kingdom’s Department of International Development. - Training courses run at the Training Center of the Ministry of Finance and Economy for public administration employees on new budgeting methods; these courses will be included in the Training Center curricula over the next few years. ### Short-term forecasting and planning - Observed issue: for the third successive year, significant deviations exist between economic growth forecasts and actual results. - Government response: emphasize improvement of short-term forecasting capacities to enhance policy formulation and implementation in the short run and to improve quality and efficiency of medium- and long-term planning. *PRSP PROGRESS REPORT — content unit _cr05175 - 129* ### 147. Presently, parallel to the above-mentioned activities, discussions are held on the Treasury’s execution ### _cr05175 - 147. Presently, parallel to the above-mentioned activities, discussions are held on the Treasury’s execution ### Participation in PRSP implementation: outreach and information dissemination - Presentation meetings held in ten regions and Yerevan in November and December of 2003. - Eleven meetings/discussions were attended by 1200 participants and an equal number of booklets were distributed. - Attendees included officials of Provincial Administrations and the municipality of Yerevan, PRSP workgroup members, community leaders, heads of regional structures, NGO representatives, businesspersons, employees of the social, health care, and educational systems, members of the mass media, representatives of various social groups, and other stakeholders. - Media coverage: - Reported on “HH1”, “Prometheus”, “Hrazdan”, and “Tzayg” television channels. - Advertisements placed in “Hayastani Hanrapetutyun”, “Hayotz Ashkharh”, and “Iravunq” newspapers. - The film-program “What does the PRSP imply?” (26 minutes) was broadcast on regional television channels and presented by the “Dzragir” series of Armenian Public Television on December 8, 2003. - Simplified PRSP version: - Developed with assistance of the German Technical Support Cooperation Program. - Published with a 10 000 print run. - Presented during regional visits between April and August 2003; PRSP workgroup members and regional NGOs participated. - Website: - A website has been created (www.prsp.am) containing the PRSP in Armenian and English, latest news on PRSP implementation, monitoring system information, publications, activities and surveys (PSIA Poverty social impact assessment), links to other PRSs, and donor participation information. - The web page is simultaneously being updated with new information and is meant to be an important source for public awareness. ### Action plan, reporting, and participatory monitoring - Government initiated development of an Action plan for year 2004-2006 for program implementation and priorities after PRSP adoption. - PRSP working group discussed the Action Plan; after approval it was submitted to the government. - In January 2004, the government adopted the Action Plan with its 298 activities. - Pursuant to a government decree, at the end of each quarter public administration bodies must submit information to the Minister of Finance and Economy on implementation of these activities and to stakeholders from the non-governmental sector who expressed commitment to participate. - Public administration bodies submitted reports on PRSP actions for the first, second and third quarters of year 2004, as well as the yearly report of PRSP action plan implementation. - The government established a participatory monitoring system for PRSP implementation to ensure efficient control and public trust. ### Formation of partnership agreements, coordination bodies, and governance arrangements - On November 26, 2003, the government and the PRSP working group initiated a conference announcing the pre-negotiation phase for a public partnership agreement development for PRSP implementation. - Negotiating parties and representatives identified with participation from: National Assembly, RA government, Armenian Apostolic Church, Trade Unions, local self-governance bodies, employers and entrepreneurs, and NGOs. - NGO stakeholder selection: - On March 31 and April 2, 2004, meetings of PRSP implementation stakeholder NGOs selected representatives. - Five sectoral NGO working groups formed: - (i) Special needs group (NGOs working on the vulnerable groups, disabled people, refugees etc); - (ii) Human rights protection (including health care, education, social security and social insurance); - (iii) Environment protection group; - (iv) Small and medium entrepreneurship group; and - (v) Rural issues group. - A representative to each group was selected. - On July 30, 2004, stakeholder representatives signed a Memorandum to begin negotiations on PRSP implementation partnership agreement; negotiation group discussed three main PRSP priorities for the partnership agreement and anticipated development activities by September 2004. - On October 30, 2004, the Partnership Agreement was signed between the Negotiation table’s parties, reflecting three main priorities for the next 3 years: 1. Improvement of business environment with small and medium enterprises promotion targeted at employment stipulation, particularly for the vulnerable groups, 2. Strengthening of Social protection system, social security insurance, human development and its direction to poverty reduction, 3. Life support infrastructure development of in rural areas, meantime taking into consideration environmental issues. - Post-signature governance bodies created: - PRSP Steering committee, PRSP Working Group and PRSP Open Forum. - PRSP Steering Committee consists of 15 members and is formed from representatives of RA government, Armenian Apostolic Church, NGOs, members of Negotiation Group etc. RA Prime Minister chairs PRSP Steering Council. - PRSP Working group undertakes PRSP ongoing activities, preparation of PRSP implementation process decision and their enforcement. - PRSP Open Forum is formed to assure participatory process on PRSP implementation stage; main objective is to insure Public awareness on PRSP implementation process and its results, assurance of feedback and establishment of reporting environment. - Key meetings and appointments: - The first PRSP Steering Committee meeting chaired by the RA Prime Minister A. Margaryan took place on February 23, 2005; participants included RA Minister of Finance and Economy V. Khacahtryan, representatives of donor organizations, NGO representatives, parliamentarians and a delegate from the Armenian Apostolic Church. - PRSP Workgroup staff approved; RA Deputy Minister of Finance and Economy T. Khachatryan will head the PRSP workgroup. The workgroup has seven representatives from RA government, 5 members from NGO groups, 1 from trade unions and the representative of the union of communities. - PRSP Open Forum established and its working plan approved; Ludmila Haroutiunyan elected as the person responsible for PRSP Open Forum operation. - On February 25, 2005, a press conference on presentation and establishment of the PRSP Open Forum took place in the Union of Journalists of Armenia; Ludmila Harutsyunyan and the deputy minister of RA Ministry of Finance and Economy presented the concept. Two members of the new Working Group, Emin Yeritsyan (Union of Communities) and Arman Vardanyan (Foundation for mental health care NGO) emphasized the importance of public participation. ### Coordination of PRSP with donors’ country assistance strategies - Donor participation: - Donor community actively participated in PRSP discussions and is expected to take active part in implementation. - Main donors considering PRSP priorities when defining interim CAS activities include: World Bank, International Monetary Fund, UN Development Program, US International Development Agency, United Kingdom Department of International Development, and the European Union. - IMF: - Pursuant to the PRSP, the International Monetary Fund made appropriate changes in the program objectives and priorities of its Poverty Reduction and Growth Facility (PRGF). - World Bank: - In June 2004, the World Bank approved the Country Assistance Strategy focusing on three areas: promoting private sector led economic growth, orienting growth to help the poor, and reducing non-income poverty. The CAS defines specific results achievable over the four-year CAS program. - United Nations: - UN developed a country assistance strategy for 2005-2009 consistent with PRSP objectives and priorities; focus areas include reducing poverty and mitigating inequality, improving basic social services, enhancing accountability and transparency of public administration bodies, improving efficiency of natural resource management, and encouraging introduction of environmentally compliant technologies. - European Union: - Main objectives of the EU’s TACIS program activities in Armenia in 2004-2005 include supporting institutional, legal, and administrative reforms, and overcoming social consequences of transition, aligning with PRSP priorities. - UK DFID: - After PRSP adoption, UK DFID bilateral programs were brought in line with PRSP policies and priorities and the PRSP guided development of the Armenian part of the UK DID 2004-2007 regional support program. - USAID: - In 2003, USAID’s 2004-2008 strategy for Armenia was developed in close collaboration with the government and defines five strategic targets: expanding employment in the competitive private sector, ensuring safe and sustainable availability of energy and water resources, enhancing democratic governance, ensuring availability of high-quality primary medical care services, and improving social security — all consistent with PRSP priorities. - Millennium Challenge Fund: - The Board of Directors of the Millennium Challenges Fund identified Armenia as a country eligible to apply for the Fund’s assistance. - Government earlier asserted that US government assistance to face the Millennium Challenges would be channeled to PRSP priorities and programs; agreed that the government’s proposal to the Millennium Challenges Fund will involve programs presented as PRSP priorities but not yet allocated budgetary or donor financing. ### Actions in response to IDA and IMF Joint Staff Assessment (JSA) - JSA positive assessment: - In 2003, the Joint Staff Assessment of the International Development Agency and the International Monetary Fund positively assessed the Poverty Reduction Strategic Program of Armenia and considered the PRSP a reliable framework for providing concessional assistance over the next few years. - Government response and further measures: - Government agrees that efficiency of poverty reduction activities could be essentially improved by taking beneficiary-targeted and clearly defined actions. - Specific attention to families with many children: the poverty level for this group remains significantly higher than average indicators. The government increased allowance provided to minors who are members of families included in the family benefit system, differentiating it by level of vulnerability, and intends to address the issue at the next PRSP revision. - Rural poverty: government prioritized rural issues through inclusion in sectoral development programs (especially externally financed programs), emphasising formation and development of physical and financial infrastructures, improving rural water supplies and roads, measures to help marketing of agricultural products. - Household survey results indicate need for further clarification of approaches and considerable investment of effort and money when dealing with regional, and especially rural, development issues. *Source: PRSP PROGRESS REPORT (excerpted content unit)._cr05175 - 147. Presently, parallel to the above-mentioned activities, discussions are held on the Treasury’s execution* ### 179. Macroeconomic developments over the last years have been more favorable than expected, with a ### _cr05175 - 179. Macroeconomic developments over the last years have been more favorable than expected, with a ### Macroeconomic developments and policy stance - Recent macroeconomic developments "have been more favorable than expected," positively impacting population welfare and the state's budgetary potential. - Government commitment: - Strongly committed to institutional and structural reforms. - Emphasizes fighting corruption and expresses commitment to the anti-corruption strategy adopted at the end of 2003. - Reforms prioritized: - Judicial system reforms. - Improvements in tax and customs administration to enhance the business environment while avoiding radical changes in tax rates and taxation principles in the next few years. - Enhancing trust in public institutions to strengthen the state's financial background. ### PRSP priorities, public expenditures, and budgeting reforms - PRSP integration into budgeting: - PRSP priorities to be properly included in public expenditures (medium term) and linked to clarifying external assistance scope and potential changes in the budgetary resource package. - In 2003 PRSP recognition was "legislatively recognized as an integral and indispensable component of the budgeting process." - Result-based budgeting: - Introduction of result-based budgeting practices, particularly in social sectors. - Improvement of relevant capacities in sectoral ministries and increased involvement in drafting, execution, and reporting. - Expected contribution to coordination between PRSP implementation and MTEF processes. - Budget administration reforms: - Move to a budgetary classification consistent with the IMF Manual for Public Finance Statistics (2001). - Regulation of accountability of state non-commercial organizations via normative acts in 2003. - Assign methodological management and monitoring of financial and economic activities of those organizations to the relevant division of the Ministry of Finance and Economy. ### Development and introduction of the PRSP monitoring and evaluation system - Timeline and support: - August 2003: PRSP workgroup initiated development of PRSP monitoring and assessment system. - World Bank, German Technical Support Cooperation, and UNDP supported activities. - November 2003: Monitoring strategy development task team established within the PRSP workgroup. - Over fifteen independent experts and a consulting company (assisted by UNDP) participated in indicator development. - Outputs and adoption: - Task team developed and presented a concept paper defining PRSP implementation participants, functional relationships, capacity strengthening recommendations, and mechanisms for civil society involvement. - PRSP monitoring indicators system adopted by government decision N 1780-n, 11.11.2004. - 18-20 February 2005: Workshop in Tsakhkadzor to introduce the PRSP monitoring indicators system to governmental bodies. - Indicators: - Monitoring system includes 177 indicators, of which 36 are considered objective indicators and 141 perceiving indicators. - Indicators classified into six groups: - (i) poverty reduction and improved welfare - (ii) education - (iii) health care - (iv) basic social services and housing conditions - (v) social and civil dissociation and inequality - (vi) sustainable environmental development - System harmonized with Millennium Development Indicators framework where possible. - Activities planned to reconcile PRSP monitoring and MTEF indicators. - Transparency and dissemination: - Government will make PRSP implementation assessment reports available through public presentations, discussions, and publication of assessment results. ### Indicator revisions, scenarios, and implications - Need for revisions: - Economic developments in 2003 and 2004 have been more favorable than PRSP scenario anticipated, requiring revisions of forecasts for main structural indicators. - Revisions necessitated by availability of base year (2003) actual data and deviations from 2003 forecasts. - GDP and growth forecasts: - Annual GDP growth rate over the last two years "has been around 13 percent." - PRSP mid-term (2004-2007) forecasts should be revised to reflect 2003 base year changes and deviations from underlying suggestions. - Forecast: during 2004-2007, growth rate "will be 1-2 percentage points higher than the PRSP macroeconomic framework target." - Additional growth expected from industry, construction, and services; agricultural sector forecasts not revised given insufficient reasons. - Income and employment: - Incomes increased rapidly in 2003 and "in the medium run, they are expected to accelerate further as compared with the PRSP scenario." - Employment incomes expected to drive much of the increase; incomes from sales of agricultural products anticipated to be at least close to PRSP forecasts. - Forecasts to be refined after comparison with 2004 household survey results. - Fiscal implications: - GDP growth expanded tax base, necessitating positive revision of nominal tax revenues. - Forecast for tax revenues-to-GDP ratio: "within the next 2-3 years it will most probably be slightly lower than the PRSP target." - Expectation: tax revenues-to-GDP ratio will increase by "0.3 to 0.4 percentage points annually." - Nominal expansion of the budgetary resource package will require adjustments in expenditure programs, guided by PRSP priorities. - Majority of additional resources to be consumed by social sectors (health care, education, social security, and social insurance) and infrastructures; redistributions applied in MTEF 2005-2007. - External assistance and adjustments: - Deviations in external assistance receipts (e.g., anticipated additional receipts under the US government's Millennium Challenges Initiative) may necessitate revisions; redistributions guided by PRSP priorities. - Population and inequality: - Positive natural growth trends require revision of population forecasts; resident population will be forecast and PRSP indicators recalculated based on resident population. - 2003 household survey shows an abrupt reduction of inequality leading to revising forecast Gini coefficients for expenditures and revenues. - Government will take a conservative approach to revising inequality indicators and await 2004 household survey results for medium-term trend assessment. - Poverty indicators: - Revising macroeconomic and fiscal indicators will lead to changes in poverty indicators; 2003 pace of poverty reduction was higher than PRSP forecast. - Drivers of poverty reduction in 2003: increasing incomes of the poor and larger social transfers. - For this report, poverty level revised by adjusting the 2003 actual indicator; PRSP scenario of poverty reduction trends will remain unchanged. - Government will address adjustments during the first PRSP revision based on 2004 household survey results. - Timing of next PRSP revision: - Next PRSP revision "is supposed to take place in 2005." - At that time, quantitatively targeted PRSP indicators will be revised if necessary. - Government will establish quantitative targets for target and factor indicators in the PRSP implementation monitoring system if the PRSP does not identify targets. - Targeting methods: yearly basis or certain timeline (next 3 or 5 years); targets may be intervals or upper/lower limits. ### Key statistics and summary indicators (as presented) - Monitoring indicators system: - Total indicators: 177 - Objective indicators: 36 - Perceiving indicators: 141 - Table 20 summary (by group): - A Poverty reduction and improved welfare: Target indicators 3, Factor indicators 41, Total 34 (note: table formatting in source) - B Education: Target indicators 6, Factor indicators 23, Total 29 - C Health: Target indicators 9, Factor indicators 32, Total 41 - D Basic public services and housing conditions: Target indicators 10, Factor indicators 12, Total 22 - E Social and civil exclusion and inequality: Target indicators 5, Factor indicators 27, Total 32 - F Sustainable environmental development: Target indicators 3, Factor indicators 6, Total 9 - Figure 3 (Revised targets of poverty level for 2004 - 2015): - Data points shown in figure (by year): 2001 46.2; 2002 43.7; 2003 37.9; 2004 19.7; 2005 34.6; 2006 16.4; 2009 42.9; 2012 40.4; 2015 (values plotted under headings PRSP Targets (2002 - 2015) and Revised Projections (2004 - 2015)) - Annex 1 selected indicators (Actual 2002, 2003 Preliminary, 2004 PRSP projections where shown): - Population below poverty line, % of total population: 49.7 42.9 46.2 - Population below food poverty line, % of total population: 13.1 7.4 15.2 - Gini coefficient of income concentration: 0.451 0.438 0.510 - Incomes of the poorest quantile, % of incomes of the richest quantile: 6.8 7.5 6.9 - General secondary school completion rate, %: 64 63 67 68 (source formatting) - Child mortality rate, per 1 000 live births: 14.0 12.0 ... 11.8 (source formatting) - Mother mortality rate, per 100 000 live births: 9.3 22.4 ... 26.6 (three-year average) - Access to drinking water, %: 89.1 91.0 ... 91.0 - Urban population: 97.0 97.8 90 97.8 - Rural population: 77.0 80.6 47 80.6 - GDP per capita, thousand drams: 424 506 501 589 - GDP per capita, USD: 740 873 850 1,104 - Average monthly wage, drams: 26,444 32,518 32, 078 41,976 - Minimum monthly wage, drams: 5,000 5,000 12, 767 13,000 - Monthly extreme (food) poverty line, drams: 7,516 7,742 7,632 - Monthly poverty line, drams: 12,261 12,629 12,450 - Social expenditure, % of GDP: 7.8 7.9 9.3 9.4 - Education % of GDP: 2.2 2.2 2.7 2.7 - Health % of GDP: 1.2 1.2 1.5 1.3 - Social protection % of GDP: 4.5 4.5 5.1 5.3 - Nominal GDP, billion drams: 1,362 1,623 1,609 1,893 - Real GDP, year-on-year % change: 13.2 13.9 6.0 10.1 - Investments, % of GDP: 21.7 24.7 20.6 23.7 - Period average CPI, year-on-year % change: 1.1 4.7 3.0 7.0 - Period average exchange rate, dram/US dollar: 573.4 578.8 589.3 533.5 - Exports of goods and services, million US dollars: 698 903 840 699 - Imports of goods and services, million US dollars: -1,107 -1,406 -1256 -1,094 - Current account balance, % of GDP: -6.2 -6.8 -5.8 -6.0 - Total revenue and grants, % of GDP: 20.2 22.4 23.1 21.5 - Tax revenue, % of GDP: 17.8 17.8 18.3 17.2 - Total expenditure and net lending, % of GDP: 24.7 23.3 25.5 22.4 - Capital expenditure, % of GDP: 3.7 4.7 6.8 5.2 - Overall balance, % of GDP: -4.5 -0.9 -2.5 -0.9 - De jure mid-year population, thousand people: 3,210.8 3,212.2 ... 3,215.7 - Notes from source table: - PRSP framework used available population; actual data for de facto population generated only in census years. - Projections based on official National Statistical Service data. - Three-year averages used for some mortality indicators. - Some PRSP projections adjusted based on estimation of de jure population. - Consolidated budget operations referenced for some fiscal and external flow items. - January-September of 2004 noted for certain series. *Source: National Statistical Service of the Republic of Armenia, Ministry of Finance and Economy of the Republic of Armenia, Central Bank of the Republic of Armenia, and PRSP projections.* ### Annex 2. Breakdown of gross domestic product by main sector ### _cr05175 - Annex 2. Breakdown of gross domestic product by main sector ### Annex 2 — Breakdown of gross domestic product by main sector (current prices, in billions of drams) - Gross domestic product: 1,362.5 (2002 actual); 1,623.3 (2003 PRSP); 1,609.4 (2004 preliminary); 1,893.4 (January–September) - Industry: 256.9; 322.9; 337.9; 373.0 - Agriculture: 318.8; 346.1; 348.9; 426.0 - Construction: 172.2; 252.2; 237.9; 289.7 - Transport and communications: 83.6; 95.1; 103.8; 111.7 - Trade: 144.1; 173.7; 148.3; 208.3 - Others: 255.0; 285.5; 270.2; 325.7 - Net Indirect Taxes: 131.9; 147.9; 162.4; 159.0 ### Annex 2 — Year-on-year % change (by sector) - Gross domestic product: 13.2 percent (2002 actual); 13.9 percent (2003 PRSP); 6.0 percent (2004 preliminary); 10.1 percent (January–September) - Industry: 13.9; 15.4; 8.0; 2.1 - Agriculture: 3.8; 4.3; 2.8; 14.5 - Construction: 41.5; 44.4; -0.4; 13.4 - Transport and communications: -1.7; 8.2; 6.0; 17.0 - Trade: 19.7; 14.5; 11.4; 10.5 - Others: 12.0; 7.7; 6.8; 12.2 - Net Indirect Taxes: 14.3; 8.0; 12.6; 2.4 ### Annex 2 — Sector shares (in % of GDP) - Gross domestic product: 100.0; 100.0; 100.0; 100.0 - Industry: 18.9; 19.9; 21.0; 19.7 - Agriculture: 23.4; 21.3; 21.7; 22.5 - Construction: 12.6; 15.5; 14.8; 15.3 - Transport and communications: 6.1; 5.9; 6.4; 5.9 - Trade: 10.6; 10.7; 9.2; 11.0 - Others: 18.7; 17.6; 16.8; 17.2 - Net Indirect Taxes: 9.7; 9.1; 10.1; 8.4 ### Annex 2 — Contribution to GDP growth (percentage points) - Gross domestic product growth: 13.2; 13.9; 6.0; 10.1 - Industry: 2.7; 2.9; 1.7; 0.4 - Agriculture: 0.9; 1.0; 0.6; 3.1 - Construction: 4.0; 5.6; -0.1; 2.1 - Transport and communications: -0.1; 0.5; 0.4; 1.0 - Trade: 2.0; 1.5; 1.1; 1.1 - Others: 2.3; 1.6; 1.1; 2.2 - Net Indirect Taxes: 1.4; 0.8; 1.2; 0.2 *Source: National Statistical Service of the Republic of Armenia and PRSP projections.* --- ### Annex 3 — Use of gross domestic product (current prices, in billions of drams) - Gross Domestic Product: 1,362.5 (2002 actual); 1,623.3 (2003 PRSP); 1,609.4 (2004 preliminary); 1,243.2 (January–September) - Final consumption: 1,349.8; 1,531.5; 1,522.8; 1,214.3 - Private: 1,213.8; 1,364.9; 1,334.9; 1,070.3 - Public: 136.1; 166.6; 187.9; 144.0 - Gross capital formation: 295.2; 400.6; 331.9; 294.1 - Net exports of goods and services: -234.8; -290.9; -245.3; -215.4 - Statistical discrepancy: -47.8; -17.9; 0.0; -49.8 ### Annex 3 — Year-on-year % change (use components) - Gross Domestic Product: 13.2 percent; 13.9 percent; 6.0 percent; 10.3 percent - Final consumption: 8.2; 9.0; 7.9; 11.1 - Private: 9.0; 8.4; 8.6; 10.6 - Public: 2.2; 14.0; 3.2; 15.2 - Gross capital formation: 22.5; 32.9; -3.4; 9.0 - Net exports of goods and services: 1.8; 23.5; -4.2; 9.3 ### Annex 3 — Shares (in % of GDP) - Final consumption: 99.1; 94.3; 94.6; 97.7 - Private: 89.1; 84.1; 82.9; 86.1 - Public: 10.0; 10.3; 11.7; 11.6 - Gross capital formation: 21.7; 24.7; 20.6; 23.7 - Net exports of goods and services: -17.3; -17.9; -15.2; -17.3 - Statistical discrepancy: -3.5; -1.1; 0.0; -4.0 *Source: National Statistical Service of the Republic of Armenia and PRSP projections.* --- ### Annex 4 — Consolidated budget operations (on a commitment basis, in billions of drams) - Total revenues and grants: 237.0 (2001 actual); 305.6 (2002 PRSP); 339.9 (2003 actual); 348.9 (2003 PRSP); 346.2 (2004 preliminary); 367.1 (January–September) - Total revenues: 227.6; 258.1; 279.0; 297.4; 312.9; 354.2 - Tax revenue: 209.5; 242.3; 269.4; 279.3; 302.2; 326.2 - Non-tax revenue: 16.1; 13.2; 7.6; 14.1; 9.8; 15.7 - Capital revenue: 2.0; 2.6; 1.9; 4.0; 0.9; 12.3 - Grants: 9.4; 47.5; 61.0; 51.5; 33.3; 12.9 - Current: 9.4; 17.1; 14.1; 11.6; 9.7; 9.7 - Capital: 0.0; 30.5; 46.9; 39.9; 23.7; 3.2 - Total expenditures and net lending: 290.1; 317.7; 376.5; 363.3; 388.1; 409.0 - Current expenditures: 230.9; 243.5; 279.0; 271.5; 294.0; 319.4 - of which: interest payments: 14.8; 15.7; 13.9; 11.4; 12.6; 9.8 - Capital expenditures: 43.2; 63.8; 101.0; 85.2; 86.9; 78.5 - of which: capital grant financed: 0.0; 30.5; 46.9; 39.9; 23.7; (not listed for Jan–Sep) - Net lending: 16.0; 10.4; -3.5; 6.6; 7.2; 11.1 - Overall balance: -53.1; -12.1; -36.5; -14.4; -41.9; -41.9 - Financing: 53.1; 12.1; 36.5; 14.4; 41.9; 41.9 - Domestic sources: 15.9; -24.7; 46.4; -24.4; 2.7; -3.5 - External sources: 37.2; 36.7; -9.9; 38.8; 39.2; 45.4 ### Annex 4 — Fiscal ratios (in % of GDP) - Total revenues and grants: 20.2; 22.4; 23.1; 21.5; 21.5; 19.4 - Total expenditures and net lending: 24.7; 23.3; 25.5; 22.4; 24.1; 21.6 - Overall balance: -4.5; -0.9; -2.5; -0.9; -2.6; -2.2 - Memorandum items: - Social expenditures, % of GDP: 9.2; 7.8; 8.7; 7.9; 9.3; 9.4 - Primary balance, % of GDP: -3.3; 0.3; -1.5; -0.2; -1.8; 21.1 - Note: Primary balance defined as overall balance, excluding interest payments. *Source: Ministry of Finance and Economy of the Republic of Armenia, State Social Insurance Fund of the Republic of Armenia, and PRSP projections.* --- ### Annex 5 — Consolidated budget operations: external financing requirements (in billions of drams) - 1. Total domestic revenues: 227.6; 258.1; 279.0; 297.4; 312.9; 354.2 - Tax revenue: 209.5; 242.3; 269.4; 279.3; 302.2; 326.2 - Non-tax and capital revenue: 18.1; 15.7; 9.6; 18.0; 10.7; 28.0 - 2. Domestic financing: 15.9; -24.7; 46.4; -24.4; 2.7; -3.5 - 3. Total domestic resources available (1+2): 243.5; 233.4; 325.4; 273.0; 315.6; 350.7 - 4. Total expenditures and net lending: 290.1; 317.7; 376.5; 363.3; 388.1; 409.0 - 5. External financing requirements (4-2): 46.6; 84.3; 51.0; 90.3; 72.5; 58.3 - Grants: 9.4; 47.5; 61.0; 51.5; 33.3; 12.9 - Current: 9.4; 17.1; 14.1; 11.6; 9.7; 9.7 - Capital: 0.0; 30.5; 46.9; 39.9; 23.7; 3.2 - Loans/Credits: 37.2; 36.7; -9.9; 38.8; 39.2; 45.4 ### Annex 5 — External financing requirements (in millions of US dollars) - 1. Total domestic revenues: 410.0; 450.1; 475.8; 513.8; 531.0; 663.9 - Tax revenue: 377.5; 422.7; 459.4; 482.7; 512.8; 611.4 - Non-tax and capital revenue: 32.6; 27.5; 16.3; 31.2; 18.2; 52.5 - 2. Domestic financing: 28.7; -43.0; 79.2; -42.2; 4.6; -6.5 - 3. Total domestic resources available (1+2): 438.7; 407.1; 555.0; 471.7; 535.6; 657.5 - 4. Total expenditures and net lending: 522.6; 554.1; 642.0; 627.7; 658.6; 766.7 - 5. External financing requirements (4-2): 83.9; 147.0; 87.1; 156.0; 123.1; 109.3 - Grants: 16.9; 82.9; 104.0; 88.9; 56.5; 24.2 - Loans/Credits: 67.0; 64.1; -16.9; 67.1; 66.5; 85.1 ### Annex 5 — Ratios (in % of GDP) - Total domestic revenues: 19.4; 18.9; 18.9; 18.3; 19.4; 18.7 - Total expenditures and net lending: 24.7; 23.3; 25.5; 22.4; 24.1; 21.6 - External financing requirements (5): 4.0; 6.2; 3.5; 5.6; 4.5; 3.1 - Grants: 0.8; 3.5; 4.1; 3.2; 2.1; 0.7 - Loans/Credits: 3.2; 2.7; -0.7; 2.4; 2.4; 2.4 *Source: Ministry of Finance and Economy of the Republic of Armenia, State Social Insurance Fund of the Republic of Armenia, and PRSP projections.* --- ### Annex 6 — Consolidated budget expenditure by main functions (on a commitment basis, in billions of drams) - Total expenditures: 290.1 (2001 actual); 317.7 (2002 PRSP); 376.5 (2003 actual); 363.3 (2003 PRSP); 388.1 (2004 preliminary); 409.0 (January–September) - General public services: 27.3; 28.7; 28.3; 36.2; 35.5; 45.4 - Defense, public order and safety: 54.5; 54.0; 61.3; 65.1; 66.8; 78.2 - Education and science: 33.0; 32.4; 38.2; 38.3; 46.1; 51.9 - Health: 17.4; 16.0; 21.0; 19.6; 24.9; 24.7 - Social security and social insurance: 60.6; 61.8; 73.1; 74.1; 84.4; 101.0 - Culture, information, sports and religion: 7.3; 11.1; 16.5; 15.8; 9.4; 10.4 - Housing and public utilities: 11.1; 22.7; 36.1; 41.7; 24.0; 22.1 - Fuel and energy: 7.1; 8.4; 12.2; 7.0; 13.5; 13.6 - Agriculture, forestry and water, fishing: 18.9; 15.3; 19.2; 19.9; 17.0; 16.7 - Manufacturing, mining, construction and environment: 0.7; 0.7; 4.6; -6.3; 6.5; 5.1 - Transportation, road utility and communications: 7.2; 24.2; 36.6; 30.6; 25.3; 18.8 - Other expenditure: 45.0; 42.3; 29.4; 21.3; 34.8; 20.9 - of which: debt service: 14.8; 15.7; 13.9; 11.4; 12.6; 9.8 ### Annex 6 — Functional shares (in % of GDP) - Total expenditures: 24.7; 23.3; 25.5; 22.4; 24.1; 21.6 - Social security and social insurance: 5.2; 4.5; 5.0; 4.6; 5.2; 5.3 - Education and science: 2.8; 2.4; 2.6; 2.4; 2.9; 2.7 - Health: 1.5; 1.2; 1.4; 1.2; 1.5; 1.3 - Transportation, road utility and communications: 0.6; 1.8; 2.5; 1.9; 1.6; 1.0 - of which: debt service: 1.3; 1.2; 0.9; 0.7; 0.8; 0.5 ### Annex 6 — Functional composition (in % of total expenditure) - General public services: 9.4; 9.0; 7.5; 10.0; 9.1; 11.1 - Defense, public order and safety: 18.8; 17.0; 16.3; 17.9; 17.2; 19.1 - Education and science: 11.4; 10.2; 10.1; 10.5; 11.9; 12.7 - Health: 6.0; 5.0; 5.6; 5.4; 6.4; 6.0 - Social security and social insurance: 20.9; 19.5; 19.4; 20.4; 21.7; 24.7 - Other expenditure: 15.5; 13.3; 7.8; 5.9; 9.0; 5.1 - of which: debt service: 5.1; 5.0; 3.7; 3.1; 3.2; 2.4 *Source: Ministry of Finance and Economy of the Republic of Armenia, State Social Insurance Fund of the Republic of Armenia, and PRSP projections.* --- ### Annex 7 — Consolidated budget social expenditures (on a commitment basis, in billions of drams) - Total social expenditures: 107.9 (2001 actual); 106.6 (2002 PRSP); 127.6 (2003 actual); 127.9 (2003 PRSP); 150.3 (2004 preliminary); 177.6 (January–September) - Education: 30.7; 29.7; 35.2; 35.4; 42.8; 51.9 - Health: 17.4; 16.0; 21.0; 19.6; 24.9; 24.7 - Social security and social insurance (excluding system maintenance and development): 59.8; 61.0; 71.4; 73.0; 82.6; 101.0 - of which: family benefits: 16.1; 12.1; 12.7; 12.4; 16.1; 16.6 ### Annex 7 — Year-on-year % change (social expenditures) - Total social expenditures: 3.8; -1.2; 20.3; 20.0; 17.8; 38.9 - Education: 1.2; -3.3; 18.3; 19.1; 21.6; 46.6 - Health: 6.6; -8.1; 31.2; 22.6; 18.6; 26.0 - Social security and social insurance: 4.4; 1.9; 18.4; 19.7; 15.8; 38.4 - of which: family benefits: -8.4; -24.8; 5.5; 2.2; 26.3; 33.9 ### Annex 7 — Social expenditures as shares - Total social expenditures, % of GDP: 9.2; 7.8; 8.7; 7.9; 9.3; 9.4 - Education, % of GDP: 2.6; 2.2; 2.4; 2.2; 2.7; 2.7 - Health, % of GDP: 1.5; 1.2; 1.4; 1.2; 1.5; 1.3 - Social security and social insurance, % of GDP: 5.1; 4.5; 4.8; 4.5; 5.1; 5.3 - Total social expenditures, % of consolidated budget total expenditure: 37.2; 33.6; 33.9; 35.2; 38.7; 43.4 - Education: 10.6; 9.3; 9.4; 9.7; 11.0; 12.7 - Health: 6.0; 5.0; 5.6; 5.4; 6.4; 6.0 - Social security and social insurance: 20.6; 19.2; 19.0; 20.1; 21.3; 24.7 - of which: family benefits: 5.5; 3.8; 3.4; 3.4; 4.1; 4.0 *Source: Ministry of Finance and Economy of the Republic of Armenia, State Social Insurance Fund of the Republic of Armenia, and PRSP projections.* --- ### Annex 8 — Armenia: balance of payments (in millions of US dollars, unless otherwise indicated) - Current account: -148 (2002 actual); -191 (2003 PRSP); -159 (2004 preliminary); -137 (January–September) - Trade balance: -369; -434; -373; -341 - Exports (f.o.b.): 514; 696; 639; 522 - Imports (f.o.b.): -883; -1,130; -1,012; -863 - Services (net): -41; -68; -43; -54 - Credits: 184; 207; 201; 177 - Debits: -225; -276; -244; -231 - Income and private transfers (net): 207; 252; 202; 220 - Official transfers (net): 55; 60; 55; 38 - Capital and financial account: 152; 192; 202; 105 - Capital transfers (net): 68; 90; 55; 15 - Foreign direct investments (net): 111; 121; 80; 131 - Portfolio investments (net): 20.3; 0; -4 - Public sector (net): 45; 25; 67; 2 - Disbursement: 84; 92; 80; 48 - Amortization: -39; -68; -13; -46 - Other capital (net): -73; -43; -0; -39 - Errors and omissions (net): -4; -20; 7 - Overall balance: -39; -2; -42; 25 ### Annex 8 — Financing and memorandum items - Change in gross reserves (‘-‘ increase): -82; -46; -36; 18 - IMF (net): 72; -6; 0; 7 - Financing gap: 35; 43; 0 - World Bank: 35; 43; 0 - Other: 0; 0; 0 - Current account (in % of GDP): -6.2; -6.8; -5.8; -6.0 - Excluding official transfers: -8.5; -8.9; -7.9; -7.6 - Gross reserves (end of period): 431; 502; 480; 484 - in months of imports: 4.7; 4.3; 4.6; 5.3 - Nominal external debt: 1,026; 1,098; 1,104; 1,183 - External debt-to-GDP ratio, %: 43.2; 39.1; 40.4; 33.3 - Present value of external debt: 673; 732; 623; 710 - Present value of debt-to-GDP ratio, %: 28.4; 26.1; 22.8; 20 - Present value of debt-to-G&NFS exports ratio, %: 96; 82; 74.2; - - Note: January–September of 2004 figures are indicated where applicable. Preliminary estimates noted where indicated. *Source: National Statistical Service of the Republic of Armenia, Central Bank of the Republic of Armenia, Ministry of Finance and Economy of the Republic of Armenia, and PRSP projections.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05175.pdf_