## _cr06320 - 1.      The Armenia Poverty Reduction Strategy Paper (PRSP) was presented to the Boards

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---

### Overview and JSAN purpose
- PRSP presented to the Boards of IDA and the IMF in November 2003.
- Government approved a PRSP Implementation Action Plan in January 2004.
- First PRSP Progress Report presented in April 2005; second PRSP Progress Report completed in June 2006 covering 2004–05.
- A full PRSP Update planned for early 2007.
- This Joint Staff Advisory Note (JSAN) discusses PRSP implementation to date, progress on issues raised in the previous JSAN, and staffs’ advice on priorities to strengthen the PRSP process.

### Key findings from the Second PRSP Progress Report
- Evidence of rapid economic growth, notable reduction in poverty, and accomplishments in fiscal policy and social service delivery.
- Progress made on monitoring and evaluation, participation, and aligning the budget process with the PRSP.
- Persistent priorities:
  - (i) reforming tax and customs administrations;
  - (ii) deepening competition in key services and financial intermediation;
  - (iii) carrying through education, health, and pension reforms.

### Poverty diagnostic (quality and results)
- Overall poverty reduced from around 50 percent in 2000–01 to 39 percent in 2004.
- Rural poverty declined notably and fell below the PRSP target.
- Extreme poverty fell from 16 percent in 2001 to 7.2 percent in 2004.
- Gini coefficient declined from 0.535 in 2001 to 0.387 in 2004.
- Progress Report attributes faster-than-anticipated poverty reduction to double-digit economic growth, increased labor income, private transfers from abroad, and increased social transfers via a targeted family poverty benefits program.
- A new 2004 baseline using an improved methodology indicates a poverty level of 34.6 percent, and extreme poverty at 6.4 percent.
- Government plans to use the adjusted poverty measurement methodology in the PRSP Update.
- Staff recommendation: deepen analytical work on poverty, especially:
  - structure of poverty in secondary towns;
  - qualitative and quantitative assessment of high-poverty-risk population groups (e.g., families with many children);
  - income inequality;
  - labor market dynamics and job creation.

### Priority areas for public actions

#### A. Macroeconomic framework and sustainable growth
- Recent performance:
  - Real GDP growth in the double-digits in 2002–05 and exceeded 10 percent in the first half of 2006.
  - Average inflation: 7 percent in 2004, less than 1 percent in 2005.
  - 12-month inflation rate about 2.7 percent in June 2006.
- External debt:
  - Present value of debt to GDP ratio declined from 28.4 percent in 2002 to 20.6 percent in 2004 and to14.3 percent in 2005.
- Exchange rate movements:
  - Dram appreciated against the U.S. dollar by 27 percent in nominal terms since the beginning of 2004.
  - Dram appreciated by 19 percent in real effective terms through April 2006.
  - Prior depreciation between 2000 and 2003 of 23 percent in real effective terms.
- Staff advice:
  - Remain vigilant to macroeconomic vulnerabilities (including energy price increases).
  - Continue prudent fiscal and monetary policies.
  - Include a forward-looking macroeconomic framework in the Progress Report consistent with the medium-term fiscal framework.
  - Monitor exchange rate developments and assess economic impact in full PRSP update.
- Private sector and business environment:
  - Official unemployment remains high, particularly among youth.
  - Progress in business environment elements from 2002 to 2005, but pace slowed in some components, including corporate governance.
  - Government adopted a time-bound action plan to improve the private sector environment; staffs encourage reporting on implementation in the full PRSP update.
  - Staffs encourage plans to strengthen competition in services, particularly telecommunications and aviation.
- Financial sector:
  - Recent steps: improving banking supervision, strengthening creditor rights, clarifying collateral registration and foreclosure procedures, enforcing contracts.
  - Staffs urge continued efforts to deepen financial intermediation, strengthen corporate governance of banks, facilitate new financial products such as housing finance, and extend regulatory framework to nonbanking financial sector including insurance.
  - Staffs are concerned about plans to extend subsidized credit to targeted firms following a limited pilot loan guarantee program for SMEs; note that most small and medium companies exhibit quite large returns and subsidized credit can distort incentives.

#### B. Fiscal and budgetary management
- Achievements:
  - Use of Medium-Term Expenditure Frameworks (MTEFs) for the past four years and integration of MTEFs in the annual budgets of 2004 and 2005.
  - Tax revenues rose by 0.3 percent of GDP in 2005 relative to 2004 — the largest increase since 1999.
  - Consolidated government deficits (including grants): 1.5 percent of GDP in 2003, 1.6 percent in 2004, and 2.6 percent in 2005 compared with 4 percent in 2001.
  - Expenditures switched toward activities with high impacts on poverty reduction.
- Concerns and recommended reforms:
  - Tax-to-GDP ratio remains relatively low by regional standards; strengthening revenue collection is important to meet PRSP social spending goals.
  - Deficiencies in tax and customs administrations remain serious impediments.
  - Priority actions in tax administration:
    - large taxpayer unit reform;
    - introduction of self assessment;
    - reduction in arrears;
    - more effective audits including permitting off-site audits and increasing the time allowed for audits;
    - introduction of risk-based systems for audits and VAT refund processing.
  - Priority actions in customs:
    - progressive roll-out of self-declaration and direct trader input systems;
    - apply selectivity in customs control;
    - improve post-control audit functions;
    - reduce reliance on reference prices for valuation of imports versus transaction prices.
  - Public financial management progress: introduction of elements of program budgeting in selected ministries; structuring pilot ministries’ budgets around programs; publishing Public Investment Programs in MTEF documents.
  - Further steps suggested:
    - improve monitoring system for noncommercial entities (NCEs);
    - expand merit-based pay and performance systems in public administration;
    - expand performance-based budgeting beyond pilot ministries;
    - improve public procurement (e-procurement, standardize documentation and procedures, decentralize with oversight);
    - translate anti-corruption strategy into specific actions, especially in tax and customs reforms;
    - strengthen judicial independence and financing;
    - develop transparent internal and external audit systems;
    - upgrade government accounting and reporting systems;
    - align expenditure classifications with international standards;
    - continue increasing priority public investments in key social and infrastructure areas.

#### C. Delivering social services
- Social sector spending:
  - Absolute value increased by about 30 percent in real terms between 2002 and 2004.
  - Social spending rose slightly from 7.8 to 8.3 as a percent of GDP and remains below the PRSP target of 9.3 percent of GDP.
  - Fiduciary oversight concerns due to large education and health spending channeled through NCEs with weak financial reporting and not independently audited.
- Staff suggestions for social services:
  - increase budget allocations for social services to ensure adequate salaries and infrastructure and reduce informal payments;
  - conduct costing exercises in health and education to reflect service costs;
  - build capacity within sectors to utilize and monitor funding;
  - improve efficiency and equity of social spending.
- Education:
  - Spending rose by 37 percent in 2004; budget allocations increased significantly in 2005, expected to raise education spending to around 3 percent of GDP (in line with PRSP target).
  - Staffs urge revising the per capita financing formula and increasing student teacher ratio from 13 in 2004 to the target of 16.
  - Expected decline in student population provides opportunity for efficiency and quality gains.
  - Emphasis on extending secondary school term to 12th grade, improving secondary curriculum, strengthening pre-school, vocational, and higher education.
  - Need to introduce a student loan scheme to ensure equitable access to higher education.
- Health:
  - Public resources increased from 1.2 percent of GDP in 2003 to 1.5 percent of GDP in 2005, short of PRSP target of 1.8 percent in 2005.
  - Increased funds mainly used to finance primary health care and increase medical staff salaries.
  - Staff urgings:
    - continue increasing health funding while improving efficiency via hospital mergers, focus on primary and family health care, strengthen reimbursement rates to reduce informal payments;
    - address shortages of trained family practitioners, pharmacies, and drugs in rural areas;
    - sustain efforts to reduce maternal and child mortality toward EU levels;
    - address communicable disease agenda, tuberculosis in particular;
    - recognize adoption of a non-communicable diseases (NCD) prevention and control strategy.
- Social assistance and pensions:
  - Targeted cash family poverty benefit remains a major safety net pillar.
  - Administrative improvements: better monitoring and evaluation, streamlined appeals procedure.
  - Average family benefit increased by 26 percent per year in both 2004 and 2005.
  - Progress toward introducing individual accounts in pension systems, improving social insurance contribution collection, and increasing pensions.
  - Staffs encourage continued real pension increases and ensuring pension reform is based on sustainability, reliability, and encouraging savings.

#### D. Improving infrastructure and modernizing rural areas
- Achievements and issues:
  - Substantial rise in budget for road construction and maintenance, though still less than half of what is needed to bring the network to an adequate level of service.
  - Increase in drinking water tariffs toward cost-recovery levels.
  - Government efforts to diversify energy supply sources and increase utilization of indigenous energy resources.
- Staffs’ recommendations:
  - Protect the most vulnerable from tariff rises through targeted transfers rather than general subsidies.
  - More attention to regulatory reforms in energy and water focused on service quality and transparency; discuss in full PRSP Update.
  - Implement established service quality monitoring system for electricity sector and set minimum service quality standards.
  - Establish and publish a service quality monitoring system in the drinking water sector; improve documentation (e.g., average daily duration of water supply data currently not provided).
  - Further reduce efficiency losses in energy and water sectors.
  - Discuss needed reform in railways in the PRSP update.

### Rural development and infrastructure
- PRSP emphasizes strengthening rural development, including rural infrastructure.
- Based on a diagnostic study for rural infrastructure services, the government adopted a time-bound action plan of reforms in:
  - rural roads,
  - water,
  - energy, and
  - telecom sectors.
- The action plan emphasizes:
  - universal access,
  - equity,
  - clarification of ownership, and
  - private-public partnerships.
- Implementation status and issues:
  - Some steps have been undertaken toward implementation of the action plan.
  - Staffs note the need to ensure adequate and timely implementation of the plan.
  - PRSP candidly indicates that agriculture insurance, credit, and the impact of the amalgamation of land should be addressed in the PRSP update.
  - Staffs note the importance of strengthening the use of standards in agro-processing.
  - Staffs encourage the government to continue to improve forest management.

### Participation, coordination, and monitoring
- Participation and institutional arrangements:
  - All major stakeholders in PRSP implementation signed a Partnership Agreement (October, 2004).
  - A new Steering Committee and Working Group were formed (January 2005) to lead and oversee PRSP implementation.
  - The Open Forum organized public discussions in Yerevan and throughout the country on subjects including utility tariffs, human poverty issues, land consolidation, public awareness, and the quality and access of education services—allowing NGOs not represented in the Steering Committee or Working Group to continue to participate.
  - The Progress Report contains proposals of various NGO groupings for the coming PRSP update.
  - Staffs encourage the government to maintain and deepen this emphasis on consultation and partnership.
- Donor coordination and external financing:
  - Donors have generally integrated efforts behind the PRSP, although coordination remains largely led by donors.
  - Major donors in Armenia cited: WB, IMF, USAID, EU, GTZ, DFID.
  - Donors have approved recent country assistance strategies in line with PRSP themes.
  - The U.S. Millennium Challenge Corporation approved funding for priority activities, taking into account the PRSP consultation process and poverty reduction priorities.
  - Staffs urge the government, through the PRSP secretariat, to take a more active role in donor coordination and to strengthen the administrative setup to undertake this task effectively.
  - Staffs suggest strengthening synergies between the PRSP and the European Neighborhood Policy (ENP) action plan.
  - Staffs note increasing involvement of private external transfers in poverty reduction and encourage the government to establish a framework for integrating these funds into the PRSP.
- Monitoring and evaluation:
  - A Monitoring Task Force was created in November 2003 shortly after PRSP approval.
  - The Task Force approved a set of 177 monitoring indicators, largely harmonized with the Millennium Development Goals (MDGs).
  - Staffs commend improvements in poverty measurement, analyses, and data availability, including through the web (www.prso.am).
  - Monitoring challenges remain: the Progress Report candidly states monitoring continues to require attention and information on some indicators is hard to collect.
  - The government approved a new decree (July, 2005) on strengthening PRSP implementation reporting.
  - Staffs encourage the government to:
    - address monitoring issues in the PRSP update,
    - adequately budget for improvements in monitoring through normal public expenditures, and
    - harmonize PRSP data reporting with budget and MDG reporting.

### Conclusions — key priorities and progress
- Overall assessment:
  - Armenia has had two very successful years of PRSP implementation in which most targets have been met or exceeded and which have been marked by a high level of consultation and participation.
  - The PRSP Progress Report provides rich information useful for donor assessment of government progress.
- Key areas needing greater effort over the coming year:
  - (i) Strengthening the business environment, particularly:
    - building competition in aviation and telecommunication services, and
    - deepening financial intermediation to build jobs.
  - (ii) Continuing to implement tax and customs reform to further increase the transparency and level of tax collections.
  - (iii) Deepening reforms in pensions, health and education to raise the quality of social services.
  - Recognition that progress in these areas will take time because problems are deep-rooted.
  - Noted achievements: significant progress over the past year in fiscal reforms and in preparing an action plan for pension reforms.
- Integration with budgeting and planning:
  - Staffs welcome efforts to progressively integrate the PRSP process into the MTEF and budget process, as well as MDG progress reports.
  - Armenia has succeeded in making the MTEF process an integral part of budgeting and planning; MTEFs over the last three years have basically reflected PRSP policy priorities.
  - As actual developments in Armenia have generally exceeded PRSP projections for 2003–05, there is an urgent need to update the macro-fiscal framework projections and outlook for the upcoming period.
  - Any changes to policy priorities in the new PRSP update would need to inform the budgetary process through the MTEF.

*Source: JSAN discussion of the second PRSP Progress Report (June 2006).*

### 1.      The Armenia Poverty Reduction Strategy Paper (PRSP) was presented to the Boards

### _cr06320 - 1.      The Armenia Poverty Reduction Strategy Paper (PRSP) was presented to the Boards

### Overview and JSAN purpose
- PRSP presented to the Boards of IDA and the IMF in November 2003.
- Government approved a PRSP Implementation Action Plan in January 2004.
- First PRSP Progress Report presented in April 2005; second PRSP Progress Report completed in June 2006 covering 2004–05.
- A full PRSP Update planned for early 2007.
- This Joint Staff Advisory Note (JSAN) discusses PRSP implementation to date, progress on issues raised in the previous JSAN, and staffs’ advice on priorities to strengthen the PRSP process.

### Key findings from the Second PRSP Progress Report
- Evidence of rapid economic growth, notable reduction in poverty, and accomplishments in fiscal policy and social service delivery.
- Progress made on monitoring and evaluation, participation, and aligning the budget process with the PRSP.
- Persistent priorities: (i) reforming tax and customs administrations; (ii) deepening competition in key services and financial intermediation; (iii) carrying through education, health, and pension reforms.

### Poverty diagnostic (quality and results)
- Overall poverty reduced from around 50 percent in 2000–01 to 39 percent in 2004.
- Rural poverty declined notably and fell below the PRSP target.
- Extreme poverty fell from 16 percent in 2001 to 7.2 percent in 2004.
- Gini coefficient declined from 0.535 in 2001 to 0.387 in 2004.
- Progress Report attributes faster-than-anticipated poverty reduction to double-digit economic growth, increased labor income, private transfers from abroad, and increased social transfers via a targeted family poverty benefits program.
- A new 2004 baseline using an improved methodology indicates a poverty level of 34.6 percent, and extreme poverty at 6.4 percent.
- Government plans to use the adjusted poverty measurement methodology in the PRSP Update.
- Staff recommendation: deepen analytical work on poverty, especially:
  - structure of poverty in secondary towns;
  - qualitative and quantitative assessment of high-poverty-risk population groups (e.g., families with many children);
  - income inequality;
  - labor market dynamics and job creation.

### Priority areas for public actions

#### A. Macroeconomic framework and sustainable growth
- Recent performance:
  - Real GDP growth in the double-digits in 2002–05 and exceeded 10 percent in the first half of 2006.
  - Average inflation: 7 percent in 2004, less than 1 percent in 2005.
  - 12-month inflation rate about 2.7 percent in June 2006.
- External debt: present value of debt to GDP ratio declined from 28.4 percent in 2002 to 20.6 percent in 2004 and to14.3 percent in 2005.
- Exchange rate movements:
  - Dram appreciated against the U.S. dollar by 27 percent in nominal terms since the beginning of 2004.
  - Dram appreciated by 19 percent in real effective terms through April 2006.
  - Prior depreciation between 2000 and 2003 of 23 percent in real effective terms.
- Staff advice:
  - Remain vigilant to macroeconomic vulnerabilities (including energy price increases).
  - Continue prudent fiscal and monetary policies.
  - Include a forward-looking macroeconomic framework in the Progress Report consistent with the medium-term fiscal framework.
  - Monitor exchange rate developments and assess economic impact in full PRSP update.
- Private sector and business environment:
  - Official unemployment remains high, particularly among youth.
  - Progress in business environment elements from 2002 to 2005, but pace slowed in some components, including corporate governance.
  - Government adopted a time-bound action plan to improve the private sector environment; staffs encourage reporting on implementation in the full PRSP update.
  - Staffs encourage plans to strengthen competition in services, particularly telecommunications and aviation.
- Financial sector:
  - Recent steps: improving banking supervision, strengthening creditor rights, clarifying collateral registration and foreclosure procedures, enforcing contracts.
  - Staffs urge continued efforts to deepen financial intermediation, strengthen corporate governance of banks, facilitate new financial products such as housing finance, and extend regulatory framework to nonbanking financial sector including insurance.
  - Staffs are concerned about plans to extend subsidized credit to targeted firms following a limited pilot loan guarantee program for SMEs; note that most small and medium companies exhibit quite large returns and subsidized credit can distort incentives.

#### B. Fiscal and budgetary management
- Achievements:
  - Use of Medium-Term Expenditure Frameworks (MTEFs) for the past four years and integration of MTEFs in the annual budgets of 2004 and 2005.
  - Tax revenues rose by 0.3 percent of GDP in 2005 relative to 2004 — the largest increase since 1999.
  - Consolidated government deficits (including grants): 1.5 percent of GDP in 2003, 1.6 percent in 2004, and 2.6 percent in 2005 compared with 4 percent in 2001.
  - Expenditures switched toward activities with high impacts on poverty reduction.
- Concerns and recommended reforms:
  - Tax-to-GDP ratio remains relatively low by regional standards; strengthening revenue collection is important to meet PRSP social spending goals.
  - Deficiencies in tax and customs administrations remain serious impediments.
  - Priority actions in tax administration:
    - large taxpayer unit reform;
    - introduction of self assessment;
    - reduction in arrears;
    - more effective audits including permitting off-site audits and increasing the time allowed for audits;
    - introduction of risk-based systems for audits and VAT refund processing.
  - Priority actions in customs:
    - progressive roll-out of self-declaration and direct trader input systems;
    - apply selectivity in customs control;
    - improve post-control audit functions;
    - reduce reliance on reference prices for valuation of imports versus transaction prices.
  - Public financial management progress: introduction of elements of program budgeting in selected ministries; structuring pilot ministries’ budgets around programs; publishing Public Investment Programs in MTEF documents.
  - Further steps suggested:
    - improve monitoring system for noncommercial entities (NCEs);
    - expand merit-based pay and performance systems in public administration;
    - expand performance-based budgeting beyond pilot ministries;
    - improve public procurement (e-procurement, standardize documentation and procedures, decentralize with oversight);
    - translate anti-corruption strategy into specific actions, especially in tax and customs reforms;
    - strengthen judicial independence and financing;
    - develop transparent internal and external audit systems;
    - upgrade government accounting and reporting systems;
    - align expenditure classifications with international standards;
    - continue increasing priority public investments in key social and infrastructure areas.

#### C. Delivering social services
- Social sector spending:
  - Absolute value increased by about 30 percent in real terms between 2002 and 2004.
  - Social spending rose slightly from 7.8 to 8.3 as a percent of GDP and remains below the PRSP target of 9.3 percent of GDP.
  - Fiduciary oversight concerns due to large education and health spending channeled through NCEs with weak financial reporting and not independently audited.
- Staff suggestions for social services:
  - increase budget allocations for social services to ensure adequate salaries and infrastructure and reduce informal payments;
  - conduct costing exercises in health and education to reflect service costs;
  - build capacity within sectors to utilize and monitor funding;
  - improve efficiency and equity of social spending.
- Education:
  - Spending rose by 37 percent in 2004; budget allocations increased significantly in 2005, expected to raise education spending to around 3 percent of GDP (in line with PRSP target).
  - Staffs urge revising the per capita financing formula and increasing student teacher ratio from 13 in 2004 to the target of 16.
  - Expected decline in student population provides opportunity for efficiency and quality gains.
  - Emphasis on extending secondary school term to 12th grade, improving secondary curriculum, strengthening pre-school, vocational, and higher education.
  - Need to introduce a student loan scheme to ensure equitable access to higher education.
- Health:
  - Public resources increased from 1.2 percent of GDP in 2003 to 1.5 percent of GDP in 2005, short of PRSP target of 1.8 percent in 2005.
  - Increased funds mainly used to finance primary health care and increase medical staff salaries.
  - Staff urgings:
    - continue increasing health funding while improving efficiency via hospital mergers, focus on primary and family health care, strengthen reimbursement rates to reduce informal payments;
    - address shortages of trained family practitioners, pharmacies, and drugs in rural areas;
    - sustain efforts to reduce maternal and child mortality toward EU levels;
    - address communicable disease agenda, tuberculosis in particular;
    - recognize adoption of a non-communicable diseases (NCD) prevention and control strategy.
- Social assistance and pensions:
  - Targeted cash family poverty benefit remains a major safety net pillar.
  - Administrative improvements: better monitoring and evaluation, streamlined appeals procedure.
  - Average family benefit increased by 26 percent per year in both 2004 and 2005.
  - Progress toward introducing individual accounts in pension systems, improving social insurance contribution collection, and increasing pensions.
  - Staffs encourage continued real pension increases and ensuring pension reform is based on sustainability, reliability, and encouraging savings.

#### D. Improving infrastructure and modernizing rural areas
- Achievements and issues:
  - Substantial rise in budget for road construction and maintenance, though still less than half of what is needed to bring the network to an adequate level of service.
  - Increase in drinking water tariffs toward cost-recovery levels.
  - Government efforts to diversify energy supply sources and increase utilization of indigenous energy resources.
- Staffs’ recommendations:
  - Protect the most vulnerable from tariff rises through targeted transfers rather than general subsidies.
  - More attention to regulatory reforms in energy and water focused on service quality and transparency; discuss in full PRSP Update.
  - Implement established service quality monitoring system for electricity sector and set minimum service quality standards.
  - Establish and publish a service quality monitoring system in the drinking water sector; improve documentation (e.g., average daily duration of water supply data currently not provided).
  - Further reduce efficiency losses in energy and water sectors.
  - Discuss needed reform in railways in the PRSP update.

*Source: JSAN discussion of the second PRSP Progress Report (June 2006).*

### 16.      The PRSP also highlights the importance of strengthening rural development,

### 16.      The PRSP also highlights the importance of strengthening rural development,

### Rural development and infrastructure
- The PRSP emphasizes strengthening rural development, including rural infrastructure.
- Based on a diagnostic study for rural infrastructure services, the government adopted a time-bound action plan of reforms in:
  - rural roads,
  - water,
  - energy, and
  - telecom sectors.
- The action plan emphasizes:
  - universal access,
  - equity,
  - clarification of ownership, and
  - private-public partnerships.
- Implementation status and issues:
  - Some steps have been undertaken toward implementation of the action plan.
  - Staffs note the need to ensure adequate and timely implementation of the plan.
  - PRSP candidly indicates that agriculture insurance, credit, and the impact of the amalgamation of land should be addressed in the PRSP update.
  - Staffs note the importance of strengthening the use of standards in agro-processing.
  - Staffs encourage the government to continue to improve forest management.

### Participation, coordination, and monitoring
- Participation and institutional arrangements:
  - All major stakeholders in PRSP implementation signed a Partnership Agreement (October, 2004).
  - A new Steering Committee and Working Group were formed (January 2005) to lead and oversee PRSP implementation.
  - The Open Forum organized public discussions in Yerevan and throughout the country on subjects including utility tariffs, human poverty issues, land consolidation, public awareness, and the quality and access of education services—allowing NGOs not represented in the Steering Committee or Working Group to continue to participate.
  - The Progress Report contains proposals of various NGO groupings for the coming PRSP update.
  - Staffs encourage the government to maintain and deepen this emphasis on consultation and partnership.
- Donor coordination and external financing:
  - Donors have generally integrated efforts behind the PRSP, although coordination remains largely led by donors.
  - Major donors in Armenia cited: WB, IMF, USAID, EU, GTZ, DFID.
  - Donors have approved recent country assistance strategies in line with PRSP themes.
  - The U.S. Millennium Challenge Corporation approved funding for priority activities, taking into account the PRSP consultation process and poverty reduction priorities.
  - Staffs urge the government, through the PRSP secretariat, to take a more active role in donor coordination and to strengthen the administrative setup to undertake this task effectively.
  - Staffs suggest strengthening synergies between the PRSP and the European Neighborhood Policy (ENP) action plan.
  - Staffs note increasing involvement of private external transfers in poverty reduction and encourage the government to establish a framework for integrating these funds into the PRSP.
- Monitoring and evaluation:
  - A Monitoring Task Force was created in November 2003 shortly after PRSP approval.
  - The Task Force approved a set of 177 monitoring indicators, largely harmonized with the Millennium Development Goals (MDGs).
  - Staffs commend improvements in poverty measurement, analyses, and data availability, including through the web (www.prso.am).
  - Monitoring challenges remain: the Progress Report candidly states monitoring continues to require attention and information on some indicators is hard to collect.
  - The government approved a new decree (July, 2005) on strengthening PRSP implementation reporting.
  - Staffs encourage the government to:
    - address monitoring issues in the PRSP update,
    - adequately budget for improvements in monitoring through normal public expenditures, and
    - harmonize PRSP data reporting with budget and MDG reporting.

### Conclusions — key priorities and progress
- Overall assessment:
  - Armenia has had two very successful years of PRSP implementation in which most targets have been met or exceeded and which have been marked by a high level of consultation and participation.
  - The PRSP Progress Report provides rich information useful for donor assessment of government progress.
- Key areas needing greater effort over the coming year:
  - (i) Strengthening the business environment, particularly:
    - building competition in aviation and telecommunication services, and
    - deepening financial intermediation to build jobs.
  - (ii) Continuing to implement tax and customs reform to further increase the transparency and level of tax collections.
  - (iii) Deepening reforms in pensions, health and education to raise the quality of social services.
  - Recognition that progress in these areas will take time because problems are deep-rooted.
  - Noted achievements: significant progress over the past year in fiscal reforms and in preparing an action plan for pension reforms.
- Integration with budgeting and planning:
  - Staffs welcome efforts to progressively integrate the PRSP process into the MTEF and budget process, as well as MDG progress reports.
  - Armenia has succeeded in making the MTEF process an integral part of budgeting and planning; MTEFs over the last three years have basically reflected PRSP policy priorities.
  - As actual developments in Armenia have generally exceeded PRSP projections for 2003–05, there is an urgent need to update the macro-fiscal framework projections and outlook for the upcoming period.
  - Any changes to policy priorities in the new PRSP update would need to inform the budgetary process through the MTEF.

*Source: _cr06320 - 16.      The PRSP also highlights the importance of strengthening rural development,*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06320.pdf_