## _cr11191 — Progress Report on Implementation of the Sustainable Development Program (Year 2009-2010) ## Source details **Canonical URL:** [_cr11191 — Progress Report on Implementation of the Sustainable Development Program (Year 2009-2010)](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11191.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11191.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11191.pdf.json) --- ### PREFACE — scope, objective, and structure - Scope: covers the period 2009-2010. - Main objective: analyze status of implementation of the Sustainable Development Program (SDP) during 2009-2010 and discuss need for SDP revisions due to the 2008-09 global financial-economic crisis. - Report structure: - Section 1: macroeconomic and fiscal analysis; comparison with SDP plans; public debt implications; poverty analysis; reasons/consequences of deviations from SDP targets. - Section 2: situational analysis of social protection, healthcare, education, infrastructures, and institutional reforms. - Annex: tax policy reforms focus. - Emphases: assess SDP measure implementation 2009-2010; identify needed SDP revisions; highlight increased public debt burden implications; inform sector-level policy adjustments. ### Macroeconomic developments and general trends - Crisis impact and GDP: - Crisis started September 2008; Armenia GDP dropped by 1.2% in Q4 2008 vs Q4 2007 and recorded a general drop of 14.1% in 2009. - Recovery in 2010: economic growth of 2.1%. - GDP (AMD million at 2006 prices, actual): - 2006: 2656,2; 2007: 3021,4; 2008: 3229,9; 2009: 2772,8; 2010: 2831,0 - SDP forecast (GDP, AMD million at 2006 prices): - 2006: 2656,2; 2007: 3021,4; 2008: 3335,7; 2009: 3643,6; 2010: 3954,0 - Actual GDP/Forecast of GDP in SDP, %: - 2008: 96,8; 2009: 76,1; 2010: 71,6 - Pre-crisis model (2003-2008) based on external financing led to excessive import and non-tradeable growth, reduced exports and industry, and constant appreciation of AMD. - SDP structural objective: shift toward goods and tradable services; reduce construction share in GDP to 20,9% in 2015 and 15% in 2021 (from 23,3% in 2007). - Reasons to revise SDP macro forecasts: - Substantial structural change from the crisis; foreign financing declined by around 25% in 2009-2010. - New risks: food price surge (WB: January 2011 food prices averaged 250% of 2005 level) and global warming affecting agriculture. ### Sectoral developments (2008–2010) - Construction: - Share in GDP declined from 24.7% pre-crisis to 16.9% in 2010. - Construction decline caused 73.9% of the economic decline in 2009 (14.1% overall decline). - Construction (actual, AMD million at 2006 prices): 2008: 799,1; 2009: 461,1; 2010: 478,2 - Services: - Least affected: only 1.1% decrease in 2009; remained main driver of growth. - Services (actual): 2008: 1048,4; 2009: 1037,3; 2010: 1084,5 - Industry and agriculture: - Industry (actual): 2008: 482,4; 2009: 445,8; 2010: 488,1 - Agriculture and forestry (actual): 2008: 554,9; 2009: 554,4; 2010: 480,1 - Sectoral growth rates (actual): Industry 2008: 2,4; 2009: -7,6; 2010: 9,5. Agriculture 2008: 1,3; 2009: -0,1; 2010: -13,4. Construction 2008: 7,2; 2009: -42,3; 2010: 3,7. Services 2008: 9,0; 2009: -1,1; 2010: 4,6 - Policy implication: revise SDP to prioritize tradables, higher value added, productivity, diversification, and external competitiveness. ### External commerce and balance of payments - Selected BOP figures (USD million, actual): - GDP: 2006: 6384,5; 2007: 9206,3; 2008: 11662,0; 2009: 8648,0; 2010: 9371,2 - Exports, goods: 2006: 1025,4; 2007: 1196,6; 2008: 1112,0; 2009: 748,9; 2010: 1113,2 - Imports, goods: 2006: -1921,3; 2007: -2796,9; 2008: -3775,5; 2009: -2830,1; 2010: -3255,0 - Balance of goods and services: 2006: -1026,2; 2007: -1812,8; 2008: -2990,6; 2009: -2349,4; 2010: -2382,8 - Current account: 2006: -117,1; 2007: -589,3; 2008: -1381,8; 2009: -1369,5; 2010: -1300,1 - Current account as % of GDP (actual): 2006: -1,8; 2007: -6,4; 2008: -11,8; 2009: -15,8; 2010: -13,9 - Comparison with SDP: actual relative current account (13,9%) substantially higher than SDP forecast (9,3%). - Exports structure (USD million, actual): - Agricultural product: 2006: 26.8; 2007: 25.0; 2008: 31.7; 2009: 35.2; 2010: 39.3 - Prepared food: 2006: 95.1; 2007: 144.5; 2008: 167.9; 2009: 99.6; 2010: 131.2 - Mineral products: 2006: 136.6; 2007: 173.5; 2008: 172.5; 2009: 145.6; 2010: 276.5 - Precious and semi-precious stones and metals: 2006: 301.0; 2007: 208.7; 2008: 173.1; 2009: 105.1; 2010: 134.1 - Non-precious metals and items: 2006: 280.9; 2007: 390.2; 2008: 346.8; 2009: 231.2; 2010: 332.4 - Total exports (BOP): 2006: 1025.5; 2007: 1196,6; 2008: 1112,0; 2009: 748,9; 2010: 1113,2 - Imports structure (USD million, actual): - Agricultural product: 2006: 179,7; 2007: 282,0; 2008: 411,8; 2009: 347,3; 2010: 366,4 - Mineral-rough production: 2006: 366,0; 2007: 516,4; 2008: 664,5; 2009: 540,6; 2010: 679,2 - Cars, equipment and machinery: 2006: 304,4; 2007: 427,3; 2008: 645,0; 2009: 628,7; 2010: 655,0 - Total imports (FOB): 2006: 1921,3; 2007: 2796,9; 2008: 3775,6; 2009: 2830,1; 2010: 3255,0 - Export potential and implication: - Realistic prospects for significant export increases: agricultural goods and prepared food. - Medium-term potential: construction materials and engineering with supportive policy environment. - Recommendation: revise SDP external relations and export forecasts; design export-promoting policy. ### Prices, exchange rate, and reserves - Inflation and CPI: - SDP per annum inflation forecast after 2010: 3% per annum — suggested revision given international price trends. - Imported goods prices increased by 46.8% within 3 years, creating strong inflationary pressure. - Exchange rate AMD/1USD (quarterly): - 2008 Q1–Q4: 308,1; 307,1; 302,3; 306,4 - 2009 Q1–Q4: 325.6; 370.5; 372.6; 384.4 - 2010 Q1–Q4: 384.1; 384.3; 365.5; 360.7 - Official reserves of foreign currency, USD mln. (quarterly): - 2008 Q1–Q4: 1602,3; 1578,2; 1585,3; 1405 - 2009 Q1–Q4: 1222.6; 1962.4; 2025.9; 2003.4 - 2010 Q1–Q4: 1911.3; 1786.9; 1852.6; 1865.8 - Monetary base, billion AMD (quarterly): - 2008 Q1–Q4: 380,8; 412,7; 438,3; 449,7 - 2009 Q1–Q4: 391.7; 407.9; 461.7; 511.7 - 2010 Q1–Q4: 465.0; 434.5; 438.4; 507.6 - Policy implication: revised SDP should balance export encouragement and anti-inflation policies given external inflation pressures. ### Fiscal sector — expenditures, revenues, and deficits - Fiscal stance 2009-2010: expansionary to mitigate crisis and assure social protection; increased expenditures led to budget deficits and higher public debt. - Consolidated budget indicators (% of GDP): - 2009 actual vs SDP: - Revenues: 23.19% vs 22.10% (difference 1.09%) - Expenditures: 34.84% vs 24.05% (difference 10.79%) - Deficit: -11.65% vs -1.95% (difference -9.71%) - Social expenditures: 14.34% vs 11.56% (difference 2.78%) - Economic expenditures: 8.16% vs 2.58% (difference 5.57%) - 2010 actual vs SDP: - Revenues: 23.47% vs 22.14% (difference 1.33%) - Expenditures: 28.98% vs 24.44% (difference 4.54%) - Deficit: -5.51% vs -2.30% (difference -3.21%) - Social: 12.66% vs 12.11% (difference 0.55%) - Economic: 3.69% vs 2.00% (difference 1.69%) - Expenditure composition (2009 actual total expenditures 34.8% of GDP): - General nature: 4.1% vs SDP 3.6% (0.6%) - Official and public order: 6.3% vs SDP 4.9% (1.4%) - Economic: 8.2% vs SDP 2.6% (5.6%) — participation in increase 51.6% - Social insurance: 7.8% vs SDP 6.1% (1.7%) — participation 16.0% - Education: 3.9% vs SDP 3.3% (0.5%) - Healthcare: 1.8% vs SDP 1.7% (0.1%) - Fiscal sensitivities: - Tax revenues highly sensitive to import volumes and gross demand; 2009 gross demand decrease reduced tax revenues. - Anti-crisis measures increased capital expenditures and net credit; some SDP priorities (healthcare, education) temporarily rescinded. ### Public debt — levels, composition, and management - Public debt (% of GDP): - 2009: SDP plan 15.9; actual 40.4 - 2010: SDP plan 16.4; actual 39.4 - 2011: SDP plan 17.0; actual 41.3 - External vs domestic debt (% of GDP): - External Debt 2009 SDP 13.2 vs actual 35.7; 2010 SDP 13.2 vs actual 34.2; 2011 SDP 13.3 vs actual 35.9 - Domestic Debt 2009 SDP 2.7 vs actual 4.8; 2010 SDP 3.2 vs actual 5.1; 2011 SDP 3.7 vs actual 5.4 - Present value of public debt (% of GDP): - Pre-crisis forecast 2009–2013: 6.6; 6.3; 6.1; 6.0; 6.0 - Post-crisis actual/corrected forecast 2009–2013: 27.2; 26.9; 28.7; 28.3; 27.0 - Debt burden indicators (selected): - Republic of Armenia PV/GDP: 2007: 9; 2008: 9; 2009: 27; 2010: 27 - PV public debt / exports: 2007: 47; 2008: 57; 2009: 169; 2010: 139 - Interest payment of public debt / exports: 2007: 1; 2008: 1; 2009: 2; 2010: 2 - Public debt / exports: 2007: 82; 2008: 90; 2009: 222; 2010: 117 - Debt composition and risks: - Number of external creditors exceeds a dozen; increased share of IMF, ADB and RF among creditors. - Amortization profile: average repayment period: government debt 3.9 years; public debt 12.6 years — domestic debt has higher refinancing risk. - Currency composition includes USD, SDR, EUR, JPY, Other — diversification reduces exchange rate servicing risk. - Interest rate risk rising due to decreased concessional borrowing; effective weight of commercial loans in 2010 external loans: 55% (2009: 65%). - Debt management improvements: - DMFAS 6 software purchased; annual program of state bonds and issuance principles developed; from 2011, 7-year benchmark bonds issued. - Cooperation with donors; agreement with IMF to maintain average concessionality of borrowing at 30% until year-end. - Strategic directions: - Ensure transparency, strengthen investor trust, diversify debt sources, increase domestic long-term borrowing, and improve fiscal-monetary coordination. ### Poverty and inequality snapshot - SDP poverty goals: population welfare growth, poverty reduction, elimination of extreme poverty; SDP envisages poverty rate 6.8 percent in 2021. - Poverty dynamics (actual, %): - Poor population share: 2004: 34.6; 2005: 29.8; 2006: 26.5; 2007: 25.0; 2008: 23.5; 2009: 28.7 - Extreme poor: 2004: 6.4; 2005: 4.6; 2006: 4.1; 2007: 3.8; 2008: 3.1; 2009: 5.2 - Reduction of poverty rate vs previous year, %: 2005: 13.9; 2006: 11.1; 2007: 5.7; 2008: 6.0; 2009: -22.1 - MCB and poverty line: - SDP envisaged aligning poverty line with MCB by 2018; SDP MCB-based poverty rates forecast: 24.8% in 2012 and 11.4% in 2021. - MCB rose in 2006-2009 by about 20%; MCB-based poverty rate increased by 8.3 percentage points over same period. - Conclusion: SDP mid-term and long-term poverty targets need revision. - Poverty by population groups (actual, %): - Children under 5 years: 2009: 39.6 - Pensioners: 2009: 39.9 - Wage-employees: 2009: 25.5 - Self-employed: 2009: 29.7 - 2009 actual / 2012 SDP target, % (selected): - Children under 5 years: 307.0 - Pensioners: 687.9 - Wage-employees: 708.3 - Self-employed: 210.6 - Income structure and social transfers (per capita monthly monetary income, AMD): - Per capita income: 2004: 14,450; 2005: 15,949; 2006: 18,446; 2007: 22,287; 2008: 26,866; 2009: 28,038 - Annual growth: 2005: 10.4; 2006: 15.7; 2007: 20.8; 2008: 20.5; 2009: 4.4 - Income from employment and sale of agricultural goods (AMD): 2009: 18,529 (share in monetary incomes 66.1%; growth vs previous year -0.6) - Social transfers (AMD): 2009: 5,615 (share in monetary incomes 20.0%; growth vs previous year 15.3) - Private transfers (AMD): 2009: 2,669 (share in monetary incomes 9.5%) - Role of social transfers during crisis: - In 2009 social transfers accounted for about 50 percent of per capita monetary incomes of the poorest 20 percent and 13 percent of the richest 20 percent. - In the two poorest deciles the share of social transfers increased by 5 percentage points vs 2008 and by 8 percentage points vs 2007. - Inequality indicators (selected): - Monetary income ratio richest 20% / poorest 20%: 2004: 10.6; 2005: 9.5; 2006: 7.6; 2007: 8.0; 2008: 7.8; 2009: 8.0 - Monetary income ratio richest 10% / poorest 10%: 2004: 20.8; 2005: 17.9; 2006: 13.9; 2007: 15.6; 2008: 14.1; 2009: 14.5 - Gini coefficient: 2004: 0.395; 2005: 0.359; 2006: 0.369; 2007: 0.371; 2008: 0.339; 2009: 0.355 - Observations and policy implications: - Inequality fell 2004–2008 but increased in 2009 alongside poverty growth. - SDP targets on poverty and inequality need review; policy focus should emphasize employment growth, productivity, pensions, benefits, and targeted social protection. ### Regional poverty profile and dynamics - Poverty rate by region (2004–2009, %): - Yerevan: 29.2, 23.9, 21.0, 20.0, 19.7, 22.0 - Other cities: 43.9, 37.8, 35.8, 29.8, 28.3, 35.5 - Rural areas: 31.7, 28.3, 23.4, 25.5, 22.9, 29.1 - Total Armenia: 34.6, 29.8, 26.5, 25.0, 23.5, 28.7 - 2009/2008 growth in poverty (percentage points): - Yerevan: 2.3; Other cities: 7.2; Rural areas: 6.2; Total Armenia: 5.2 - 2009 Actual / 2012 SDP target, % (poverty): - Yerevan: 252.9; Other cities: 191.9; Rural areas: 195.3; Total Armenia: 205.0 - Extreme poverty (2004–2009, %): Yerevan 6.1→3.7; Other cities 9.2→8.8; Rural areas 4.4→3.4; Total Armenia 6.4→5.2 - SDP feasibility notes: - To meet SDP 2012 poverty target for Yerevan, poverty must be reduced by 2.5 times and extreme poverty by 3.4 times from 2009 to 2012. - Recommendation: introduce comprehensive regional development policy focused on small and medium-sized urban areas and address regional disparities. ### Agriculture — SDP progress assessment - Key indicators (2006 baseline; 2010 target; 2010 actual; Actual/Target, %): - Total value added, billion AMD current prices: 2006: 495; 2010 target: 697; 2010 actual: 609.4; Actual/Target: 87.4 - GDP ratio, percent: 2006: 18.7; 2010 target: 14.8; 2010 actual: 17.4; Actual/Target: 117.6 - Index (real, 2006=100): 2006: 100; 2010 target: 125; 2010 actual: 94; Actual/Target: 75.2 - Average annual rate of real growth, percent: 2006: 5.74; 2010 target: -1.47; 2010 actual: -25.6 - Average annual inflation in agriculture, percent: 2006: 11.9; 2010 target: 3.4; 2010 actual: 7.0; Actual/Target: 206 - Employment and productivity: - Number of employed: 2006: 504.3; 2010 target: 504.3; 2010 actual: 454.8; Actual/Target: 90.1 - Labour productivity, thousand AMD current prices: 2006: 948.4; 2010 target: 1383.1; 2010 actual: 1167.8; Actual/Target: 84.4 - Monthly employment income from agriculture, thousand AMD: 2006: 46.39; 2010 target: 80.7; 2010 actual: 74.3; Actual/Target: 92.0 - Ratio vs non-agricultural monthly average wages, %: 2006: 61.1; 2010 target: 57.1; 2010 actual: 56.6; Actual/Target: 99.1 - Trade indicators for agricultural goods: - Export, mln USD: 2006: 26.8; 2010 target: 56.8; 2010 actual: 39.4; Actual/Target: 69.4 - Specific weight in total export, %: 2006: 2.67; 2010 target: 3.5; 2010 actual: 3.9; Actual/Target: 111.4 - Import, mln USD: 2006: 179.3; 2010 target: 386.1; 2010 actual: 366.4; Actual/Target: 94.9 - Specific weight in total import, %: 2006: 8.17; 2010 target: 7.5; 2010 actual: 9.7; Actual/Target: 129.3 - Assessment: - Agriculture underperformed SDP targets; 2010 value added achieved 87.4% of target; real growth achieved 75.2% of target; agricultural exports 69.4% of target. - Imports' weight in agricultural value added rose from 15.5% to 22.5% (Actual/Target: 133.9), indicating competitiveness decline. - Activities under SDP: - About $27 million loan proceeds to 765 agricultural enterprises under IFAD and WB programs; Rural Finance Facility increased credit availability; subsidies for seeds, fertilizers; 3.2 billion AMD allocated in 2008–2009 for agricultural subsidies. - Recommendation: revise agricultural SDP targets and shift policy focus to competitiveness and productivity. ### Infrastructure — potable water, irrigation, transport, energy - Potable water — centralized supply availability (%, 2007–2009): - Total: 2007: 94,1; 2008: 97,0; 2009: 97,5 - Urban: 2007: 98,8; 2008: 99,4; 2009: 99.6 - Rural: 2007: 84,8; 2008: 92,4; 2009: 93.6 - Share of households using “imported” water: 2007: 1,7; 2008: 1,1; 2009: 0.3 - Average daily potable water-supply (hour/day) — selected (2007, 2008, 2009, 2010, 2010/2007, %): - Yerevanjur: 17.4; 17.8; 20.4; 21.1; 121.3% - Armenia water-sewerage company: 11.0; 12.0; 12.7; 13.7; 124.5% - Shirak water-sewerage company: 7.3; 7.7; 9.2; 10.4; 142.5% - Lori water-sewerage company: 6.0; 8.5; 9.6; 10.7; 178.3% - Nor Akunq: 14.2; 17.8; 22.3; 22.4; 157.7% - Water supply equity issues: - 15 of 36 cities served by Armenian water-sewerage company had average daily supply < 10 hours in 2010. - Rural areas under this company's service: average daily supply 9.5 hours; about 20 percent of served rural areas had average daily supply of 1 hour or less. - Metering: consumers with water-meters increased from 519 000 in 2007 to 607 000 in 2010. - Irrigation: - Irrigated landpiece (1000 Ha): 2007: 125,6; 2008: 128,9; 2009: 128,1; 2010: 128,8 - Volume of provided water, mln m³: 2007: 523,8; 2008: 576,7; 2009: 412; 2010: 396,5 - Water discharge intensity, 1000m³/Ha: 2007: 4,17; 2008: 4,47; 2009: 3,22; 2010: 3,08 - SDP 2012 objective: expand irrigated land area by 30% vs 2006 to 160 000 hectares; 2010 reached 128.8 thousand hectares (4.7% increase vs 2006) — short of target. - Transport — state budget expenditures on roads (million AMD; GDP ratio): - Expenditure: 2007: 44 243; 2008: 41 901; 2009: 57 792; 2010: 32 540 - GDP ratio: 2007: 1,40%; 2008: 1,17%; 2009: 1,84%; 2010: 0,93% - Donor programs: WB lifeline roads, ADB North-South corridor, ADB rural roads. - Measures: performance-based road maintenance payments and works insurance mechanisms (GoA degree N 1419, 04.11.2010). - Energy sector — SDP directions and developments: 1. Renewable and own resources: - As of March 1, 2011, 101 small HPPs; aggregated installed capacity: 129.47Mw; energy production: about 409.9 M Kw/hour. - After 2008, 41 small HPPs commissioned with aggregate installed capacity of 54Mw and energy production of 177.84 M Kw/hour. - Construction licenses issued to 74 small HPPs with installed capacity ~140,6 Mw (as of March 1, 2011). - “Small HPP development scheme” (2009) envisaged 108 additional small HPPs with designed capacity 134 Mw. - Vorotan HPP complex rehabilitation: Euro 51 M Loan and Project Agreement signed October 20, 2010. - BOOT of Meghri HPP agreement signed October 15, 2010: installed capacity 130 Mw; annual output 800 M Kw/hour; construction completion within 5 years; subsequent 15 years energy to Iran. 2. Nuclear energy: - RA law adopted October 27, 2009; Armenian-Russian joint company “Metsamorenergoatom” CJC founded (Decree N 1458, December 3, 2009). - Cooperation agreement signed August 20, 2010; feasibility study completed; platform selection license granted; negotiations with investors ongoing. 3. Diversification and integration: - Iran-Armenia gas pipeline constructed; regular supplies from Iran started May 13, 2009. - Underground natural gas storage capacity increased to 132.7 M m³ as of 2010; capacity envisaged to 140 M m³. - Transmission network rehabilitation and SCADA improvements implemented with donor support. 4. Energy efficiency: - RA Ministry discussing energy efficiency directives and bylaws with the EU under Armenia-EU Association Agreement. ### Social protection — overall spending and program performance - SDP fiscal targets: state expenditures on social protection should double by 2010, increase by 4.1 times in 2015 and 6.7 times in 2021 (assumed inclusion of funded pension system starting 2010, postponed to 2014). - Performance vs SDP: - 2008-2009 nominal short-term targets fulfilled by 96-97 percent. - 2010-2011 targets fulfilled by 81-83 percent (without funded pension system costs). - 2012 MTEF: targets would be fulfilled only by 63 percent. - State expenditures on social protection in nominal terms, billion AMD (selected Actual vs SDP target and Actual/SDP %): - Actual: 212.6 (2008) a; 243.6 (2009) a; 244.2 (2010) a - SDP target: 219.2 (2008); 253.6 (2009); 295.4 (2010) - Actual/SDP target, %: 97.0 (2008); 96.1 (2009); 82.7 (2010) - Pension security (nominal, billion AMD) and Actual/SDP %: - Actual: 154.9 (2008) a; 177.6 (2009) a; 178.5 (2010) a - SDP target: 158.4 (2008); 182.5 (2009); 217.4 (2010) - Actual/SDP: 97.8 (2008); 97.3 (2009); 82.1 (2010) - Note: given GDP decline, these expenditures had greater shares in GDP than SDP had foreseen. ### Family Benefit System (FBS) and social assistance - FBS public expenditure, mln drams: - Actual: 28,838 (2008) a; 29,146 (2009) a; 30,878 (2010) a; 35,497 (2011) b - SDP target: 29,761 (2008); 32,757 (2009); 36,963 (2010) - Actual/SDP target, %: 96.9 (2008); 98.9 (2009); 83.5 (2010) - Coverage: - Families registered: Actual d: 165,394 (2008); 146,500 (2009); 138,000 (2010) - Beneficiary families: Actual: 121,160 (2008); 107,492 (2009); 105,005 (2010) - SDP beneficiary families target: 116,204 (2008); 114,000 (2009); 114,000 (2010) - Actual/SDP target, % (beneficiaries): 104.3 (2008); 94.3 (2009); 92.1 (2010) - Average monthly benefit per family, drams: - Actual d: 21,100 (2008); 23,560 (2009); 26,850 (2010) - SDP target: 21,090 (2008); 23,658 (2009); 26,695 (2010) - Actual/SDP target, %: 100.0 (2008); 99.6 (2009); 100.6 (2010) - Targeting: - SDP aiming for 78 percent targeting by 2010; 2009 NSS Standards of Living Survey: around 77 percent of FBS recipients are from the poorest 20 percent — SDP target achieved for recipient targeting. - Conclusions/recommendations: - Retain FBS policy long-term; revise short- and medium-term approaches to increase direct assistance and maximize poor participation; revise SDP targets for beneficiary numbers and amounts. ### Other social programs — childbirth and under-2 benefits - One-time childbirth benefit — public expenditures, mln drams: - Actual: 1,351 (2008) a; 5,066 (2009) a; 4,721 (2010) a; 4,675 (2011) b - SDP target: 4,136 (2009); 4,719 (2010); 5,094 (2011) - Actual/SDP target, %: 122.5 (2009); 100.0 (2010); 91.8 (2011) - Under-2 childcare benefit — public expenditures, mln drams: - Actual: 221.7 (2008) a; 1,860 (2009) a; 2,567 (2010) a; 2,340 (2011) b - SDP target: 217.9 (2008); 1,311 (2009); 1,634 (2010); 1,817 (2011) - Actual/SDP target, %: 101.7 (2008); 141.8 (2009); 157.1 (2010); 128.8 (2011) - Observations: - Childbirth benefits did not increase at SDP envisaged rates due to scarce budget resources. - Under-2 childcare expenditures exceeded SDP targets due to rapid beneficiary growth (increasing birthrate); 2010 actual beneficiaries close to SDP 2018 forecasts. - Recommendation: continue childbirth benefit policy and adjust under-2 targets to reflect beneficiary growth. ### Pensions — objectives, parameters, and reforms - SDP pension objectives: - Reduce poverty risk for labor pensioners; narrow gap between pensioner and worker well-being. - Instruments: increased budget financing, increased base pensions. - Medium-term targets: average labor pension ≥ 100 percent of MCB by 2012; base pension ≥ 100 percent of poverty line by 2015. - Outcomes and parameters: - Monthly base pension increased to 8,000 drams in 2009 and to 10,500 drams starting November 2010 (from 6,800 drams in 2008). - Increment per worked year increased to 450 drams starting 2009 (from 395 drams in 2008). - Draft pension reforms: funded pension pillar to be introduced in 2014; Law on State Pensions increases required work experience to 10 years in 2016 from 5 years currently. - Performance vs SDP: budgeted pensions executed in full; average monthly labor pension increased in 2009 but declined in 2010; base pension-to-poverty line followed similar pattern. - Constraints: limited fiscal space after crisis and higher food prices raised MCB above SDP projections. ### Healthcare — financing, services, and outcomes - SDP healthcare goals: increase accessibility, availability and quality; improve territorial accessibility and consumption by living-standard groups. - Budget execution: - 2009 health expenditure in state budget was 85 percent of budgeted amount; actual expenditures less than planned by 9.9 bln drams. - 2010 state budget actual expenditures differed from SDP target by 26.0 bln drams; 2011 approved budget differed by 40.8 bln drams. - Share of healthcare expenditure in GDP: actual 1.7% (2011) vs target 2.0% (2011). - Consolidated budget healthcare expenditures (bln drams): - SDP: 66.1 (2009); 81.2 (2010); 103.3 (2011) - Actual: 55.2 (2009); 56.1 (2010); 62.5 (2011) - Per capita public allocations for healthcare: - 2009 actual: 17.4 thousand drams; 2010 remained close to 17.4 thousand drams; 2011 planned: 19.2 thousand drams. - Maternal and child health: - Delivery assistance program investments: 5.9 bln drams (2009); 5.7 bln drams (2010); 6.9 bln drams planned (2011). - Maternal mortality reduced by 20 percent in 2009 and by 70 percent in 2010; child mortality improved (selected indicators show declining trends). - Access disparities (2009 ILCS): - In case of sickness, 30.5 percent of population applies for medical consultation or treatment: Yerevan 36.2%; other cities 33.5%; rural 22.2%. - By poverty: non-poor 35.3%; poor 21.4%; extremely poor 1.2% apply for medical consultation or treatment. - Consumption of healthcare services by quintile (2009): richest (5th quintile) share 7.2% vs poorest (1st quintile) 0.2%. - Disease control and quality measures: TB, HIV/AIDS, malaria programs continued; registers for hypertension and diabetes introduced (MIDAS-3); “Proper Medicine Manufacturing Rules” approved. ### Education — reforms, financing, and targets - Institutional reforms: - 2009 laws on General Education and State Agency of Education adopted; State Agency established. - Knowledge assessment concept approved; testing center established; unified examination system for graduation and university admission introduced. - National center for educational technologies; students per computer improved: 38 (2008); 36 (2009); 30.2 (2010). - 944 schools (64% of all) in “Internet Network of Armenian Schools”; electronic libraries in all secondary schools. - Teacher and school reforms: - 91 high schools operating separately; planned 104 by 2011. - Teacher retraining: 20% retrained annually; attestation introduced from 2011. - 2009 average calculated monthly salary of teachers: 116.3 thousand drams (57% increase vs 2007). - Teacher salary ratio to GDP per capita: 2009 ratio 1.4 (SDP targeted 1.1-1.3); 2010 ratio 1.3. - Preschool and inclusive education: - 2008-2015 strategic program; target preschool coverage 75% by 2013 and ~91% by end-2015. - Pilot preschool groups and alternative models implemented; inclusive education in 65 secondary schools. - Financing and SDP targets: - SDP aims: increase public education spending to 4% of GDP by 2015 and 14% of consolidated budget expenditures starting 2012. - Education expenditures from consolidated budget (bln drams): - Actual: 113.5 (2008) a; 121.0 (2009) a; 111.9 (2010) a; 126.5 (2011) b - SDP target: 110.9 (2008); 135.1 (2009); 156.0 (2010); 179.1 (2011) - Actual/SDP target, %: 102.3 (2008); 89.6 (2009); 71.7 (2010); 70.6 (2011) - Education expenditures in GDP, % Actual: 3.2 (2008); 3.9 (2009); 3.2 (2010) - Observation: maintaining 4% of post-crisis GDP by 2015 remains a challenge. ### Environment — progress and risks - Legislative and institutional improvements and second National Environmental Action Plan implementation recorded. - Sevan Lake levels (cm change): - 2007 – 55 cm; 2008 – 6 cm; 2009 – 38 cm; 2010 – 47 cm - Level on December 31, 2010: 1899.70 m. - Environment funding: - 2011 state budget allocation for nature protection: 8.8 bln drams, nearly 33 percent more than in 2010 (2009 payments did not exceed 6.2 bln drams). - Armenia remains significantly behind developed European countries in share of public expenses on environment within GDP. - Key environmental risks to keep among Government priorities: - Enlargement of the mining sector (international metal prices driven). - Illegal logging conditioned by increasing gas prices. - Dangers to underground water resources from rapid sector development. ### Institutional reforms, anti-corruption, judicial and police reforms - Institutional administration: - Armenia ahead of CIS peers but behind Eastern European and Baltic states; SDP prioritizes structural/functional administrative reform, public/civil service effectiveness, judicial and public financial administration improvements. - Anti-corruption: - Corruption-related offense types set at 31 since 2007 (UN Convention alignment). - Case statistics: 2007 investigated 120 cases; 2008 materials prepared for 524 cases (390 criminal cases opened); 2009 materials 771 (390 opened); 2010 materials 895 (385 opened). - Measures: working groups, a special investigation service for senior employees, civil society involvement (CIPAs and NGOs), seminars and sub-legislative documents. - Judicial reforms: - Plans to expand free legal assistance, clarify expert status in lawsuits, improve witness/victim protection, introduce agreement process for accelerated investigations; World Bank assistance to develop commercial arbitration. - Judges’ salaries: official rate 220.0 thousand drams in 2008; by 2011 increase only 12% vs 2008. - Judicial financing indicators (selected): - 2009 delivery of total expenditures: 93.6%; share within state budget: 0.7; ratio per capita expenditures on judicial system and GDP per capita: 0.0020 - 2010 delivery: 98.1%; share: 0.6; ratio: 0.0017 - Technical assistance: courts automation, “SRS Femida”, public information systems, archiving systems. - Police and public order reforms: - Road traffic security reforms, GPS locators, repositories for accidents and registrations, automated speed-control plans, and establishment of offenses recording center from 2011. - Passport and visa system improvements, “one hall” principle, hotline, and planned biometric passports from September 2011. - Structural changes: Government decision 367-NG (April 7, 2011) abolished Transport division of RA Police; stepwise transition to special civil service; database integration planned by end-2012; transition to contract-based police service planned for 2012. - Public confidence measures: updated website, AVAYA crime reporting system, quick response center concept, consolidated complaints registration system. ### Public finance management and tax policy reforms - Program budgeting: - Introduction of program budgeting principles, programmatic classification, non-financial program indicators, and “program passports”. - Quarterly monitoring reports submitted to Ministry of Finance; pilot direct Treasury access to program managers. - Planned legislative alignment by 2013 to present budget information mainly in program format. - Treasury and cash-flow planning: - Budgetary commission established with monthly cash forecasts (by weeks) based on receipts, payments, debt issuance and payment arrears. - Treasury providing direct access to systems for program managers (pilot in Yerevan Municipality). - Tax policy and administration measures (selected): - High VAT non-taxing threshold set at 58.35 mln drams of annual turnover for small/medium business support. - Legislative changes to replace alternative taxation systems with common taxation for selected activities (laws HO-126-N, HO-130-N, HO-128-N, HO-148-N). - Institute of tax representation for large taxpayers and “excise warehouse” regime introduced from 1 January 2010. - Electronic tax invoice system introduced on 1 January 2011 for real-time tax invoicing control. - Electronic submission of reports and an e-management concept: by 30.12.2010, 27 reports in electronic reports system; 70,000 electronic reports; 4,085 taxpayers submitting electronic reports. - Risk-based audits and simplified VAT refund/set-off criteria introduced (GoA Decree N 1487-N; GoA Decree N 1758-N). - Customs simplification and risk management measures (GoA Decree N 636-N; RA Law HO-25-N). - Measures to reduce administrative burden: VAT exemption threshold, simplified reporting, one-stop station for TPRN (from April 2011), reduction of mandatory contacts and reports. - Service centers for taxpayers established (Arabkir and Vanadzor in 2010-2011); terminals installed in tax inspections and customs points. *Progress Report on Implementation of the Sustainable Development Program (Year 2009-2010), _cr11191* ### PREFACE ................................................................................................................ ### PREFACE ### Scope and objective - Covers the period 2009-2010. - Main objective: analyze the status of implementation of the Sustainable Development Program (SDP) during 2009-2010 and discuss the need for revisions under the SDP due to the 2008-09 global financial-economic crisis. ### Structure of the Report - Section 1: Analysis of social-economic progress within the context of the SDP. - Provides brief analyses of the macroeconomic and fiscal sectors. - Compares main indicators with the plans set out in the SDP. - Stresses issues associated with public debt, in light of the recent increase in the debt burden. - Describes the behavior of main indicators and analyzes poverty in Armenia in the reporting period. - Provides analysis of reasons for and consequences of deviations of main target indicators under the SDP. - Section 2: Situational analysis of key sectors and fields. - Covers social protection, healthcare, education, infrastructures, and institutional reforms. - Annex: Dedicated to tax policy reforms. ### Emphases and analytical focus - Assess implementation progress of SDP measures during 2009-2010. - Identify and discuss needed revisions to SDP in response to the 2008-09 global financial-economic crisis. - Highlight the implications of an increased public debt burden. - Examine deviations of actual outcomes from SDP targets and analyze underlying causes and consequences. - Provide sector-level situational analysis to inform policy and program adjustments. *Progress Report on Implementation of the Sustainable Development Program (Year 2009-2010) — PREFACE* ### 1. SOCIAL-ECONOMIC DEVELOPMENTS WITHIN THE ### 1. SOCIAL-ECONOMIC DEVELOPMENTS WITHIN THE CONTEXT OF THE SUSTAINABLE DEVELOPMENT PROGRAM 2009-2010 ### 1.1. Macroeconomic developments and situation — Economic growth, general trends - Global crisis impact: - Crisis started September 2008; Armenia GDP dropped by 1.2% in Q4 2008 vs Q4 2007 and recorded a general drop of 14.1% in 2009. - Recovery in 2010: economic growth of 2.1%. - Table 1 highlights (GDP, AMD million at 2006 prices and growth rates): - GDP (actual) 2006: 2656,2; 2007: 3021,4; 2008: 3229,9; 2009: 2772,8; 2010: 2831,0 - Rate of GDP growth, %: 2006: 13,7; 2007: 6,9; 2008: -14,1; 2009: 2,1 - SDP forecast (GDP, AMD million at 2006 prices): 2006: 2656,2; 2007: 3021,4; 2008: 3335,7; 2009: 3643,6; 2010: 3954,0 - SDP forecast growth rates, %: 2006: 10,4; 2007: 9,2; 2008: 8,5 - Actual GDP/Forecast of GDP in SDP, %: 2008: 96,8; 2009: 76,1; 2010: 71,6 - Pre-crisis development model (2003-2008) based on external financing (FDI and private transfers) led to: - Excessive growth of imports and non-tradeables, reduced employment opportunities, reduction of exports and industry, constant appreciation of AMD. - Construction and services aggregate share of GDP increased from 50,1 in 2003 to 56,4% in 2007 and 59,3% in 2008. - SDP structural objective: gradual transition toward growth of goods and services, reducing dependence on external financing and reducing construction share in GDP to 20,9% in 2015 and 15% in 2021 (from 23,3% in 2007). - Need to revise SDP macro forecasts because: - (1) Crisis resulted in substantial structural change making economy potentially more stable. - (2) Foreign financing declined by around 25% in 2009-2010, requiring incentives for exports, diversification, high quality job openings and productivity. - (3) New risks: drastic increase of prices for food products in 2010-2011 (WB: January 2011 food prices averaged 250% of 2005 level) — creates tension in trade balance, balance of payments, poverty prevention. - (4) Global warming increases climate unpredictability, may reduce agricultural revenues and increase government expenditures for compensation and rural poverty prevention. ### 1.1.2. Developments in the Main Sectors - Construction sector shock: - Share of construction in GDP declined from pre-crisis 24.7% to 16.9% in 2010. - Construction decline caused 73.9% of the economic decline in 2009 (14.1% overall decline). - Services sector: - Least affected by crisis: only 1.1% decrease in 2009, remaining main driver of growth. - Sectoral GDP by branch (selected figures at 2006 prices): - Construction (actual) 2008: 799,1; 2009: 461,1; 2010: 478,2 - Services (actual) 2008: 1048,4; 2009: 1037,3; 2010: 1084,5 - Industry (actual) 2008: 482,4; 2009: 445,8; 2010: 488,1 - Agriculture and forestry (actual) 2008: 554,9; 2009: 554,4; 2010: 480,1 - Sectoral dynamics (growth rates, actual): - GDP growth rates: 2007: 13,7; 2008: 6,9; 2009: -14,2; 2010: 2,1 - Industry: 2008: 2,4; 2009: -7,6; 2010: 9,5 - Agriculture and forestry: 2008: 1,3; 2009: -0,1; 2010: -13,4 - Construction: 2008: 7,2; 2009: -42,3; 2010: 3,7 - Services: 2008: 9,0; 2009: -1,1; 2010: 4,6 - Implication: need to revise SDP with focus on tradeables, higher value added and productivity, sectors with competitive value, and increasing external competitiveness. ### 1.1.3. External Commerce and Balance of Payments - Table 6 key actual figures (USD million): - GDP actual: 2006: 6384,5; 2007: 9206,3; 2008: 11662,0; 2009: 8648,0; 2010: 9371,2 - Exports, goods: 2006: 1025,4; 2007: 1196,6; 2008: 1112,0; 2009: 748,9; 2010: 1113,2 - Imports, goods: 2006: -1921,3; 2007: -2796,9; 2008: -3775,5; 2009: -2830,1; 2010: -3255,0 - Balance of goods: 2006: -895,9; 2007: -1600,3; 2008: -2663,5; 2009: -2081,3; 2010: -2141,8 - Exports goods and services: 2006: 1510,2; 2007: 1776,7; 2008: 1757,0; 2009: 1338,4; 2010: 1862,7 - Imports goods and services: 2006: -2536,4; 2007: -3589,5; 2008: -4747,6; 2009: -3687,8; 2010: -4245,5 - Balance of goods and services: 2006: -1026,2; 2007: -1812,8; 2008: -2990,6; 2009: -2349,4; 2010: -2382,8 - Current account: 2006: -117,1; 2007: -589,3; 2008: -1381,8; 2009: -1369,5; 2010: -1300,1 - Current account as % of GDP (actual): 2006: -1,8; 2007: -6,4; 2008: -11,8; 2009: -15,8; 2010: -13,9 - Comparison with SDP forecasts: actual relative current account (13,9%) substantially higher than SDP forecast (9,3%). - Exports structure (Table 7, USD million, actual): - Agricultural product: 2006: 26.8; 2007: 25.0; 2008: 31.7; 2009: 35.2; 2010: 39.3 - Prepared food: 2006: 95.1; 2007: 144.5; 2008: 167.9; 2009: 99.6; 2010: 131.2 - Mineral products: 2006: 136.6; 2007: 173.5; 2008: 172.5; 2009: 145.6; 2010: 276.5 - Precious and semi-precious stones and metals: 2006: 301.0; 2007: 208.7; 2008: 173.1; 2009: 105.1; 2010: 134.1 - Non-precious metals and items: 2006: 280.9; 2007: 390.2; 2008: 346.8; 2009: 231.2; 2010: 332.4 - Total exports (BOP): 2006: 1025.5; 2007: 1196.6; 2008: 1112.0; 2009: 748.9; 2010: 1113.2 - Imports structure (Table 8, USD million, actual): - Agricultural product: 2006: 179,7; 2007: 282,0; 2008: 411,8; 2009: 347,3; 2010: 366,4 - Mineral-rough production: 2006: 366,0; 2007: 516,4; 2008: 664,5; 2009: 540,6; 2010: 679,2 - Cars, equipment and machinery: 2006: 304,4; 2007: 427,3; 2008: 645,0; 2009: 628,7; 2010: 655,0 - Total imports (FOB): 2006: 1921,3; 2007: 2796,9; 2008: 3775,6; 2009: 2830,1; 2010: 3255,0 - Export potential and policy implication: - Sectors with realistic prospects for significant export increases: agricultural goods and prepared food (low share of exporting in gross production and beneficial export price dynamics). - Medium-term potential also in construction materials and engineering with favorable policy environment. - Conclusion: revise SDP for external relations and export forecasts; elaborate appropriate export-promoting policy. ### 1.1.4. Prices and Exchange Rate - Consumer price indices: - SDP forecasts for CPI 2008-2010 mainly corresponded to actual developments; actual 2010 values were higher mainly due to food price increases. - SDP per annum inflation forecast after 2010: 3% per annum — needs revision given international price growth trends. - Imported goods price index increase: - Imported goods prices increased rapidly by 46.8% within 3 years, creating strong inflationary pressures. - Increase of imported goods prices notably higher than exporting price indices, worsening external trade conditions in 2010. - Exchange rate and reserves (Table 10): - Exchange rate AMD/1USD (quarterly): - 2008 Q1–Q4: 308,1; 307,1; 302,3; 306,4 - 2009 Q1–Q4: 325.6; 370.5; 372.6; 384.4 - 2010 Q1–Q4: 384.1; 384.3; 365.5; 360.7 - Official reserves of foreign currency, USD mln.: - 2008 Q1–Q4: 1602,3; 1578,2; 1585,3; 1405 - 2009 Q1–Q4: 1222.6; 1962.4; 2025.9; 2003.4 - 2010 Q1–Q4: 1911.3; 1786.9; 1852.6; 1865.8 - Monetary base, billion AMD: - 2008 Q1–Q4: 380,8; 412,7; 438,3; 449,7 - 2009 Q1–Q4: 391.7; 407.9; 461.7; 511.7 - 2010 Q1–Q4: 465.0; 434.5; 438.4; 507.6 - Policy implication: revised SDP should seek a more balanced approach between encouraging exports and anti-inflation policies, considering external inflation pressures and reducing external dependence. ### 1.1.5. Fiscal Sector - Fiscal policy in 2009-2010 aimed at mitigating crisis effects and assuring social protection; expansionary fiscal policy increased expenditures, resulting in budget deficits and increased public debt. - Consolidated budget indicators (Table 11, % of GDP): - Year 2009 actual vs SDP: - Revenues: actual 23.19% vs SDP 22.10% (difference 1.09%) - Tax and social insurance: 20.46% vs 20.81% (-0.35%) - Tax: 17.19% vs 17.77% (-0.58%) - Expenditures: 34.84% vs 24.05% (difference 10.79%) - Social expenditures: 14.34% vs 11.56% (difference 2.78%) - Economic expenditures: 8.16% vs 2.58% (difference 5.57%) - Deficit: -11.65% vs -1.95% (difference -9.71%) - Year 2010 actual vs SDP: - Revenues: 23.47% vs 22.14% (difference 1.33%) - Tax and social insurance: 20.51% vs 21.20% (-0.69%) - Tax: 17.51% vs 18.06% (-0.55%) - Expenditures: 28.98% vs 24.44% (difference 4.54%) - Social: 12.66% vs 12.11% (difference 0.55%) - Economic: 3.69% vs 2.00% (difference 1.69%) - Deficit: -5.51% vs -2.30% (difference -3.21%) - Expenditure composition and shifts (Table 12, % of GDP): - 2009 actual total expenditures: 34.8% vs SDP 24.1% (difference 10.8%) - Of general nature: 4.1% vs 3.6% (0.6%) - Official and public order: 6.3% vs 4.9% (1.4%) - Economic: 8.2% vs 2.6% (5.6%) — participation in increase 51.6% - Social insurance: 7.8% vs 6.1% (1.7%) — participation 16.0% - Education: 3.9% vs 3.3% (0.5%) - Healthcare: 1.8% vs 1.7% (0.1%) - 2010 actual total expenditures: 29.0% vs SDP 24.4% (difference 4.5%) - Economic: 3.7% vs 2.0% (difference 1.7%) — participation 37.2% - Social insurance: 7.0% vs 6.4% (0.6%) - Education and Healthcare were below SDP targets in 2010 (Education actual 3.2% vs SDP 3.3%; Healthcare actual 1.6% vs SDP 1.7%). - Fiscal sensitivities and implications: - Tax revenues are highly sensitive to import volumes and gross demand; 2009 gross demand decrease (driven by reduced private transfers) caused falling tax revenues. - Anti-crisis actions increased share of capital expenditures and net credit; construction received additional support to maintain employment. - Government had to temporarily rescind some SDP expenditure priorities (healthcare and education) due to fiscal constraints. ### 1.1.6. Public Debt - Public debt increased substantially due to expansionary fiscal policy and crisis-related financing needs. - Public debt (% of GDP, Table 13 actual vs SDP plan): - 2009: SDP plan 15.9; actual 40.4 - 2010: SDP plan 16.4; actual 39.4 - 2011: SDP plan 17.0; actual 41.3 - External Debt: 2009 SDP 13.2 vs actual 35.7; 2010 SDP 13.2 vs actual 34.2; 2011 SDP 13.3 vs actual 35.9 - Domestic Debt: 2009 SDP 2.7 vs actual 4.8; 2010 SDP 3.2 vs actual 5.1; 2011 SDP 3.7 vs actual 5.4 - Present value of public debt (% of GDP) (Table 14): - Pre-crisis forecast 2009–2013: 6.6; 6.3; 6.1; 6.0; 6.0 - Post-crisis actual and corrected forecast 2009–2013: 27.2; 26.9; 28.7; 28.3; 27.0 - Debt burden classification (Table 15): - Republic of Armenia PV/GDP: 2007: 9; 2008: 9; 2009: 27; 2010: 27 - PV public debt / exports: 2007: 47; 2008: 57; 2009: 169; 2010: 139 - Interest payment of public debt / exports: 2007: 1; 2008: 1; 2009: 2; 2010: 2 - Public debt / exports: 2007: 82; 2008: 90; 2009: 222; 2010: 117 - As of 2010, only public debt/exports placed Armenia in the average burden group; other indicators place Armenia in light debt burden group. - Debt composition and risks: - Number of external creditors exceeds a dozen; increased share of IMF, ADB and RF among creditors. - Amortization profile (MoF data) indicates: - Average repayment period: government debt 3.9 years; public debt 12.6 years — domestic debt has higher refinancing risk. - Currency structure: external debt currency composition includes USD, SDR (basket of USD, EUR, GBP, JPY), EUR, JPY, Other — diversification reduces exchange rate servicing risk. - Interest rate risks rising due to decreased concessional borrowing and increased commercial loans; variable rate loans increasing. - Operational risk management needs strengthening: clear staff functions, succession planning, data backup. - Debt management improvements and actions taken (2009-2011): - DMFAS 6 software purchased for debt registration and analysis. - Annual program of state bonds issuing and issuance principles developed and published to strengthen predictability/transparency. - From 2011, 7-year benchmark bonds issued to develop yield curve. - Q4 2010 observed growth of public mid- and long-term bonds due to insurance sector reforms and mandatory vehicle insurance. - GoA cooperation with international donors to attract concessional funds; agreement with IMF to maintain average concessionality of borrowing at 30% until year-end. Effective weight of commercial loans in 2010 external loans: 55% (2009: 65%). - Strategic directions and key challenges for public loan management: - Ensuring transparency and strengthening investor trust. - Increasing effective weight of domestic borrowings for long-term deficit financing. - Diversification of debt sources. - More efficient coordination of fiscal and monetary policies. - Expansion of cooperation with multilateral and bilateral donors to attract more concessional loans. ### 1.2. Poverty and inequality snapshot — Poverty - SDP objectives: population welfare growth, poverty reduction, elimination of extreme poverty; SDP envisages poverty rate 6.8 percent in 2021. - Crisis effects on poverty: - Pre-crisis (2004–2008) poverty reduced annually: overall share below poverty line fell by 11.1 percentage points to 23.5 percent in 2008 (from 34.6 percent in 2004). - 2009: share of poor population increased to 28.7 percent (first increase since 1999); extreme poverty also rose. - Poverty dynamics (Table 16 and Figure 8): - Actual poor, %: 2004: 34.6; 2005: 29.8; 2006: 26.5; 2007: 25.0; 2008: 23.5; 2009: 28.7 - Extreme poor, %: 2004: 6.4; 2005: 4.6; 2006: 4.1; 2007: 3.8; 2008: 3.1; 2009: 5.2 - Reduction of poverty rate vs previous year, %: 2005: 13.9; 2006: 11.1; 2007: 5.7; 2008: 6.0; 2009: -22.1 - Comparison actual vs SDP targets: - 2008 actual/SDP targets, %: 119.3 (poor), 106.9 (extreme poor) - 2009 actual / 2010 SDP target: 168.8 (poor), 208.0 (extreme poor) - 2009 actual / 2012 SDP target: 205.0 (poor), 247.6 (extreme poor) - Minimum Consumption Basket (MCB) and poverty line: - SDP envisaged aligning poverty line with MCB by 2018; SDP MCB-based poverty rates forecast: 24.8% in 2012 and 11.4% in 2021. - MCB rose in 2006-2009 by about 20%; MCB-based poverty rate increased by 8.3 percentage points over same period. - Conclusion: SDP mid-term and long-term poverty targets need revision given actual MCB dynamics. - Poverty by population groups (Table 17): - Poverty rate by group, % actual: - Children under 5 years: 2004: 41.9; 2005: 34.9; 2006: 35.3; 2007: 33.2; 2008: 32.0; 2009: 39.6 - Pensioners: 2004: 33.2; 2005: 30.0; 2006: 26.5; 2007: 27.6; 2008: 34.5; 2009: 39.9 - Wage-employees: 2004: 27.5; 2005: 22.7; 2006: 21.3; 2007: 20.0; 2008: 20.7; 2009: 25.5 - Self-employed: 2004: 31.0; 2005: 27.3; 2006: 23.9; 2007: 20.8; 2008: 23.3; 2009: 29.7 - 2012 SDP targets: Children under 5 years 12.9; Pensioners 5.8; Wage-employees 3.6; Self-employed 14.1 - 2009 actual / 2012 SDP target, %: Children under 5 years 307.0; Pensioners 687.9; Wage-employees 708.3; Self-employed 210.6 - Drivers, income structure and social transfers (Table 18 and Figure 9): - Per capita average monthly monetary income (AMD): - 2004: 14,450; 2005: 15,949; 2006: 18,446; 2007: 22,287; 2008: 26,866; 2009: 28,038 - Annual growth, %: 2005: 10.4; 2006: 15.7; 2007: 20.8; 2008: 20.5; 2009: 4.4 - Income from employment and sale of agricultural goods (AMD): 2004: 9,770; 2005: 11,297; 2006: 13,120; 2007: 16,148; 2008: 18,647; 2009: 18,529 - Share in monetary incomes, %: 2004: 67.6; 2005: 70.8; 2006: 71.1; 2007: 72.5; 2008: 69.4; 2009: 66.1 - Growth vs previous year, %: 2005: 15.6; 2006: 16.1; 2007: 23.1; 2008: 15.5; 2009: -0.6 - Social transfers (all pensions, benefits and allowances) (AMD): 2004: 1,962; 2005: 2,253; 2006: 2,559; 2007: 3,068; 2008: 4,870; 2009: 5,615 - Share in monetary incomes, %: 2004: 13.6; 2005: 14.1; 2006: 13.9; 2007: 13.8; 2008: 18.1; 2009: 20.0 - Growth vs previous year, %: 2005: 14.8; 2006: 13.6; 2007: 19.9; 2008: 58.7; 2009: 15.3 - Private transfers (AMD): 2004: 1,817; 2005: 1,680; 2006: 1,698; 2007: 2,374; 2008: 2,692; 2009: 2,669 - Share in monetary incomes, %: 2004: 12.6; 2005: 10.5; 2006: 9.2; 2007: 10.7; 2008: 10.0; 2009: 9.5 - Role of social transfers during crisis: - Social transfers increased in nominal value and share of per capita monetary income in 2008–2009. - In 2009 social transfers accounted for about 50 percent of per capita monetary incomes of the poorest 20 percent and 13 percent of the richest 20 percent. - In the two poorest deciles the share of social transfers increased by 5 percentage points vs 2008 and by 8 percentage points vs 2007. - Policy implications: - SDP mid-term and long-term poverty and MCB-based targets are unlikely to be met without revision given crisis impacts and altered fiscal capacity. - Policies aimed at employment growth, increasing pensions, benefits, average and minimum wages, and aligning them to MCB merit revision and reinforcement given fiscal constraints. ### 1.2.2 Inequality (summary observations) - Pre-crisis (2004–2008) growth was pro-poor: income caused by growth (employment and agricultural sales) contributed to faster income gains for the poor than the non-poor. - Monthly per capita monetary income of poorest deciles grew 2.3 times vs 1.7 times for richest deciles in 2004–2008. - Economic growth caused average monthly monetary income to grow 2.4 times in poorest deciles vs 1.8 times in two richest deciles. - Result: income inequality and the gap between poor and non-poor were reduced pre-crisis. - Crisis reversed some of these gains in 2009; social transfers mitigated declines for poorest deciles but SDP objectives on inequality and poverty reduction require revision and strengthened policies focused on employment, productivity and targeted social protection. *Progress Report on Implementation of the Sustainable Development Program (Year 2009-2010)* ### 10.6 times in 2004. This went down to 7.8 times in 2008. The Gini coefficient was also reduced ### _cr11191 - 10.6 times in 2004. This went down to 7.8 times in 2008. The Gini coefficient was also reduced ### Poverty and inequality trends (2004–2009) - Monetary income ratio between the richest 20% and poorest 20% of the population: - 2004: 10.6 - 2005: 9.5 - 2006: 7.6 - 2007: 8.0 - 2008: 7.8 - 2009: 8.0 - Monetary income ratio between the richest 10% and poorest 10% of the population: - 2004: 20.8 - 2005: 17.9 - 2006: 13.9 - 2007: 15.6 - 2008: 14.1 - 2009: 14.5 - Gini coefficient: - 2004: 0.395 - 2005: 0.359 - 2006: 0.369 - 2007: 0.371 - 2008: 0.339 - 2009: 0.355 - Observations: - Inequality indicators fell from 2004 to 2008 but increased in 2009 alongside growth of poverty indicators. - The Sustainable Development Program (SDP) targets a slow but sustainable reduction of inequality; target values for inequality indicators were not set. ### SDP short- and medium-term implications - The new trends and comparison with SDP projections imply SDP economic and social policies for the short term should be reviewed. - Policy focus recommended: economic growth and distribution should emphasize direct and indirect growth of the poor’s income. ### Poverty and inequality — regional profile and dynamics - SDP regional policy priority: mitigate regional development disparities; SDP set a regional poverty target distinguishing Yerevan, other cities, and villages. - Pre-crisis (2004–2008) pattern: - Poverty and extreme poverty mostly spread in small and medium-sized urban areas (except Yerevan). - Rural areas had relatively low poverty levels until 2008–2009. - 2008–2009 changes: - Poverty increase in rural areas: 6.2 percentage points. - Poverty increase in cities: 4.6 percentage points. - Result: poverty levels in rural areas exceeded urban levels in 2009. - Extreme poverty remained lowest in rural areas for 2004–2009 though it doubled there in 2008–2009. - Secondary cities: - During 2004–2009 poverty and extreme poverty were mostly spread in secondary cities and showed the most drastic growth in 2008–2009. - Growth in secondary cities in 2009 compared with 2008: - Poverty: grew by 7.2 percentage points. - Extreme poverty: grew by 4.2 percentage points. - Yerevan recorded the most favorable situation and the lowest observed growth of poverty indicators in 2009. - SDP projections vs actual: - SDP expected fastest poverty decrease in Yerevan due to economic growth and additional mitigation policy to raise growth in other cities. - SDP projected rural poverty to reduce much slower than in Yerevan and other cities due to slower agricultural growth. ### Table 20 key figures (regional poverty rates, 2004–2009; 2009/2008 growth; 2012 SDP target ratios) - Poverty rate, % (by region; 2004–2009): - Yerevan: 29.2, 23.9, 21.0, 20.0, 19.7, 22.0 - Other cities: 43.9, 37.8, 35.8, 29.8, 28.3, 35.5 - Total for urban areas: 36.4, 30.7, 28.2, 24.7, 23.8, 28.4 - Rural areas: 31.7, 28.3, 23.4, 25.5, 22.9, 29.1 - Total for Armenia: 34.6, 29.8, 26.5, 25.0, 23.5, 28.7 - 2009/2008 growth, percentage points (poverty): - Yerevan: 2.3 - Other cities: 7.2 - Total for urban areas: 4.6 - Rural areas: 6.2 - Total for Armenia: 5.2 - 2012 SDP target comparisons (2009 Actual/2012 SDP target, %): - Yerevan: 252.9 - Other cities: 191.9 - Total for urban areas: 208.8 - Rural areas: 195.3 - Total for Armenia: 205.0 - Extreme poverty rate, % (2004–2009): - Yerevan: 6.1, 3.6, 3.5, 3.2, 3.2, 3.7 - Other cities: 9.2, 7.2, 6.6, 6.1, 4.6, 8.8 - Total for urban areas: 7.5, 5.3, 5.0, 4.6, 3.9, 6.1 - Rural areas: 4.4, 3.2, 2.4, 2.3, 1.7, 3.4 - Total for Armenia: 6.4, 4.6, 4.1, 3.8, 3.2, 5.2 - 2009/2008 growth, percentage points (extreme poverty): - Yerevan: 0.5 - Other cities: 4.2 - Total for urban areas: 2.2 - Rural areas: 1.7 - Total for Armenia: 2.0 - 2012 SDP target comparisons (extreme poverty, 2009 Actual/2012 SDP target, %): - Yerevan: 336.4 - Other cities: 303.4 - Total for urban areas: 305.0 - Rural areas: 147.8 - Total for Armenia: 247.6 - SDP feasibility notes: - To meet the SDP 2012 poverty target for Yerevan, poverty must be reduced by 2.5 times and extreme poverty by 3.4 times from 2009 to 2012. - For other cities: poverty must be reduced by 1.9 times and extreme poverty by 3 times from 2009 to 2012. - For rural areas: poverty and extreme poverty must be reduced by 2 and 1.5 times, respectively, from 2009 to 2012. - Recommendations: - Introduce a comprehensive regional development policy focused on urban populations, particularly small and medium-sized cities. - Develop and introduce policy measures to address regional disparities (draft concept paper in development as of the reporting period). - Marz (provincial) profile: - Between 2008 and 2009 the poverty rate increased in all marzes and disparity across marzes remained at the same level. - Poorest marzes: Shirak, Lori, Kotayk, Gegharkuniq (earthquake zone marzes prominent). - More favorable marzes: Yerevan, Syunik, Aragatsotn. - NSS marz-level data inconsistencies: RA NSS publicly available indicators on poverty rates on marz profile are not consistent across 2004–2007 and 2008–2009; this paper observes only 2008–2009 trends. ### SDP policy review conclusion on poverty and inequality - SDP targets relating to poverty, regional disparities of poverty, and inequality need to be reviewed in light of new realities. - Social and economic SDP policies should be aligned with the new macroeconomic outlook and fiscal framework and new priorities emerging after the crisis. ### Agriculture — SDP progress assessment (summary) - Key indicators (Table 21) and comparisons (2006 baseline, 2010 target, 2010 actual, Actual/Target, %): - Total Value added, billion AMD in current prices: - 2006: 495 - 2010 target: 697 - 2010 actual: 609.4 - Actual/Target, %: 87.4 - GDP ratio, in percent: - 2006: 18.7 - 2010 target: 14.8 - 2010 actual: 17.4 - Actual/Target, %: 117.6 - Index (in real terms), 2006 = 100: - 2006: 100 - 2010 target: 125 - 2010 actual: 94 - Actual/Target, %: 75.2 - Average annual rate of real growth, in percent: - 2006: 5.74 - 2010 target: -1.47 - 2010 actual: -25.6 - Average annual inflation in agriculture, in percent: - 2006: 11.9 - 2010 target: 3.4 - 2010 actual: 7.0 - Actual/Target, %: 206 - Employment, labour productivity and income (note: actual data for 2009 presented for some indicators): - Number of employed: - 2006: 504.3 - 2010 target: 504.3 - 2010 actual: 454.8 - Actual/Target, %: 90.1 - Labour productivity, thousand AMD in current prices: - 2006: 948.4 - 2010 target: 1383.1 - 2010 actual: 1167.8 - Actual/Target, %: 84.4 - Monthly employment income from agricultural activities, thousand AMD in current prices: - 2006: 46.39 - 2010 target: 80.7 - 2010 actual: 74.3 - Actual/Target, %: 92.0 - Ratio compared with the monthly average wages in the non-agricultural sector, %: - 2006: 61.1 - 2010 target: 57.1 - 2010 actual: 56.6 - Actual/Target, %: 99.1 - Export and import (agricultural goods): - Export of agricultural goods, mln. USD: - 2006: 26.8 - 2010 target: 56.8 - 2010 actual: 39.4 - Actual/Target, %: 69.4 - Specific weight in total export, in percent: - 2006: 2.67 - 2010 target: 3.5 - 2010 actual: 3.9 - Actual/Target, %: 111.4 - Specific weight in agricultural value added, in percent: - 2006: 2.32 - 2010 target: 2.6 - 2010 actual: 2.4 - Actual/Target, %: 92.3 - Import of agricultural goods, mln. USD: - 2006: 179.3 - 2010 target: 386.1 - 2010 actual: 366.4 - Actual/Target, %: 94.9 - Specific weight in total import, in percent: - 2006: 8.17 - 2010 target: 7.5 - 2010 actual: 9.7 - Actual/Target, %: 129.3 - Specific weight in agricultural value added, in percent: - 2006: 15.5 - 2010 target: 16.8 - 2010 actual: 22.5 - Actual/Target, %: 133.9 - Sector assessment and causes: - Outcome underperformed SDP targets in the reporting period. - Agricultural sector value added in current prices achieved only 87.4 percent of the 2010 target. - Sector's real growth reached only 75.2 percent of target; 2010 saw a 16 percent decline in the agricultural sector. - Agricultural goods exports reached only 69.4 percent of the target ($39.4 M actual vs $56.8 M target). - Weight of agricultural goods export in agricultural added value increased only by 0.08 percentage points from 2006 to 2010, while the weight of agricultural goods import increased by about 7 percentage points (from 15.5 percent to 22.5 percent), highlighting a decline in competitiveness. - Labour productivity increased by about 23 percent from 2006 to 2009, mainly due to higher inflation and approximately 10 percent reduction in employment. - Activities undertaken under SDP policies: - About $27 million worth of loan proceeds provided to 765 agricultural enterprises under IFAD and WB loan programs for infrastructure and modernization. - Rural Finance Facility Project: commercial bank loans increased availability of credit; government subsidized interest rates on some agricultural loans; government imported and distributed highly reproductive seeds of wheat, oats and corn; partial subsidies of fertilizers and complementary measures. - Agricultural production subsidy system: in 2008–2009 about 3.2 billion AMD allocated from the state budget to subsidize agricultural producers. - Introduction of modern irrigation technologies in horticulture (drip irrigation, spray irrigation); expansion of area with high added value cultured plants; import and provision of highly productive livestock cattle under favorable terms to enterprises. - Issues for SDP review (agriculture): - Revise SDP agricultural targets considering recent sector developments (e.g., drastic decline in 2010, higher-than-projected inflation). - Revise agricultural sector SDP policies to shift focus toward raising competitiveness and productivity. ### Infrastructure — potable water (SDP progress) - Centralized water supply availability improvements (2007–2009): - Total in the country: - 2007: 94,1 - 2008: 97,0 - 2009: 97,5 - In the urban areas: - 2007: 98,8 - 2008: 99,4 - 2009: 99.6 - In the rural areas: - 2007: 84,8 - 2008: 92,4 - 2009: 93.6 - Observation: centralized water supply availability in rural areas improved by 8.8 percentage points compared to 2007, reaching 93.6 percent in 2009. - Share of households using “imported” water: - 2007: 1,7 - 2008: 1,1 - 2009: 0.3 - Note: the share was reduced by 6 times; all remaining households using “imported” water in 2009 were located in rural areas. Urban “imported” water problem successfully addressed by 2009. - Detailed availability and duration categories (2007–2009): - Up to 1 hour (total in the country): 0,5; 0,7; 0.4 - 1–5 hours (total): 31,5; 31,3; 30.0 - 6–12 hours (total): 23,6; 28,7; 17.5 - 13–23 hours (total): 6,3; 5,7; 3.8 - 24 hours (total): 38,1; 33,6; 48.3 - Well, spring (total): 2,1; 1,2; 1.6 - Private water supply system (total): 0,9; 0,6; 0.5 - “Imported” water (total): 1,7; 1,1; 0.3 - Other sources (total): 1,2; 0,1; 0.1 - Source: Household Integrated Living Conditions Survey 2007, 2008 and 2009. - Additional note: According to survey results, the average daily duration of water supply in 2009 was improved (text truncated in source). *Source: Progress Report on Implementation of the Sustainable Development Program (Year 2009-2010), Social snapshot and poverty in Armenia, NSS RA, 2007, 2008, 2010 and Sustainable development program, RA Government, 2008* ### 1.6 hours, reaching 14.7 hours. With the rate of average daily water supply duration maintained, ### _cr11191 - 1.6 hours, reaching 14.7 hours. With the rate of average daily water supply duration maintained, ### Water supply — average daily potable water duration and progress - Meeting the SDP target of an average daily water supply of 16 hours appears realistic if the rate of average daily water supply duration is maintained. - Table 23 — Average daily potable water-supply due to drinking water companies, hour/day (2007, 2008, 2009, 2010, 2010/2007, %): - Yerevanjur: 17.4, 17.8, 20.4, 21.1, 121.3% - Armenia water-sewerage company: 11.0, 12.0, 12.7, 13.7, 124.5% - Shirak water-sewerage company: 7.3, 7.7, 9.2, 10.4, 142.5% - Lori water-sewerage company: 6.0, 8.5, 9.6, 10.7, 178.3% - Nor Akunq: 14.2, 17.8, 22.3, 22.4, 157.7% - Source: Activities Report of State Committee of Water System 2010 - Regional and rural unevenness: - In 15 of 36 cities serviced by the Armenian water-sewerage company, the average daily water supply in 2010 was less than 10 hours. - In rural areas under the Armenian Water Sewerage company’s service, the average daily water supply duration reached 9.5 hours. - In about 20 percent of served rural areas, the average daily water supply duration was only 1 hour or less. - Metering and bookkeeping: - Consumers with water-meters: 519 000 in 2007; increased by 88 thousand (about 17 percent) to 607 000 in 2010. - Donor-financed investments and projects: - EBRD loan project: 23 kms of sewerage lines constructed in Sevan, Jermuk, Gavar, Martuni and Vardenis; preparation of project estimation documents for new treatment stations (Gavar, Martuni, Vardenis). - WB financing: Implementation of the Hrazadan water-supply system improvement launched. - KfW support: Water-supply improvement programs continued in Lori and Shirak regions. - ADB financing: Projects in 9 cities and 40 rural communities; overall 280 kms of new waterlines constructed. - SDP review issues and recommendations: - Relevant SDP targets on average daily water-supply duration do not need revision given sufficient progress. - New SDP targets are needed for specific groups of areas to address regional unevenness of average daily water-supply duration. - SDP sector policy review should address regional unevenness of provided services. - Setting targets for individual groups of areas may require re-assessment of overall sector investments. ### Irrigation water - SDP 2012 objective: expand irrigated land area by 30 percent compared to 2006, bringing the total to 160 000 hectares. - Table 24 — Irrigated landpieces and volume of provided water 2007-2010: - Irrigated landpiece, 1000 Ha: 125,6 (2007), 128,9 (2008), 128,1 (2009), 128,8 (2010) - Volume of provided water, mln m³: 523,8 (2007), 576,7 (2008), 412 (2009), 396,5 (2010) - Water discharge intensity, 1000m³/Ha: 4,17 (2007), 4,47 (2008), 3,22 (2009), 3,08 (2010) - Progress and constraints: - Compared to 2006, irrigated land area increased by 4.7 percent and reached 128.8 thousand hectares in 2010. - To meet the SDP target, irrigated land area needed to increase by 24%. - Water discharge intensity per hectare decreased: from around 4.17 thousand m³ in 2007 to 3.08 m³ in 2010, a decline of 26 percent. - Causes of decreased water discharge intensity: climate change and introduction of efficient irrigation technologies in farms. - Projects and financing: - Continued projects to increase irrigation system reliability and efficiency under the WB irrigation rehabilitation emergency loan project and the MCA irrigation component. - SDP review issues and recommendations: - SDP targets on irrigation should be revisited and more realistic ones set given slow expansion. - GoA’s mid-term strategy on provision of state assistance to the water consumers’ union should be considered. ### Transport - SDP emphasized increasing public investment in roads, especially ongoing maintenance and higher spending efficiency. - Table 25 — State budget expenditures on roads 2007-2010: - State budget expenditure, million AMD: 44243 (2007), 41901 (2008), 57792 (2009), 32540 (2010) - GDP ratio, in percent: 1,40% (2007), 1,17% (2008), 1,84% (2009), 0,93% (2010) - Source: State budget performance reports. - Observations: - State expenditures on roads increased in 2009 but declined drastically in 2010 due to the 2009 economic recession caused by the financial crisis. - Despite the 2010 decline, the state budget expenditures to GDP ratio remained close to the SDP target of 1 percent of GDP in 2012. - Donor-funded investment programs: - Lifeline roads improvement program under WB financing. - ADB North-South road corridor project. - ADB Rural roads project. - Measures to increase efficiency and transparency: - GoA degree N 1419, 04.11.2010: new order of road maintenance and use introducing performance based method; stipulates that only fulfilled works are paid for. - Development and introduction of works insurance mechanisms for road construction to reduce state risk in case of poor quality construction. - Inclusion of NGOs and media representatives in evaluation committees to make procurement more transparent. - SDP review issues and recommendations: - Review should place more emphasis on cost effectiveness of state investment programs in transport. - New transport sector investment programs (e.g., ADB North-South road corridor project) should be included in SDP implementation. ### Energy sector - SDP emphasized four directions: 1. Maximum utilization of own resources, especially renewable energy, 2. Further development of nuclear energy, 3. Diversification of sources of energy and regional integration, 4. Fostering of energy efficiency in every consuming industry. - 1. Utilization of own resources and renewable energy: - As of March 1, 2011, 101 small HPPs producing energy. - Aggregated installed capacity: 129.47Mw. - Energy production: about 409.9 M Kw/hour. - After 2008, 41 small HPPs commissioned with aggregate installed capacity of 54Mw and energy production of 177.84 M Kw/hour. - As of March 1, 2011, construction licenses issued to 74 small HPPs with installed capacity of about 140,6 Mw. - Forty small HPPs with installed capacity of 48 Mw were issued licenses after 2008. - “Small HPP development scheme” (2009) envisaged developing some 108 additional small HPPs with aggregate designed capacity of 134 Mw. - Vorotan HPP complex rehabilitation: Euro 51 M Loan and Project Agreement signed (October 20, 2010). - TA between RA and IBRD: geological and geophysical exploration launched at “Gridzor” and “Karkar” geothermal platforms. - “Construction-Concession-Exploitation on exchange basis (BOOT) of Meghri HPP” agreement signed October 15, 2010 with Iranian “Tavan Ab Araz Company”: - Installed capacity: 130 Mw. - Annual energy output: 800 M Kw/hour. - Construction completion within 5 years; subsequent 15 years produced energy transported to Iran by a 230 Kv transmission facility to be constructed by the investor. - 2. Further development of nuclear energy: - RA law “On RA new nuclear power unit(s)’ construction” adopted October 27, 2009. - Decree N 1458 (December 3, 2009): Armenian-Russian joint company (“Metsamorenergoatom” CJC) founded. - August 20, 2010: “A cooperation agreement between the RF Government and the GoA on the construction of new NPP generation units in RA” signed and ratified. - Feasibility study on new nuclear power-generation unit construction completed; negotiations with investors ongoing. - Seismologic and volcanic studies of potential platform accomplished; public hearings conducted in Armavir. - “Metsamorenrgoatom” CJC received a license to choose a platform for construction. - Russian party elaborating time-table for financing to jumpstart design and equipment procurement. - 3. Diversification of energy resources supply and regional integration: - Construction of the Iran-Armenia gas pipeline accomplished; on May 13, 2009, regular gas supplies from Iran and energy deliveries from Armenia started. - “ArmRusGazprom” CJSC increased underground natural gas storage capacity by 1.8 times; as of 2010 stored gas volume is 132.7 M m³; capacity envisaged to increase to 140 M m³. - Transmission network improvements: - September 2010: rehabilitation of 17 110 Kv substations under Japanese government support accomplished. - October 2010: first stage of the SCADA communication system accomplished. - January 30, 2009: “Rehabilitation of Gyumri 2 sub-station” Loan and Project Agreements signed with KfW, RA Ministry of Finance, and “High-voltage power networks” CJSC. - 4. Promotion of energy efficiency: - RA Ministry of Energy and Natural Resources under the Armenia-EU Association Agreement is discussing directives and bylaws in the energy sector with the EU, including ensuring energy efficiency. ### Social Protection - SDP strategic priority: targeted social policy, implementation of highly targeted policies, monitoring of social assistance, social security and insurance. - SDP fiscal targets on social protection (relative to 2007 baseline): - State expenditures on social protection should double by 2010, increase by 4.1 times in 2015 and 6.7 times in 2021. - Targets assumed costs of introduction of a mandatory funded pension system starting in 2010 (postponed to 2014). - Performance against SDP targets: - Despite crisis, nominal SDP short-term targets on social protection budget expenditures in 2008-2009 were fulfilled by 96-97 percent. - In 2010-2011, targets were fulfilled by 81-83 percent (without costs of funded pension system). - In 2012, according to the MTEF, they would be fulfilled only by 63 percent. - Table 26 — Comparison of actual and SDP target indicators on financing the social protection sector, 2008-2012 (selected figures): - State expenditures on social protection in nominal terms, billion AMD — Actual: 212.6 (2008)a, 243.6 (2009)a, 244.2 (2010)a, 271.9 (2011)b, 267.2 (2012)c ... ; SDP target: 219.2, 253.6, 295.4d, 335.1d, 424.6d, 611.5 (2015) - Actual/SDP target, %: 97.0 (2008), 96.1 (2009), 82.7 (2010), 81.1 (2011), 62.9 (2012) ... - GDP/state expenditures on social protection, in percent — Actual: 6.0 (2008), 7.8 (2009), 7.0 (2010) ... ; SDP target: 6.0, 6.1, 6.3, 6.3, 7.2, 7.8 - Pension security in nominal terms, billion AMD — Actual: 154.9 (2008)a, 177.6 (2009)a, 178.5 (2010)a, 198.7 (2011)b, 198.3 (2012)c ... ; SDP target: 158.4, 182.5, 217.4d, 251.0d, 316.7d, 469.6 (2015) - Actual/SDP target, % for pension security: 97.8 (2008), 97.3 (2009), 82.1 (2010), 79.2 (2011), 62.6 (2012) ... - Note in source: Taking into account the GDP decline caused by the crisis, which had not been projected by SDP, the mentioned expenses had a greater share in GDP than foreseen by SDP. *Source: Progress Report on Implementation of the Sustainable Development Program (Year 2009-2010).* ### 2. Other social protection programs in nominal terms, billion AMD ### _cr11191 - 2. Other social protection programs in nominal terms, billion AMD ### Overall social protection spending and SDP comparison - Table summary (as presented): - Actual 57.766.165.773.2 68.9 ... - SDP target 60.871.278.084.1 107.9 141.8 - Actual/SDP target, % 94.992.784.287.0 63.9 ... - Pension expenditures account for 72 percent of total social expenditure. - SDP progress in social protection is to be analyzed in greater detail in subsequent sections. ### Social Assistance system — priorities and performance - SDP social assistance priorities: family benefit, one-off allowance during childbirth, under-2 years childcare allowance, and disabled people and disabled children family care allowance programs. - Rationale: relatively slower rate of poverty reduction in families with children, disabled members, and disabled children; increased importance after growth of poverty, particularly child poverty, in 2009. - Targeting goal: SDP short-term policy aims to provide benefits to all poor families in 2012, aligning beneficiary families with number of poor families and increasing targeting and participation of the poor. ### Family Benefit System (FBS) — expenditures, coverage, and targets - Public expenditure on family benefits, mln drams: - Actual: 28,838 (2008) a; 29,146 (2009) a; 30,878 (2010) a; 35,497 (2011) b; 35,690 (2012) c - SDP target: 29,761 (2008); 32,757 (2009); 36,963 (2010); 40,927 (2011); 46,967 (2012) - Actual/SDP target, %: 96.9 (2008); 98.9 (2009); 83.5 (2010); 86.7 (2011); 76.0 (2012) - Number of families registered/documented in the system and beneficiary families: - Actual – families registered in the system d: 165,394 (2008); 146,500 (2009); 138,000 (2010) ... ... - Actual – number of beneficiary families: 121,160 (2008); 107,492 (2009); 105,005 (2010) ... ... - SDP – number of beneficiary families: 116,204 (2008); 114,000 (2009); 114,000 (2010); 114,000 (2011); 114,000 (2012) - Actual/SDP target, %: 104.3 (2008); 94.3 (2009); 92.1 (2010) ... ... - Average monthly benefit per family, drams: - Actual d: 21,100 (2008); 23,560 (2009); 26,850 (2010) ... ... - SDP target: 21,090 (2008); 23,658 (2009); 26,695 (2010); 29,558 (2011) ... - Actual/SDP target, %: 100.0 (2008); 99.6 (2009); 100.6 (2010) ... ... - Coverage and registration trends: - Poverty and registration: 2005 poverty 29.8 percent; families registered in FBS ~25 percent of RA families (2005). - 2008: 21.5 percent of RA families registered in FBS. - 2009: 19.2 percent registered (poverty increased to 28.7 percent). - 2010: 18 percent registered. - Conclusion: significant part of poor families are not registered in the system despite SDP priority to maximize participation. - Targeting performance: - SDP aims: targeting of FBS to reach 78 percent by 2010, and 90 percent from 2015. - 2009 Standards of Living Survey (RA NSS): around 77 percent of FBS recipients are from the poorest 20 percent — target of SDP achieved. - Policy recommendation (from text): - Retain FBS policy long-term, revise short- and medium-term approaches to increase direct social assistance and maximize poor participation. - Revise SDP target indicators for number of poor and beneficiary families and benefit amounts given poverty trends and changes in the MCB value. ### One-time childbirth benefit and under-2 childcare benefit — performance vs targets - One-time benefit for childbirth — public expenditures, mln drams: - Actual: 1,351 (2008) a; 5,066 (2009) a; 4,721 (2010) a; 4,675 (2011) b - SDP target: ... (2008); 4,136 (2009); 4,719 (2010); 5,094 (2011) - Actual/SDP target, percent: ...; 122.5 (2009); 100.0 (2010); 91.8 (2011) - Average amount of benefit, drams: - For first and second child — Actual d: ...; 50,000 (2009); 50,000 (2010); 50,000 (2011) - SDP target: ...; 50,000 (2009); 56,000 (2010); 58,000 (2011) - Actual/SDP target, percent: ...; 100.0 (2009); 89.3 (2010); 86.2 (2011) - For third and following child — Actual d: ...; 430,000 (2009); 430,000 (2010); 430,000 (2011) - SDP target: ...; 430,000 (2009); 480,000 (2010); 496,000 (2011) - Actual/SDP target, percent: ...; 100.0 (2009); 89.6 (2010); 86.7 (2011) - Memorandum item – number of beneficiaries: Actual d ...45,823 (2009); 43,033 (2010) ...; SDP forecast ...43,446 (2009); 45,672 (2010); 47,649 (2011) - Under-2 years child care benefit — public expenditures, mln drams: - Actual: 221.7 (2008) a; 1,860 (2009) a; 2,567 (2010) a; 2,340 (2011) b - SDP target: 217.9 (2008); 1,311 (2009); 1,634 (2010); 1,817 (2011) - Actual/SDP target, %: 101.7 (2008); 141.8 (2009); 157.1 (2010); 128.8 (2011) - Average amount of benefit, drams/month: - Actual d: ...; 18,000 (2009); 18,000 (2010); 18,000 (2011) - SDP target: ...; 18,000 (2009); 22,422 (2010); 24,936 (2011) - Actual/SDP target, %: 100.0 (2009); 80.3 (2010); 72.2 (2011) - Memorandum item – number of beneficiaries Actual d: 4,488 (2008); 7,114 (2009); 9,844 (2010) ...; SDP forecast 4,500 (2008); 6,000 (2009); 6,000 (2010); 6,000 (2011) - Observations: - One-time childbirth benefit average amounts did not increase at SDP-envisaged rates due to scarce budget resources post-crisis. - Under-2 childcare expenditures exceeded SDP targets due to more rapid rise in beneficiaries (increasing birthrate, especially among working mothers); 2010 actual beneficiaries close to SDP 2018 forecasts. - Policy recommendation: Continue SDP policy for childbirth benefit, adjust target indicators for under-2 childcare in light of rapid beneficiary growth. ### Pensions — objectives, instruments, outcomes, and reforms - SDP primary objectives for pensions (Table 29): - Reduce risk of poverty for labor pensioners and keep them away from poverty; Narrow gap between well-being of pensioners and workers. - Main instrument: Increased budget financing, mostly channeled to increase base pensions. - Medium-term targets: - Average labor pension is equal to at least 100 percent of the minimum consumption basket by 2012. - Base pension is equal to at least 100 percent of the poverty line by 2015. - Implementation and outcomes: - The objectives were reflected in budget documents, but actual results remained below targets. - 2008-2010: share of public expenditure on pensions in total consolidated budget expenditure increased, but remained below SDP-projected indicators due to changed budget structure (notably 2009) and relatively higher economic services spending to mitigate crisis effects. - Expenditures on pensions-to-GDP ratio rose to 5.1 percent in 2010 from 4.3 percent in 2008; 2009 and 2010 actuals were higher than SDP projections largely due to lower-than-projected GDP. - Budgeted pensions in 2008-2010 were executed in full with no delays. - Key pension parameter changes and their timing: - Monthly base pension increased to 8,000 drams in 2009 and to 10,500 drams starting November 2010 from 6,800 drams in 2008. - Increment to base pension per each worked year increased to 450 drams starting 2009 from 395 drams in 2008. - Reforms and legislation (2009-2010): - December 2010: National Assembly approved a package of laws ensuring implementation of longer-term pension reforms. - Funded pension pillar will be introduced in 2014 and, according to draft 2012-2014 MTEF projections, this will lead to an additional 18 billion drams in state budget expenditure22. - Newly approved Law on State Pensions increases required length of work experience to qualify for labor pension to 10 years in 2016 from 5 years currently. - Length of work experience required to qualify for labor disability pensions revised. - Draft concept note to change approach from invalidity to functional disability developed and under deliberation. - Actions to improve management information systems in the sector undertaken. - Performance towards SDP targets: - Average monthly labor pension increased in 2009 but declined in 2010. - Base pension-to-poverty line indicator followed a similar pattern (increase then decline). - Reasons for underperformance: - Limited fiscal space due to the economic crisis constrained larger pension allocations in 2010. - Much higher increase in food prices than expected raised the minimum consumption basket above SDP projections. ### Healthcare — targets, expenditures, service access, and outcomes - SDP healthcare targets: increase accessibility and availability of healthcare services, improve quality, increase territorial accessibility and consumption of services by living-standard groups. - 2009 budget execution: - In 2009, health expenditure in the state budget was only 85 percent of the budgeted amount; actual expenditures were less than planned by 9.9 bln drams. - 2010 and 2011 deviations: - 2010 state budget actual expenditures differed from the SDP target by 26.0 bln drams. - Approved state budget in 2011 differed from SDP target by 40.8 bln drams. - Share of healthcare expenditure in GDP deviated from 2011 target by 0.3 percent (actual 1.7 percent vs target 2.0 percent). - Public expenditures affected by lower-than-projected economic growth; cut mainly applied to capital expenditures. - Table 30 — State budget expenditures in healthcare field (selected figures): - Consolidated budget expenditures in the healthcare field, bln drams: - SDP: 66.1 (2009); 81.2 (2010); 103.3 (2011) - Budget: 66.1 (2009); 56.2 (2010); 55.2 (2011) - Actual: 55.2 (2009); 56.1 (2010); 62.5 (2011) - GDP percentage: - SDP: 1.6 (2009); 1.7 (2010); 2.0 (2011) - Budget: 2.1 (2009); 1.8 (2010); 1.6 (2011) - Actual: 1.6 (2009); 1.6 (2010); 1.7 (2011) - Against state budget expenditures, percent: - SDP: 6.6 (2009); 7.1 (2010); 7.9 (2011) - Budget: 9 (2009? table formatting) 65.9 (2009); 5.9 (2010); 6.2 (2011) - Per capita public allocations for healthcare: - 2009 actual: 17.4 thousand drams. - 2010: remained close to 17.4 thousand drams. - 2011 planned: 19.2 thousand drams. - Health worker salaries (planned increases in 2011): - Average monthly calculated salary of medical staff members (territorial therapists, pediatricians, family doctors) projected to be 84,700 drams in 2011 vs 77,000 drams in 2010. - Average monthly calculated salary of medical staff members planned to be 54,250 drams in 2011 vs 49,300 drams in 2010. - Hospital medical staff monthly salary planned to rise to 71,300 drams in 2011 from 62,000 drams in 2010. - Average monthly salary of medical staff member planned to increase to 56,400 drams in 2011 from 49,000 in 2010. - Emergency medical care and programmatic actions: - From 2011, large-scale policy to improve emergency medical care guaranteed by the state; new financing criteria and compensation procedures approved. - In 2011, emergency medical care service received 88 cars and modern communication equipment and software. - Primary health care (PHC): - Priority given to PHC but expenditures deviated from the target. - Table 31 — expenditures on PHC within total healthcare expenditures, percent: - Project (2009-2011): 40-45 (2009); 40-45 (2010); 40-45 (2011) - Budget/Actual figures: 39.0 (2009); 36.4-38.1 (2010); 35.9-38.2 (2011) - Deviation from target presented in ranges across years. - Around 90 percent of the population registered with selected primary healthcare doctors; transition planned to financing by registered population. - Maternal and child healthcare: - “Delivery assistance state certificate introduction program” investments: 5.9 bln drams (2009); 5.7 bln drams (2010); 6.9 bln drams planned (2011). - Program outcomes: doubled resources related to childbirth; closer reimbursement to real cost; increased salaries of medical workers; reduced shadow costs; virtually free and accessible delivery assistance. - Early registration of pregnancies improved, increasing births. - Maternal mortality reduced by 20 percent in 2009 and by 70 percent in 2010; maternal and child traumatism reduced by around 20 percent. - Table 32 — child and maternal mortality indicators (selected figures): - Child mortality (under 1-year old) per 1000 live births: - 2006 Actual 13.9; 2008 12.0; 2009 11.5; 2010 10.9; other actuals/projections: 10.8 10.4 11.3 (table formatting) - Child mortality (under 5-year old) per 1000 live births: - 2006 Actual 15.8; 2008 14.1; 2009 13.5; 2010 12.8; other entries: 12.1 11.9 13.5 - Maternal mortality (average for 3 years) per 100,000 live births: - 2006 Actual 24.0; 2008 18.5; 2009 14.5; 2010 14.0; other entries: 38.8 27.0 8.9 - Disease control and prevention: - Programs to fight tuberculosis, HIV/AIDS, and malaria continued; tuberculosis remains a significant public health burden. - Concept for prevention, early diagnosis, and treatment of most widespread non-infectious diseases approved; measures listed for tackling non-infectious diseases. - Since 2010, reporting forms introduced to control quality and develop registers for hypertension, blood circulation system diseases, and diabetes using MIDAS-3 system. - “Proper Medicine Manufacturing Rules” approved to regulate local pharmaceutical companies. - Access disparities: - 2009 ILCS: in case of sickness, 30.5 percent of population applies for medical consultation or treatment. - Yerevan: 36.2 percent; other cities: 33.5 percent; rural: 22.2 percent. - By poverty: non-poor 35.3 percent; poor 21.4 percent; extremely poor 1.2 percent apply for medical consultation or treatment. - Consumption of healthcare services by quintile (2009): - Share in total consumption: richest (5th quintile) 7.2% vs poorest (1st quintile) 0.2%. - Consumption in extremely poor quintile is less than 1/25 of average; richest quintile consumption exceeds average by 4.2 times. ### Education — reforms, financing, and targets - SDP public education priorities: improve quality of general secondary education; develop unified supervision and knowledge assessment comparable with European criteria; ensure equal accessibility of quality secondary education; improve system effectiveness and management. - Institutional and system reforms: - 2009 RA laws on General Education and State Agency of Education adopted; State Agency of Education established. - Knowledge assessment concept approved; assessment and testing center established. - United examination system for school graduation and university admission introduced (partially in 2007 for 6 subjects; from 2009 for all subjects). - National center for educational technologies established; students per computer: 38 (2008); 36 (2009); 30.2 (2010). High school: 20 students per computer. - 944 schools (64% of all schools) involved in the “Internet Network of Armenian Schools.” - Electronic libraries established in all secondary schools. - Distance learning program piloted; pilot computer skills program in elementary school initiated. - High schools and teachers: - Strategic program for high schools developed; currently 91 high schools operating separately, to increase to 104 by 2011. - Teacher retraining: 20% of teachers retrained annually ensuring 5-year cycle since 2005. - Teacher salaries: - 2009 average calculated monthly salary of teachers: 116.3 thousand drams, a 57% increase vs 2007. - 2009 teacher annual salary exceeded annual GDP per capita by 44%; ratio of teacher annual salaries to GDP per capita was 1.4 (SDP targeted 1.1-1.3). - 2010 ratio was 1.3. - SDP planned average monthly teacher salary: 117.5 thousand drams (2011); 117.6 thousand drams (2012); 126.2 thousand drams (2013). - Teacher attestation order adopted; attestation system to be introduced from 2011 with around 20 percent of teachers to be attested and extra payments for rated teachers. - Preschool and inclusive education: - 2008-2015 strategic program for preschool education in place; target to make preschool mandatory for senior-age children with coverage 75 percent by 2013 and around 91% by end-2015. - Decree 1427-N of November 4, 2010 on financing organization for preschool senior age children approved. - Pilot preschool groups and alternative organization models implemented; examples: 22 preschool groups in Lori and Shirak (2009) with 538 children; 328 children accessed services in 2010; alternative methods in Ararat and Aragatsotn involved 1,084 children in school preparation groups (2010). - Inclusive education conducted in 65 secondary schools; plan to increase by 15 each year. - New financing order for special-need children piloted in Tavush region; potential nationwide application if successful. - Number of special schools reduced from 52 to 23; Yerevan center of medical, psychological and pedagogical assessment established with branches in Stepanavan and Kapan. - Financing and SDP targets: - SDP aims to raise public expenditures on education to 4% of GDP by 2015 and ensure 14 percent share of consolidated budget expenditures starting 2012. - Economic decline and reduced budget resources limited nominal education funding; during 2009-2011 education funding increased more slowly than planned. - In percent of GDP, SDP targets for education expenditures have been ensured, but maintaining education expenditures at 4% of post-crisis GDP by 2015 remains a challenge. - Table 33 — education expenditures from consolidated budget, bln drams and ratios: - Education expenditures made from consolidated budget, bln drams: - Actual: 113.5 (2008) a; 121.0 (2009) a; 111.9 (2010) a; 126.5 (2011) b; ... - SDP target: 110.9 (2008); 135.1 (2009); 156.0 (2010); 179.1 (2011); 211.4 (2012) - Actual/SDP target, %: 102.3 (2008); 89.6 (2009); 71.7 (2010); 70.6 (2011); ... - Education expenditures in GDP, % Actual: 3.2 (2008); 3.9 (2009); 3.2 (2010) ...; SDP target: 3.0 (2008); 3.2 (2009); 3.3 (2010); 3.4 (2011); 3.6 (2012) - Education expenditures within consolidated budget, % Actual: 11.8 (2008); 11.1 (2009); 11.0 (2010); 11.4 (2011) ...; SDP target: 12.6 (2008); 13.5 (2009); 13.6 (2010); 13.7 (2011); 14.3 (2012) ### Environment — progress highlights (2009-2010) - Environmental developments implemented within SDP priorities and the second National Environmental Action Plan. - Positive shifts recorded: - Enlargement and improvement of environmental legislation and sub-legislative base. - Sustainable tendency of Sevan Lake level rising continued: - 2007 – 55 cm - 2008 – 6 cm - 2009 – 38 cm - 2010 – 47 cm - On December 31, 2010, the level of lake water was (table cut-off in source). *Progress Report on Implementation of the Sustainable Development Program (Year 2009-2010)* ### 1899.70 m. ### _cr11191 - 1899.70 m. ### Environment funding and environmental risks - Still insufficient, but a progressive rate of increasing of state funding of the field. - Despite the negative consequences of the global and financial crisis, budget financing of environment has had a growth trend, which has been especially visible in the 2011 state budget. - The 2011 state budget allocation for nature protection was 8.8 bln drams, nearly 33 percent more than in 2010 (in 2009, the sum of environmental and nature use payments did not exceed 6.2 bln drams). - Armenia is still significantly away from developed European countries in terms of share of public expenses on environment within GDP.23 Key environmental risks to be kept among Government priorities during the coming years: - Environmental risks brought about by a progressive rate of enlargement of the mining sector, conditioned by international prices of metals, - Illegal logging risks conditioned by increasing gas prices, - Dangers threatening underground water resources conditioned by rapid development of sectors using those. ### Institutional reforms — general assessment - Comparing administration indicators of Armenia with those of CIS countries, Armenia is quite ahead, although it lags behind respective indicators of Eastern European and Baltic states. - To make Armenia competitive in the region it is necessary to reach European levels of public administration and institutional reform quality. - Prioritized directions of administrative system reform set by the SDP: structural and functional changes of the administration system, increasing effectiveness of the public/civil service, improvement of the judicial and public financial administration system. ### Anti-corruption policy - Until 2007 there was an established methodology maintaining 59 corruptive criminal case statistics; considering international practice and the definition of corruption as offenses related to official abuse, the number was reduced to 22 in 2007. - Since 2007, taking into consideration provisions of the UN Convention Against Corruption, the number of corruption-related offense types reached 31. - Case statistics: - In 2007, all authorized bodies of the RA investigated 120 criminal cases of corruption. - In 2008, materials were prepared for 524 cases of that nature, of which criminal cases were opened for 390. - In 2009, materials were prepared for 771 cases, of which criminal cases were opened for 390. - In 2010, materials were prepared for 895 cases of corruption, of which 385 criminal cases were opened. - Anti-corruption institutional measures: - A working group and sub-groups formed under the RA anti-corruption strategy and its 2009-2012 implementation program. - A special investigation service independent from all bodies was established to investigate exclusively senior employees of legislative, executive and judicial bodies and persons conducting special state service; prosecutorial supervision and procedural governance over criminal cases investigated by that body are conducted solely by the Attorney General of Armenia. - Civil society involvement: an order of participatory cooperation between the prosecution and NGOs was approved in 2009; Centers of interest protection and assistance – CIPAs – and NGOs established for fighting corruption have been involved. - Seminars, meetings, and reports in “Prosecution’s school” SNCO organized with programs for staff of CIPAs and other NGOs. - Result: several legislative and sub-legislative documents developed and numerous anti-corruption measures conducted (2008-2011). ### Judicial system reforms and financing - SDP plans: - Enlarge provision of free legal assistance of independent lawyers financed by the state, initially for specific categories of civil cases and later for subjects of specific categories. - Clarify status of experts in criminal, civil and administrative lawsuits to ensure equal opportunities of expertise for both sides; provision to be reflected in the new Code of criminal lawsuit (draft in development). - Improve witness and victim protection institutions and introduce effective measures; related documents developed in 2008-2010 include the 2010-2012 Schedule of national program of organization of struggle against trafficking and the Program of 2009-2012 measures of the RA anti-corruption strategy and its implementation. - The RA criminal lawsuit concept (approved in 2010) provides the institution of agreement process for accelerated investigations in non-major and medium-gravity crimes where defendant mediation is submitted during preliminary court hearings. - Provide technical assistance for development of the commercial arbitrage institute (SDP, Item 500); assistance is being realized by the World Bank. - Judges’ salaries and financing indicators: - Official salary rate of a judge of Court of the first instance of the RA was 220.0 thousand drams in 2008, which doubled from December 2008. - In 2009-2011 the salary was increased at a slower rate; compared with 2008, in 2011 the increase has been only 12%. - Table 34. Indicators of RA judicial system financing in 2009-2011 (%) - 2009: Delivery of total expenditures of judicial system 93.6; Share of judicial system total expenditure within the state budget 0.7; Ratio of per capita expenditures on judicial system and GDP per capita 0.0020 - 2010: Delivery of total expenditures of judicial system 98.1; Share of judicial system total expenditure within the state budget 0.6; Ratio of per capita expenditures on judicial system and GDP per capita 0.0017 - 2011: Delivery of total expenditures of judicial system -; Share of judicial system total expenditure within the state budget 0.6; Ratio of per capita expenditures on judicial system and GDP per capita - - Observation: The share of judicial system total expenditures within the state budget has remained constant (in 2010 it decreased compared to 2009); per capita expenditures indicator, despite doubling during recent years, is still behind respective indicators of several Eastern European counties, the Baltic states and the RF for 2004.24 - Technical assistance measures implemented (2009-2011) under “Judicial system reforms”: - Courts automation system, - The “SRS Femida” recording system, - Public information booth and monitors, - “DataLex” portal www©datalex©am, - Courts archiving administration system. ### Increasing effectiveness of public order, public security and fight against crime (Police reforms) - Road traffic security: - Introduction of state registration of rental right of vehicles by ownership, pledge and leasing agreement. - Liberalization of technical inspection location (implemented in any technical inspection station regardless of registration location of vehicle). - Patrols of road police using laptops to identify conformity of vehicle data with registration data and access reconnaissance and insurance coupon information. - Introduction of GPS locators controlling movement of road police vehicles. - Repositories of traffic accidents, administrative offenses, vehicles and driving licenses registration finalized and used. - Construction in process of the Yerevan city examinational autodrome and administrative building implementing one-stop shop principle for drivers licenses. - Planned introduction of automated systems of speed control (radars, cameras) in Yerevan and other major cities and highways; from 2011 establishment of an offenses recording center (terms of reference developed). - A decreasing of the number of traffic accidents has been recorded during the past 3 years, directly related with effective reforms. - Passport and visa system: - Deadlines set for inputting personal data of the population in the state register and for provision of reference regarding registration (November, 2010); concept of de-registering nullified and deadlines reduced. - New working methods for getting/discontinuing citizenship and entry/exit of foreigners, including “one hall” principle and clarified deadlines. - Laws on Foreigners and on Citizenship and related sub-legislative acts published on RA Police web-site “police.am” in Armenian, English and Russian; newly-adopted legal acts put on the Passport and visa department web-site “passportvisa.am”. - An information portal established in PV department (090007007 phone number) providing comprehensive information in Armenian, Russian and English. - Simplified citizenship procedures: shortened period between application submission and adoption of RA President’s decree; reduced list of documents; application numbers allow status tracking on “passportvisa.am.” - A PVD hotline introduced in 2010; around 30 service investigations conducted in 2010 based on alarms. - Using off-budget funds, the RA Police PVD Nor-Nork division building reconstructed; payment terminals installed in all divisions of Yerevan to ease payments and reduce corruption risks; reconstruction of other passport divisions planned. - Introduction of biometric passports and ID cards not implemented in 2009 due to financing; implementation planned starting from September 2011 with legal acts and organizational measures developed; procurement and installation of passport scanning and checking equipment in border crossing points planned as part of biometric passport introduction. - Structural and organizational activities: 1) Government decision number 367-NG of April 7, 2011 abolished the Transport division of the RA Police; functions transferred to territorial units and the State Protection division; actions to clarify functions of other structural units and eliminate redundancies are underway. 2) Legal acts for introduction of a special civil service system in the RA Police adopted; a number of departments transitioned to special civil service since April 2011; further step-by-step transition planned. 3) From March 1, 2011, narrow specialisation of the criminal investigation service introduced in all departments and units of Yerevan city. 4) Organizational and legal activities to integrate databases of law enforcement bodies into a single environment planned for introduction by the end of 2012. 5) Step-by-step transition from compulsory military service to contract-based service in police troops being implemented and planned for introduction in 2012. 6) A single specialized convoy service identified for courts and bodies implementing criminal proceedings. 7) Introduction in 2009 of an internal administrative procedure for budget planning and execution in accordance with the management system structure; in 2010, the RA Police budget was drafted and submitted in a program-budgeting format for the first time. - Public order management: 1) Weapons, personal protection gear and special means of departments involved in public order management significantly upgraded; further provision and staff retraining necessary to reach international technical requirements. 2) Reorganization of the guard patrol service of the Yerevan Police Department: transition from two-shift to three-shift arrangement, adding a night shift and increasing vehicle and non-vehicle routes. 3) Plan to reorganize the external division and create a patrol service on the basis of the road police and guard patrol services; establish modern external service warrant management centers and introduce modern surveillance systems in public areas and heavy transport crossing points. 4) Plan for 2012 to establish community policing divisions on the basis of crime prevention, investigatory and juvenile affairs divisions of Yerevan city territorial administration; draft Government decision “On approving the charter of RA Police community policing service” prepared and circulated. - Building-up public confidence in the Police: 1) RA Police official website www.police.am updated. 2) Modern “AVAYA” system introduced for proper record of crime reports and quick response; concept for a quick response center within Yerevan city administration developed. 3) Steps towards establishing a consolidated system for registering and following citizens’ applications and complaints in RA Police bodies and units. 4) A system of modern criteria for evaluation of RA Police bodies and units work efficiency developed, taking into consideration public opinion on policing activities. ### Reforms in public finance and public expenditures management - Developing and adopting a comprehensive strategy for public finance management was a core SDP activity; it was implemented in 2010 and includes core directions of reform implemented by the RA Government. *Progress Report on Implementation of the Sustainable Development Program (Year 2009-2010)* ### 1. Introduction of principles and formats of program budgeting ### 1. Introduction of principles and formats of program budgeting ### Program budgeting introduction and implementation - Measures have been taken toward introduction and strengthening of a separate program budgeting methodology framework. - Monitoring of non-financial program indicators is being implemented, and quarterly reports are being submitted to the Ministry of Finance. - A fully independent “programmatic” classification has been introduced and integrated with the other operational classification systems. - A program structure has been developed on the basis of program restructuring, unification and aggregation along the lines of PB classification system and methodology. - Development of “program passports” is in progress to connect sectoral policy and budgeting. - In the trial period, the passports revealed logical inconsistencies between declared policy and budget resource allocations, evidencing low sectoral administration participation in budget planning. - 2009-2011 were the years of strengthening the PB reforms and introduction and application of budget planning, monitoring and reporting tools. - By 2013, it is planned to bring into accordance the budget system legislation to encourage application of modern program planning and budget-reporting methodologies. - It is projected that, as a result, budget-related information will be presented to the public mainly in the program format, enabling: - learning and control of the efficiency of budget spending; - evaluation of the implementation level of declared objectives; - acquaintance with budgetary results through non-financial indicators. ### Key implications for public finance management - Programmatic classification, program passports, and non-financial indicators are intended to: - Improve transparency of resource allocation vs. declared policy; - Increase sectoral ownership and participation in budget planning; - Facilitate public access to program-formatted budget information for oversight and evaluation. ### 2. Reforms related to the state budget execution (Treasury) ### Cash-flow planning and Budgetary Commission - Establishment of a budgetary commission has improved planning of financial flows in state budget execution. - The commission is headed by the Chief Treasurer and includes representatives of the Central Bank and State Revenue Committee. - The commission issues monthly cash forecasts (broken down into weeks) based on four variables: receipts, payments, debt issuance and payment arrears. - Due to efficient work of the commission, the monthly projections are now close to actualized expenses. ### Treasury systems, access, and integration - The Treasury started to provide direct access to its systems to program managers to record transactions and perform budget control. - A pilot project has been started in the Yerevan Municipality. - This approach, aligned with program budgeting principles, is expected to significantly raise flexibility and efficiency of project managers’ work. - The Treasury is taking steps to interface the database of the budget department with its own database. - This would allow the budget department to use latest budget vs. expenditure data in the budget review process and suggest timely corrective measures. - The Treasury has developed a strategy and a technical specification for introduction of a fully-integrated system based on a Government financial management information system. - This is projected by the second generation reform program of the Treasury. ### Annex 1. Measures aimed at reforming of tax policy ### Legislative and administrative measures to limit tax avoidance and simplify taxation - A package of legislative drafts to fight artificial disintegration of large businesses and misuse of softer taxation terms for small and medium businesses has been developed and adopted by the National Assembly of the Republic of Armenia. - Amendments to taxation legislation to assist small and medium businesses include: - An unprecedented high threshold of non-taxing by VAT set at 58.35 mln drams of annual turnover. - Simplified procedures of tax registration and recordings; shortened, simplified and united statements submitted to tax bodies. - A package of legislative drafts to enlarge application of simplified, privileged regimes for economic entities with small turnover and to reduce frequency and unify deadlines for submission of statements has been developed and adopted by the National Assembly. ### Replacement of alternative taxation systems by common taxation system - Laws HO-126-N and HO-130-N adopted on October 7, 2010: - Import and further realization of petrol and diesel have been transferred from fixed fees to the common taxation system. - Laws HO-126-N and HO-128-N adopted on October 7, 2010: - Starting from January 1, 2014, taxation of tobacco production will be conducted by the terms of the common taxation system. - Law HO-148-N adopted May 11, 2011: - Starting from January 1, 2011 six types of activities (retail of petrol and diesel, parking lots with installed systems registering exit and entrance of vehicles, industrial fishing, organization of computer games, organization of baths and showers, organization of billiard games) shall be transferred from fixed fees to the common taxation system. ### Measures to ensure required tax/GDP ratio and reduce shadow economy - Tax policy focused on improving tax policy and increasing effectiveness of tax collection to increase state revenues. - Relevant amendments in tax legislation to combat shadow economy and improve tax collection: - Since 1 January 2010: - a) The institute of tax representation was introduced for large taxpayers. - b) The “excise warehouse” regime was introduced for taxpayers considered as excise taxpayers. - An electronic tax invoice system was introduced on 1 January 2011 to fight non-commodity document circulation and non-documented transactions, enabling real-time control of the tax invoicing process. ### Measures to improve taxpayer self-assessment and reporting - A system of electronic submission of reports, calculations, information and other documents to tax bodies was introduced to raise taxpayer self-assessment. - RA Government Decree 1007-N dated 29 July 2010: - All clarifications provided by the RA SRC on taxes, duties, and other mandatory payments shall be preliminarily agreed with the Ministry of Finance of the Republic of Armenia. - Interagency Appeals Council established by RA Government Decree 1361-N dated 21 October 2010: - The Appeals Council considers complaints reviewed but rejected or partially satisfied by appeals committees. ### Introduction of risk-based audit and simplified refund/set-off procedures - RA Government Decree N 1487-N dated 17 December, 2009: - Selection of taxpayers subject to verification of relations with state budget based on risk criteria from 1 October, 2010. - GoA Decree N 1758-N dated 30 December 2010: - Criteria were defined for taxpayers to be considered risky in terms of refund or set-off of VAT and excise tax amounts without examination; eligible taxpayers may benefit from simplified refund or set-off procedures. ### Simplification and increased efficiency in customs procedures and control - GoA Decree N 636-N dated 29 May 2009: - Reduced the list of documents required for customs control during import and export procedures. - RA Law HO-25-N adopted on 22 December, 2010: - Amended the Customs Code to apply principles of selectivity during customs control, risk management system when selecting types of control, and to define nature of risk management systems and risk assessment criteria. - The methodology of risk assessment criteria is defined by the authorized body of the RA Government (RA Ministry of Finance); superior customs authority approves risk assessment degrees. - Additional legislative and administrative acts and decrees (including HO-227-N, GoA Decree No:423-N, GoA Decree No:313-N, GoA Decree No:587-N, Order No:75-N of the RA SRC) introduced measures to: - Reduce licensing types and implement amendments to licensing law; - Improve electronic handling of customs declarations and verification of customs fee payments via bank notifications; - Define 2 days as the period to provide permission to calculate customs value by transaction price method if all required documents are submitted. - 2011-2013 program of RA SRC on reforms in customs system approved targeting: - Compliance of customs legislation with EU standards; - Simplification of customs documentation circulation; - Enhancement of self-declaration system and development of customs mediator institution; - Reduction of corruption risks within customs authorities; - Automation of customs procedures at the state border using electronic technology; - Enhancement of automatic information system for risk management during customs controls; - Development of pre- and post-omission customs control and mechanisms to combat contraband and violation of customs rules. ### Measures to reduce administrative burden and improve taxpayer services - Legislative changes to establish relatively low administrative burden on small business and support fair taxation, including: - Stopping mechanisms of simplified tax while establishing a VAT exemption threshold based on turnover. - Reduction and simplification of reports submitted to tax authorities; simplified calculation of income tax; exemption from registry books of commodity supply and revenues for small business. - Introduction and expansion of license payment taxation for some self-employed categories with simplified administrative mechanisms. - A unified deadline for submission of accounts and reports to tax authorities (valid also for large business). - One-stop station principle from April 2011: taxpayers obtain TPRN at agencies of state registry and in the RA Central Bank, eliminating mandatory registration at tax authorities. - Administrative and service improvements: - Regulations approved in 2009 for visiting newly-created taxpayers to provide support and services. - Clarification of procedures for transfer of taxpayer registration between tax inspections and for reorganization cases. - Reduction in the number of applications and references required only by tax authorities by 2011 by 57 items to minimize taxpayer contacts. - Introduction of performance-based career encouragement for tax servants in 2010 and improved transparency of Appeals Commission outcomes (published on official web-site of tax authorities). - RA SRC developed a concept paper on introduction of e-management; from 1 January 2010, 27 reports entered into electronic reports system, number of electronic reports as of 30.12.2010 was 70,000; number of taxpayers submitting electronic reports was 4,085 as of 30.12.2010. - Service centres for taxpayers established within the SRC system; centres opened in Arabkir and Vanadzor in 2010-2011 with plans for other regions. - Procedures regulating provision of clarifications by tax authorities to written, oral or electronic requests were approved. - 53 terminals were installed in tax (regional) inspections of the RA SRC, customs points, customs offices, and service centers to inform taxpayers about tax and customs legislation changes and electronic report preparation/submission. *Progress Report on Implementation of the Sustainable Development Program (Year 2009-2010), _cr11191 - 1. Introduction of principles and formats of program budgeting* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11191.pdf_