## Growth and Poverty Reduction in Armenia: Achievements and Challenges

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**Canonical URL:** [Growth and Poverty Reduction in Armenia: Achievements and Challenges](https://www.imf.org/-/media/websites/imf/imported-publications/external/pubs/nft/2005/armenia/_growth.pdf)

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### Background and Early Transition
- Severe shocks in the early 1990s: a severe earthquake, the breakup of the Soviet Union, and disputes with neighbors caused a drastic decline in output.
- Early 1990s outcomes:
  - Unemployment rose sharply.
  - Real wages fell.
  - Shrinking tax base constrained government expenditures.
  - Persistent cash shortages generated large external and domestic expenditure arrears.
  - Over 50 percent of the population still lived in poverty (late 1990s).
  - Emigration of many of Armenia’s most productive workers occurred.

### Early Reforms (1994–1998)
- Reforms focused on:
  - Privatizing land holdings and small-scale enterprises.
  - Liberalizing prices, trade, and the foreign exchange regime.
- Effects:
  - Adjusted relative prices and incentives.
  - Set the stage for market-driven capital formation.
  - Economy rebounded in the second half of the 1990s.
  - Inflation declined to single-digit levels.

### Renewed Stabilization and Reform Effort (2001–2005)
- In 2001 the authorities launched a renewed program supported by the IMF’s Poverty Reduction and Growth Facility (PRGF).
- Comprehensive reforms introduced in:
  - Fiscal sector.
  - Banking sector.
  - Energy sector.
- Reforms were later aligned with a Poverty Reduction Strategy Paper (PRSP).
- Key goals:
  - Boost growth through tax reform and deregulation.
  - Restore confidence in fiscal management and improve expenditure control.
  - Restructure the energy sector.
  - Clean up the banking system.

### Macroeconomic Performance and Social Outcomes (Recent Period)
- Aggregate performance (recent period highlighted in the Overview):
  - Real economic growth averaged 11 percent per year.
  - Annual inflation averaged 3 percent.
  - Per capita income is about US$1,000.
  - Poverty and inequality have fallen.
- Comparative performance:
  - Armenia has outperformed other low-income countries including those in the Commonwealth of Independent States (CIS).
- Constraints despite achievements:
  - Poverty rates remain high.
  - Structural reform agenda remains to be completed.
  - Institutions need to be strengthened.
  - Corruption remains a problem.
  - Closure of two critical borders and occasional political turmoil add to constraints.

### Analytical Focus of the Paper
- Chapter 1: Analysis of the path toward macroeconomic stabilization, sequencing of reforms, and successes and disappointments after a decade of transition.
- Chapter 2: Estimates of productivity growth, analysis of changes in poverty and inequality, and assessment of prospects relative to the Millennium Development Goals (MDGs).
- Chapter 3: Discussion of fiscal and quasi-fiscal adjustment, priorities in tax and expenditure policies, and key long-term fiscal challenges.
- Chapter 4: Barriers to financial sector development and ways to increase financial intermediation.
- Chapter 5: Recent changes in trade patterns, the boom in exports, and potential effects of opening Armenia’s borders.
- Chapter 6: Summary of the remaining reform agenda.

### Key Policy Themes and Priorities Identified
- Continue fiscal consolidation and strengthen expenditure control.
- Advance tax reform and deregulation to boost growth.
- Complete restructuring and cleanup of the banking sector.
- Restructure and address quasi-fiscal deficits in the energy and water sectors.
- Strengthen institutions and tackle corruption.
- Align reforms with poverty reduction strategies to sustain and deepen poverty reduction.

*Source: Growth and Poverty Reduction in Armenia: Achievements and Challenges (International Monetary Fund), _growth*

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_Source: https://www.imf.org/-/media/websites/imf/imported-publications/external/pubs/nft/2005/armenia/_growth.pdf_