Republic of Armenia and the IMF

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Armenia, Republic of—Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

March 7, 2003

The following item is a Letter of Intent of the government of Armenia, which describes the policies that Armenia intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Armenia, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

The authorities of the Republic of Armenia held discussions with Fund staff during January 22-February 6, 2003 on the program supported under the Poverty Reduction and Growth Facility. The purpose of this letter is to inform you of the progress in implementing the program and request the fourth disbursement following the completion of the third review under the arrangement.

The program is on track. All but one of the quantitative performance criteria for end-December 2002 were observed and all structural measures scheduled for implementation up to February 2003 have been carried out. In particular, we have settled most domestic expenditure arrears, linked the computerized valuation database at customs with the Automated System for Customs Data, and initiated liquidation procedures for five of the eight banks under interim administration. The performance criterion on medium- and long-term nonconcessional external debt was exceeded by a small margin as the government issued a guarantee on a medium-term loan to finance construction of power lines. This operation does not compromise debt sustainability and no further guarantees will be issued. Based on this strong performance, we request a waiver for the nonobservance of the end-December performance criterion on external debt.

The attached Memorandum of Economic and Financial Policies (MEFP) supplements the memorandum of September 11, 2002, and sets out the government's policies for the period ahead. It describes the understandings reached with the staff on performance criteria and benchmarks until mid-2003. Consistent with our commitment to transparency, the government intends to make these understandings public and authorizes the Fund to publish this letter, the attached memorandum, and the staff report on the third review under the arrangement.

The government believes that the policies and measures described in the MEFP are adequate to achieve the objectives of the program but it will also take additional measures that may become appropriate for the purpose. The government will consult with the Fund in advance of the adoption of any such measures or on any revision to the policies covered in the MEFP in accordance with the Fund's procedures for such consultations. It will also provide the Fund with the information required to assess progress in implementing the program.

Sincerely yours,

Andranik Margaryan
Prime Minister
Republic of Armenia
Vartan Khachatryan
Minister of Finance and Economy
Tigran S. Sargsyan
Chairman of the Central Bank


Government of Armenia
Supplementary Memorandum of Economic and Financial Policies

This memorandum complements the Memorandum of Economic and Financial Policies of September 11, 2002. It reviews the implementation of the second annual program supported by the Poverty Reduction and Growth Facility (PRGF) and presents an update of the government's economic objectives and policies for 2003. These objectives and policies are integral parts of the government's strategy for poverty reduction as envisaged in the interim Poverty Reduction Strategy Paper (PRSP).

I. Recent Developments and Performance Under the Program

1. The overall strong performance of the Armenian economy continued in the second half of 2002. Real economic growth accelerated to 12.9 percent in 2002 mainly because of higher grant-financed construction activity and manufacturing production. At the same time, inflation remained subdued with the 12-month rate at 2.0 percent. However, during the fourth quarter of 2002, reserve money and broad money grew by 38 percent and 19 percent, respectively. These increases were associated with an accelerated clearance of domestic arrears in December, which could not be easily sterilized given the limited instruments available to the central bank to control liquidity. The external current account deficit narrowed further in 2002 to a preliminary 6.2 percent of GDP, primarily reflecting strong growth in exports.

2. The fiscal deficit on a commitment basis declined from 3.8 percent of GDP in 2001 to 0.6 percent in 2002 owing to lower-than-expected current and capital expenditures (mainly attributed to over budgeting by project implementation units) and revenue mobilization measures. On a cash basis, the deficit declined from 4 percent of GDP to 2.4 percent. At the same time, the stock of domestic expenditure arrears fell from 2.8 percent of GDP at end-2001 to 0.7 percent at end-2002.

3. The performance of the energy sector improved in 2002 reflecting increased use of hydropower, measures undertaken to enhance efficiency, and the privatization of the electricity distribution company. In addition, the largest thermal power plant and the management of the financial flows of the nuclear power plant are also being privatized. The primary deficit of the energy sector was 0.4 percent of GDP in 2002 compared with 2.5 percent in 2001. Total collection as a share of the amount of electricity billed increased to 90 percent in 2002 from 81 percent in 2001 while technical and excess losses declined marginally to 25.9 percent from 26.5 percent in 2001. Such developments follow years of mismanagement that have raised the indebtedness of the sector to unsustainable levels and crippled its ability to deliver reliable and cost-effective power. At end-2002, domestic and foreign banks had claims of nearly US$31 million on state-owned energy sector companies.

4. In line with this positive performance, the program for the second half of 2002 remained on track. All but one end-December quantitative performance criteria were observed, including the targets on domestic expenditure arrears, tax revenues, and net international reserves (NIR) of the Central Bank of Armenia (CBA). NIR at program exchange rates rose to US$231 million at end-December 2002 compared with a targeted floor of US$165 million. The sharp increase in NIR in the last quarter of the year can be attributed to a number of factors, including CBA purchases of foreign exchange to stem deflationary pressures, lower-than-projected government imports, and the disbursement of the floating tranche of the fourth World Bank Structural Adjustment Credit. However, the ceiling on external non-concessional debt was not observed as a government guarantee was issued for a US$7.1 million medium-term external loan to the energy sector. This loan will not jeopardize debt sustainability. We have also instructed the Ministry of Energy and all the state-owned companies in the sector that no such guarantees will be available in the future.

5. All structural performance criteria and all but one of the benchmarks scheduled for implementation during the period October 2002-February 2003 have been observed. There was a slight technical delay in the approval of guidelines for the resolution of problem banks (benchmark) scheduled for end-February 2003. This measure will be implemented by mid-March and will be a prior action for completing the third review. Key measures implemented include the adoption of codes of conduct for tax and customs officials, the establishment of a computerized valuation database at customs linked to the Automated System for Customs Data (ASYCUDA), and the revocation of licenses and appointment of liquidators for the five smallest banks under interim central bank administration.

II. Macroeconomic Policies for 2003

6. In line with the medium-term economic strategy, the government's program for 2003 aims at achieving the following core objectives:

  • Provide the conditions for real economic growth of at least 7 percent in order to reduce poverty and unemployment and further slow down emigration;

  • Maintain the 12-month rate of inflation at no more than 3 percent and gross international reserves above 4 months of imports; and

  • Maintain fiscal discipline and further reduce public-debt ratios.

Fiscal policy

7. Budget for 2003. The fiscal deficit on a commitment basis is projected at 2.5 percent of GDP. Tax revenues of the central government are expected to increase to 15 percent of GDP based on improvements in tax and customs administration. The government stands ready to undertake additional tax measures in the event of a revenue shortfall, such as further reducing value-added tax (VAT) exemptions at the border. Total expenditure is budgeted to increase from 19.5 percent of GDP in 2002 to 22 percent in 2003. The government is committed to clear remaining arrears by mid-2003 and to reduce expenditures below budgeted amounts by up to 0.7 percent of GDP in the event of a shortfall in external financing.

8. VAT. In January 2003, the value of imported goods exempted from VAT at the border was reduced from 25 percent to 20 percent of total imports. Over the next two years, as the administrative capacity for VAT credits and refunds further improve, the government is committed to eliminate all VAT exemptions at the border other than for goods exempted under agreements with international organizations or governments. Other measures taken to improve the system for VAT refunds include the introduction of limits on cash transactions. By mid-2003, the refund system will be further improved by preparing quarterly reports on outstanding VAT amounts.

9. Tax administration. In late 2002, a code of conduct for tax officials was adopted and an internal audit unit was established at the State Tax Service. Beginning in 2003, this unit will prepare quarterly audit reports to be shared with key officials and IMF and World Bank staff. A website including basic tax legislation and regulations covering the major taxes will be completed later in the year. The simplified tax has been further streamlined and a universal turnover ceiling of AMD 50 million was introduced in the 2003 budget. A minimum annual income tax of AMD 30,000 for businesses was also introduced to prompt small businesses to move away from the "normal" tax regime where due to administrative difficulties they used to pay little taxes to the simplified tax regime. In early 2003, a draft law was submitted to parliament on the declaration of income for all citizens. Lastly, the government intends to submit to parliament this fall an amendment to the law on tax inspections aimed at increasing transparency and simplifying the relationship between tax auditors and taxpayers.

10. Customs administration. The computerized customs valuation database will be updated with actual invoice values and we expect that the share of imported goods whose import values equal their invoice values will increase rapidly during the year. An updated version (1.16f) of ASYCUDA will be introduced at all customs houses and customs points by end-May 2003, which will enhance the possibility of random checking of imported goods and improve management reporting. In addition, all customs houses will be networked with the ASYCUDA system by April while all custom points will be networked via satellite by July 2003. A website has been established with key information including customs tariffs and import/export procedures. Mobile passport-reading machines were introduced last fall to enforce the bi-annual limits on individual duty free exemptions. These exemptions were reduced from US$500 to US$300 effective January 2003. The internal audit unit at customs will begin preparing quarterly audit reports based on criteria specified by IMF staff, which will be shared with key officials and IMF and World Bank staff. In 2002, the customs consultative committee was expanded to include further representatives among businesses and international consultants in Armenia. This committee will meet quarterly and publish their agenda and minutes for each meeting. Lastly, by end-June 2003, a post-clearance program will be introduced at customs headquarters.

11. Expenditure policy. The government remains committed to clearing all arrears by mid-2003. Social expenditures (defined as expenditure on health, education, and social security) are projected to increase to 5.7 percent of GDP in 2003 compared with 4.8 percent in 2002. In the event of a financing shortfall, the government will not execute the contingent expenditures detailed in the 2003 budget. However, priority expenditures, including family allowances, will be protected. Capital expenditure will increase rapidly mainly because of higher grant-financed public investment. Lastly, a medium-term expenditure framework for 2004-06 will be finalized in October 2003.

12. Expenditure management and budget reform. Further updating of the budgeting reporting software is still needed for a fully functioning system. At end-2002, the Ministry of Finance approved procedures for establishing internal audits in the budgetary sector (comprising all line ministries). By mid-2003, a manual consistent with international auditing standards will be prepared. To further improving expenditure arrears control, the government will submit amendments to the Budget System law that will make it possible to reduce budgeted expenditures by up to 10 percent in the case of a revenue shortfall without parliamentary approval. In such an event, social expenditures will be safeguarded. A website including budget laws, internal audit reports, and budget execution reports according to both the economic and the functional distribution of expenditures will be completed this spring. Later this year, the government intends to put in place a financial and cash management procedure involving daily forecasts for central government budget receipts and payments for the next twelve months. Work will also continue on identifying and tracking external grants with a view to include them in the budget.

Monetary and financial sector policies

13. Monetary policy. The overriding macroeconomic objective of the CBA is to maintain inflation at no more than 3 percent a year. Given the rapid increase in monetary aggregates toward the end of 2002 and the associated inflationary risks, the CBA has engineered a reduction in the money supply during the first quarter of 2003. The CBA will continue to use all instruments at its disposal to contain any inflationary pressure. Reserve money is projected to increase by 7 percent during the year while the demand for broad money is projected to increase by 11 percent. The multiplier is expected to increase reflecting both a projected decline in the currency-to-deposits ratio and the reduction in reserve requirements from 8 percent of deposits to 6 percent in mid-2003. The latter is planned in connection with the introduction of the deposit insurance scheme.

14. Banking system. The CBA has taken steps to resolve the situation of the eight banks under temporary administration. The liquidation of five of those banks has been initiated and by mid-March, the CBA will issue guidelines for the conduct of intervention of banks and for performing "least-cost" diagnostic tests. The CBA will also announce its decision to liquidate Credit Yerevan (a large intervened bank) during 2003. The CBA will share with the staffs of the IMF and the World Bank monthly cash flow statements and balance sheets of Credit Yerevan, whose liabilities are expected to decline rapidly until the bank is brought to liquidation. By end-May 2003, the situation of the remaining two banks will be resolved. In addition, the CBA will continue to strengthen banking supervision, act decisively against banks that violate prudential norms, and ensure that all market participants operate on a level playing field. In this context, the CBA will--in consultation with external experts--review the system of penalties imposed on banks that violate prudential standards. Moreover, the CBA is preparing an onsite inspection manual to enhance risk-based supervision. The central bank has also communicated to the commercial banks that it will not tolerate any violations of exposure limits (particularly from the energy sector) and that all regulations will be fully enforced. The government will move cautiously with regard to the introduction of the deposit insurance scheme that will begin collecting premia in mid-2003. To ensure transparency, amendments will be made in the central bank law to clarify the insurance event, accounts covered, management of the insurance fund, and the structure of payments. The CBA will publish the modalities of the scheme by end-April 2003, setting a premium and a level of coverage comparable (in terms of GDP per capita) to other transition economies. Any bank that might be placed under interim administration before July 2005 would be excluded from the scheme.

15. Financial sector legislation. The financial legal framework and the functioning of the judiciary need to be improved to foster financial sector development. Despite continuing macroeconomic stability, interest rates remain high and the financial sector remains small and fragile. This is primarily attributed to the lack of proper mechanisms to ensure creditor rights, leading to liquidity and solvency problems for banks as they confront significant difficulties in recovering problem assets. To address this situation, we will draft amendments to the law on Bank Bankruptcy, the law on Banks and Banking, the law on Enforcement of Court Decisions, the Civil Code, and the Civil Procedure Code. These changes will enhance our ability to execute bank resolution strategies and more effectively create, register, and enforce pledges.

External policies

16. Balance of payments. The current account deficit is projected to deteriorate slightly in 2003. Capital transfers will continue to be high owing to grants from a US-based private foundation. Gross international reserves are projected to remain at around 4.3 months of imports of goods and services. A remaining financing gap would be financed by IMF disbursements and a structural adjustment loan from the World Bank.

17. Trade and foreign exchange regime. Armenia became a member of the World Trade Organization in February 2003. Armenia is committed to maintain a liberal trade regime with no restrictions in the making of payments and transfers for current international transactions and in conformity with Article VIII of the IMF's Articles of Agreement. The floating exchange rate regime will be maintained.

18. External debt. The government will not accumulate external nonconcessional debt or external payments arrears during the program period. The debt-equity swap agreement with Russia is expected to be completed in the next few months. The agreement, which entails the exchange of the outstanding debt to Russia for equity positions in Armenian state-owned enterprises, will significantly reduce Armenia's external debt ratios. The government has cleared its outstanding arrears to Turkmenistan through the provision of goods and intends to repay the remaining debt to that country in the first half of 2003.

Structural policies

19. Energy sector. By mid-2003, the government will approve an integrated financial rehabilitation plan for the energy, water, and irrigation sectors for the period of 2003-07. The rehabilitation plan will include a timetable for strengthening corporate governance in the energy sector and for transferring the management function of the state-owned enterprises through management contracts. In addition, independent boards of directors will be established by September 2003 whose composition will be determined by a Prime Ministerial decision. The government and other state institutions shall not interfere in the activities of the energy companies. The boards will approve independent management plans for the respective enterprises and board members shall act independently from the government, parliament, and special-interest groups. The board of directors for the transmission, settlement, and dispatch centers will include representatives from the electricity distribution and power generation companies. There will be regular annual independent audits of all state-owned enterprises in the energy sector carried out by reputable auditors, beginning with financial year 2002. The auditor(s) will submit audited financial reports to the boards and appropriate government bodies and the reports will be published via mass media and the internet. In the meantime, the energy regulatory commission will start implementing a power sector performance monitoring and public dissemination system for intra-sectoral flows of electricity and payments as specified in paragraph 18 of the attached Technical Memorandum of Understanding (TMU). The financial rehabilitation plan will contain a strategy for dealing with the debts of the state-owned companies and will prevent them from increasing their net bank liabilities. The central bank will continue to require commercial banks to provision in full for any unsecured lending to the energy sector. Furthermore, the government will not extend any further guarantees on the sector's domestic or foreign loans. In April 2003, the government will restructure the existing external debt guarantee to the nuclear power plant (US$7 million). In 2003, the energy sector primary surplus excluding the distribution company is expected to increase to 0.2 percent of GDP from 0.1 percent in 2002.

20. Other key parastatals. The financial rehabilitation plan will ensure further reduction of excess losses and elimination of payment arrears by water and irrigation companies. The 2003 budget contains sufficient subsidies to these and electric public transport companies to prevent the accumulation of tax and energy payments' arrears. Through ongoing technical improvements, including enhanced metering, the combined primary deficit of the water and irrigation sectors is also projected to decline to 0.6 percent of GDP in 2003 compared with a projected 0.8 percent in 2002.

21. PRSP. The government has prepared a draft PRSP that has been circulated for comments to civil society and the international donor community. The draft is currently being revised in light of comments received, focusing on the prioritization and costing of the measures proposed. The final document is expected to be approved by the government by mid-2003.

22. Governance. The government is aware of the need to fight corruption and it has prepared an anti-corruption strategy in late 2002 based on an earlier consultant's report on the subject. The document will be further revised to emphasize key anti-corruption measures and establish an action plan for their implementation.

III. Program Monitoring

23. Program monitoring will be carried out based on semi-annual quantitative performance criteria and quarterly quantitative benchmarks (Table 1) as well as structural performance criteria and benchmarks (Table 2). The fourth review under the PRGF-supported program, scheduled for completion by end-September 2003, will be based on compliance with end-June 2003 quantitative targets and the implementation of the envisaged structural measures. The quantitative performance criteria include: ceilings on the net domestic assets of the CBA, net domestic banking system credit to the government, the overall cash deficit of the central government, domestic expenditure arrears of the central government, State Fund for Social Insurance arrears, contracting and guaranteeing of non-concessional medium- and long-term external debt, and continuous performance criteria on non-accumulation of external arrears of the government and on net disbursements of short-term external debt. There are also floors on net official international reserves of the central bank and tax revenues of the central government, an indicative bound on reserve money, and an indicative floor on the primary balance of the energy sector. The attached TMU details definitions and monitoring (including adjusters) of quantitative performance criteria.

24. Compilation and provision of information. The relevant ministries, the CBA, and the National Statistics Service will share with the staff all data as specified in the TMU. Following the adoption of a new civil service law last year and as part of reforms in collaboration with the World Bank toward further decentralization, in 2003 a large number of budgetary institutions such as schools and universities, libraries, and hospitals were converted into noncommercial enterprises that are controlled and largely financed by the government. As a result, a large part of government expenditure including wages, subsidies, and other transfers will be classified in budget execution under "other goods and services". Since these enterprises constitute instruments of government policy, their financial risks largely correspond to government fiscal risks. While the current reporting of budgetary units is line with Government Finance Statistics methodology, the reporting by economic categories for these enterprises is required for the analysis of their spending behavior, fiscal control, and performance. Therefore, the government will request these entities to begin submitting budget execution reports in line with the economic classification of expenditures. The treasury will work (in consultation with the IMF) towards ensuring that these reports are aggregated into the regular budget execution reports in early 2004.

Table 1. Armenia: Quantitative Targets, December 2002-December 20031
(End of period stocks, unless otherwise specified)

Net domestic assets of the CBA (ceiling)5 -12.4     -13.9     -18.5     -18.1     -16.7    
Net banking system credit to government 0.1     5.5     2.6     2.0     4.9    
Domestic arrears of the central government 9.1     8.0     0.0     0.0     0.0    
Stock of arrears of the State Fund for Social Insurance 0.0     0.0     0.0     0.0     0.0    
Tax revenues of the central government (floor)6 198.6     45.0     98.9     157.7     220.5    
Balance of the central government on a cash basis6 -31.9     -9.0     -27.5     -39.8     -50.0    
Reserve money (band)4 111.3     (92.6-96.4) (93.3-97.1) (103.5-107.7) (116.8-121.6)
Primary balance of the energy sector (floor)4,6 -5.1     -2.3     -1.2     2.5     2.7    
Contracting and guaranteeing of new nonconcessional external debt with maturity of more than one year6 7.1     0     0     0     0    
Net disbursements of short-term external debt6,7 0     0     0     0     0    
External arrears (continuous criterion) 0     0     0     0     0    
Net official international reserves (floor)5 236     198     207     224     245    

1 The definitions of the line items and the adjusters on the fiscal balance and the stock of domestic arrears are specified in the attached technical memorandum of understanding (TMU).
2 Benchmark.
3 Performance criterion, unless otherwise indicated.
4 Indicative target.
5 At program exchange rates (as specified in the TMU).
6 Cumulative flow from the beginning of the calendar year until the end of the month indicated.
7 Continuous criterion. Obligations with maturity of less than one year, excluding normal import-related credit and sales of treasury bills to nonresidents.

Table 2. Armenia: Structural Measures Under the Fourth Review



Target Date1

Performance Criteria  
1. Submit to parliament amendments to the Budget System law with a view to improving expenditure control. April 2003
2. Introduce version 1.16f of the ASYCUDA system at all customs houses and customs points. May 2003
1. Begin work on a new budget reporting system for noncommercial enterprises that will become operational in early 2004.

May 2003

2. Complete least-cost diagnostic analyses and formulate resolution strategies for Armcommunications bank and Ardshin bank unless they are already liquidated or purchase and assume resolution strategies have been put in effect.

May 2003

3. Improve administration of VAT refunds by simplifying procedures and preparing quarterly reports on outstanding VAT amounts.

June 2003

4. Establish fully operational internal audit units at the State Tax Service and at the Customs Committee and prepare quarterly audit reports, the results of which will be shared with the President's office, the Prime Minister, the Ministry of Finance and Economy, and IMF and World Bank staff.

June 2003

5. Introduce a post-clearance verification program at customs' headquarters.

June 2003

6. Adopt financial rehabilitation plan for energy, water, and irrigation sectors. The plan will set the process for establishing independent boards of directors by September 2003 and performing independent financial audits beginning with the 2002 financial year for all state-owned companies in the energy sector, and will set a timetable for transferring their management functions through management contracts.

June 2003

7. Submit to cabinet draft amendments to (i) the Civil Code (provisions on pledges) to more effectively create, register, and enforce pledges; (ii) the law on Bank Bankruptcy (shareholder rights) with a view to more effectively execute bank resolution strategies; and (iii) the law on the Central Bank of Armenia to include provisions on deposit insurance. July 2003

1End of period.


Government of Armenia
Technical Memorandum of Understanding

This memorandum defines the benchmarks, performance criteria, adjustors, and reporting modalities referred to in the Memorandum of Economic and Financial Policies.

I. Quantitative Targets

1. The program targets a minimum level of net official international reserves (NIR) of the Central Bank of Armenia (CBA). The stock of such reserves will be calculated as the difference between total official gross international reserves and official reserve liabilities. Total gross official international reserves are defined as the CBA's holdings of monetary gold (excluding amounts pledged as collateral or in swaps), holdings of SDRs, any reserve position in the IMF, and holdings of convertible currencies in cash or in nonresident financial institutions (deposits, securities, or other financial instruments). Gross reserves held in the form of securities are marked to market. Gross reserves are reported net of the balance on the government's Special Privatization Account (SPA) and excluding capital subscriptions in foreign financial institutions and illiquid foreign assets. There is no reporting on financial derivatives and other off balance sheet positions, as the CBA does not currently trade in such instruments. If the CBA decides to commence such trading it will promptly notify the IMF staff in order to establish reporting requirements in this regard. Official reserve liabilities shall be defined as outstanding liabilities to the IMF and convertible currency liabilities of the CBA to nonresidents with an original maturity of up to and including one year. NIR is monitored in U.S. dollars, and, for program monitoring purposes, assets and liabilities in currencies other than the U.S. dollar shall be converted into dollar-equivalent values using the exchange rates as of December 31, 2002 (Attachment III, Table 1).

2. The program targets a maximum level of net domestic assets (NDA) of the CBA. NDA is defined as reserve money less net foreign assets of the CBA. Net foreign assets are defined as NIR minus medium- and long-term liabilities of the CBA. To evaluate program targets, the dram-equivalent values of NIR and medium- and long-term liabilities are calculated at the end-2002 official exchange rate of dram 584.9 per U.S. dollar.

3. Reserve money targets are indicative and include a floor and a ceiling. They are subject to a daily bound of plus or minus 2 percent computed from the quarterly average standard deviation of excess reserves held by banks in percent of quarterly reserve money during the previous four years. Reserve money is defined as the sum of currency issue, required and excess reserves, and current and time deposit accounts of certain resident agents.

4. The stock of net credit of the banking system to the government is the sum of net credit from the CBA and net credit from commercial banks. The stock of credit from the CBA includes the CBA's holdings of treasury bills and treasury bonds less all types of government deposits. Treasury bonds are valued at the purchase price and treasury bills are valued at the purchase price plus the implicit accrued interest. The stock of net credit from commercial banks includes: (1) gross credit to the government less government deposits (including the counterpart funds of certain government onlending to the economy financed by the Lincy Foundation and the World Bank); and (2) banks' holdings of treasury bonds (valued at the purchase price and excluding accrued interest) and treasury bills (valued at the purchase price plus the implicit accrued interest).

5. External debt limits apply to all forms of new nonconcessional medium- and long-term external debt1 with original maturities of more than one year, which are contracted or guaranteed by the government or the CBA. Excluded from the limits are changes in indebtedness resulting from refinancing credits or rescheduling operations, sales of treasury bills or treasury bonds to nonresidents (provided the sales go through the regular auction mechanism and involve no exchange rate guarantees), and concessional loans.2 Except for normal import-related credits, there is a zero limit on net disbursements of short-term external debt (obligations with original maturities of up to one year) contracted or guaranteed by the government or the CBA. Transactions subject to debt ceilings shall be valued in the contracted currencies and converted into U.S. dollars at the average monthly market exchange rate in the month when the commitment was contracted.

6. External arrears will consist of all overdue debt-service obligations (i.e., payments of principal and interest) arising in respect of loans contracted or guaranteed by the government or the CBA including unpaid penalties or interest charges associated with these arrears.

7. The central government budget balance on a cash basis is defined from the financing side as the sum of domestic banking system net financing, domestic nonbank net financing, and external net financing to the government. Domestic banking system net financing equals the change during the period of net credit to the government. Domestic nonbank net financing equals the sum of: (1) the change during the period of outstanding treasury bills and bonds to nonbanks (including accrued interest for treasury bills and excluding accrued interest for treasury bonds);3 and (2) any other disbursement or transaction that increases nonbanks' claims on the central government plus net withdrawals from the SPA, less amortizations made by the central government to private resident nonbank agents. External net financing equals total debt-increasing disbursements from non-residents to the central government less total amortizations from the central government to non-residents. All foreign-currency denominated transactions are recorded in drams using the prevailing exchange rate at the time of transaction. The central government comprises all entities mentioned under the state budget including ministries and noncommercial public enterprises.

8. The State Fund for Social Insurance (SFSI), whose overall cash balance cannot be less than zero on an annual basis, is monitored by a separate performance criterion on the stock of SFSI arrears.

9. The US-based Lincy Foundation extends grants to finance various investment projects. The project implementation units, which carry out Lincy-financed projects, maintain accounts at the CBA. These grants are recorded in the fiscal accounts as external grants on the revenue side and as foreign-financed capital expenditure on the expenditure side.

10. Proceeds from privatizations are deposited into the SPA. The account is held at the CBA and the proceeds are invested abroad together with the CBA's international reserves. However, these proceeds are not included in the definition of the monetary accounts of the banking system. Any withdrawal from the SPA will be accounted for as privatization proceeds used to finance the budget and will be recorded below the line. These withdrawals need to be replenished during the fiscal year and the corresponding negative financing amount will be recorded below the line.

11. Tax revenue is defined in accordance with Government Finance Statistics (GFS) 1986, section IV.A.1. Total revenues collected by the State Tax Service (STS) and the Customs Committee are classified as follows: VAT (of which: presumptive tax on cigarettes and petroleum), excises (of which: presumptive tax on cigarettes and petroleum), enterprise profit tax, personal income tax, land tax, customs duties (of which: presumptive tax on cigarettes and petroleum), other presumptive taxes, simplified tax, property tax, and other taxes (of which stamp duties and environmental taxes).

12. The program targets maximum levels for the stock of central government domestic arrears. For program purposes, domestic arrears are defined as follows. With respect to wages, contributions to the pension fund, family allowances, and amortization and domestic interest payments, the stock of arrears is defined as all unpaid claims outstanding at the end of the month. For all other expenditure categories, arrears are defined as the stock of unpaid claims, as verified by the recipient of the goods and services, that has been outstanding for more than 30 days as of the end of the month.

13. The government will provide a detailed quarterly cash flow for the energy sector. The energy sector is defined by the following state-owned companies: (1) Hrazdan thermal power plant; (2) Yerevan thermal power plant; (3) Metsamor nuclear power plant; (4) Sevan-Hrazdan Cascade hydropower plant; (5) Vorotan hydropower plants system; (6) High Voltage Electricity Network; (7) Armenergo; and (8) Armtourtrade. The program targets the primary balance of the energy sector, which is defined as current total revenues less total expenditures excluding interest payments and foreign-financed capital expenditures.

II. Adjusters

14. The quantitative performance criteria and benchmarks under the program are subject to the following adjuster on the cash balance of the government: the cash balance of the central government will be adjusted downward (upward) by the full amount of cumulative higher (lower) than programmed foreign-financed project disbursements (excluding structural adjustment lending by the World Bank). The programmed amounts are shown in Table 2 below.

15. The following adjuster on the net domestic assets of the CBA will apply to changes in the stock of medium- and long-term liabilities of the CBA: the target on the stock of net domestic assets of the CBA will be adjusted upward (downward) by the amount of any disbursement (repayment) from (to) KfW. The adjustment will be made at program exchange rates.

III. Structural Targets

16. For the structural performance criterion on amending the Budget System law the following changes will be made: "The Government, within the scope of its authority provided in Article 23 shall organize commitment control and cash management of budgetary flows in order to ensure that shortfalls in receipts can be handled without increasing expenditure payment arrears. If at the time of budget execution there is a possibility of a shortfall of receipts for the year, and in order to avoid increases in expenditure payment arrears, the Government may and shall withhold up to 10 percent of the aggregate budget allocation for the year without having to obtain the approval of the National Assembly."

17. For the benchmark on the budget reporting of noncommercial enterprises, the government will institute a system under which these enterprises will report data in line with the GFS economic classification on revenues, expenditure and commitments (revenue from the budget, other capital revenue, other current revenue; wages, subsidies, pension transfers, other transfers, other goods and services, foreign-financed capital expenditures, domestic-financed capital expenditures). After introduction of the reporting system, these units will be required to submit quarterly reports on the execution of their budget no later than 30 days after the end of each quarter. These units will be subject to random internal audits. The Ministry of Finance and Economy will specify reporting and audit requirements in an appropriate regulation or by amending the Budget System law as needed.

18. The authorities will ensure that adequate regulation is in place to ensure transparency of physical flows of electricity; related payment flows in the sector; and payment flows including those from end users to the distribution company, to the various midstream power operations, and to the individual generators. The sector entities shall report on a (monthly) quarterly basis figures on:

  • Power produced and sold by each power generation plant,

  • Power exports and imports,

  • Power received by the distribution company,

  • Power supplied to end users (by major customer category),

  • Technical losses, separately for the transmission and distribution systems,

  • Amounts invoiced and amounts collected from customers (by customer category) and from exports,

  • Amounts invoiced by generating plant and for imports,

  • Amounts paid to each generating plant and for imports,

  • Amounts of fuel purchased and paid for by each thermal power plant,

  • Amounts paid to others in the supply chain: transmission company, settlement, dispatch, and contracting centers, and others.

The authorities will disseminate the performance data to the public on its website and to the World Bank and the IMF no later than 45 days after the end of each (month) quarter beginning with the data for the first quarter of 2003.

IV. Data Reporting

19. The government of the Republic of Armenia will provide the IMF the following information as defined in Section II above.

20. Balance sheet of the CBA. The CBA has provided the IMF staff the chart of accounts and it will notify the staff of any revisions thereto. Weekly (summary4) and monthly end-of-period (by chart of account) data on the balance sheet of the CBA will be reported within seven days of the end of the reporting period.

21. Balance sheet of the banking system. Monthly banking system data, in the form of a monetary survey for the central bank and the consolidated balance sheet of the commercial banking system (by chart of accounts) will be reported electronically to the IMF within 21 days of the end of each month. The format for publication in the International Financial Statistics will be reported within 45 days of the end of each month.

22. Treasury bill and coupon bond financing The CBA will provide monthly data to the IMF within seven days of the end of each month by the following categories of holders: the CBA, resident banks, resident nonbanks, and nonresidents.

23. International reserves. The CBA will provide monthly data (by chart of accounts) within 14 days of the end of each month on both gross and net official international reserves. These data will be provided in two versions: (1) at program exchange rates; and (2) at actual official exchange rates.

24. Other financial data. The CBA will provide foreign exchange market data (including the official, buying, and selling exchange rates, inter-bank turnover, and the volume of CBA sales and purchases) and data on interest rates of different maturities (including the refinance rate, the inter-bank rate and volumes, the treasury bill and coupon bond yields and volumes by maturity, and bank deposit and lending rates by maturity). The CBA will also provide data on commercial bank soundness indicators (including capital adequacy ratios, asset composition and quality, profitability, liquid asset ratios, open foreign exchange positions, and percentage of classified loans by category) (Table 3). In addition, the CBA will provide data on bank compliance with prudential regulations (Table 4). These data will be provided on a quarterly basis within 30 days of the end of each quarter. Lastly, the CBA will provide other data as specified in CBA Resolution No. 201 (December 6, 1999).

25. Non-tax and capital revenue. The Ministry of Finance and Economy (MFE) will report on monthly non-tax revenue, capital revenue, cash grants and proceeds from the sales of humanitarian assistance. This information will be reported within seven days of the end of each month.

26. External debt. The MFE, in collaboration with the CBA and the Ministry of Energy, will provide information on disbursements and outstanding stocks of short-term external debt; on contracting and guaranteeing and outstanding stocks of medium- and long-term external debt of the government, the CBA, and state-owned companies in the energy sector (by company); any stock of outstanding arrears on external debt service payments, and the total amount of outstanding government guarantees and external arrears within 21 days of the end of each month for preliminary data and within 45 days for final data.

27. Tax and expenditure arrears. The STS will report on an end-of-month basis the following data on outstanding stock of tax arrears by the end of the following month: (1) by type of tax (monthly), (2) for the 10 largest debtors (quarterly), and (3) for all major companies in the energy, water, and irrigation sectors (quarterly). The reports on expenditure arrears (Table 5) will be compiled monthly by the MFE for the central government and the SFSI separately, and reported within 45 days of the end of each month for government arrears and within 10 days for SFSI arrears.

28. Central government employment. The National Statistics Service (NSS) will provide quarterly updates on employment by ministries and average wages within one month following the end of each quarter.

29. Budget Execution. The MFE will report to the IMF total revenue collected separately by the SFSI, the STS, and the Customs Committee on a monthly basis within seven days of the end of each month. Monthly data on budget execution will be reported by the MFE and the SFSI within one month following the end of each quarter. All cash receipts, cash expenditures (including debt-service payments), and external and domestic borrowing operations will be part of this report. Expenditure data will be provided according to both economic and functional classifications, consistent with GFS methodology.

30. Balance of payments. The NSS will provide: (1) on a monthly basis detailed export and import data within 28 days of the end of each month; and (2) on a quarterly basis a balance of payments within 45 days of the end of each quarter.

31. Energy sector. The Ministry of Energy will provide monthly reports on the end-of-month stock of accounts payables and accounts receivables for the consolidated energy sector (defined in Section I above) with a lag of no more than 28 days. It will also provide the cash flow information with a lag of 45 days (Table 6).5

32. Privatization proceeds. In consultation with the CBA, the MFE will provide the IMF with information on: (1) the balance on the SPA at the end of each month; and (2) all gross additions and gross withdrawals specifying the purpose of each transaction during that month. The information will be provided on a monthly basis no later than seven days after the end of each month.

33. Prices and GDP. The NSS will provide the monthly CPI by category by the fifth day of the following month, and the monthly GDP estimates within one month of the end of the period. The CBA will also submit the monthly index of core inflation within 21 days after the end of each month.

Table 1. Armenia: Program Exchange Rates of the CBA
(As of December 31, 2002)
Country Drams

Austrian dollar 329.94           0.5641          
Canadian dollar 372.92           0.6376          
Swiss franc 416.61           0.7123          
Danish krone 73.78           0.1261          
Euro 606.88           1.0376          
Pound sterling 935.94           1.6002          
Japanese yen 4.87           0.0083          
Norwegian krone 83.07           0.1420          
Swedish krona 66.29           0.1133          
U.S. dollar 584.89           1.0000          
SDR 792.28           1.3546          
Gold 1 6568.46           11.2302          

1Per gram.

Table 2. Armenia: Cumulative Foreign-Financed Project Disbursements1
(In billions of drams)

March 2003 June 2003

8.7 19.8

1On calendar year basis.

Table 3. Armenia: Financial Soundness Indicators for the Banking Sector, 2000–03
(In percent, unless otherwise indicated)
  Dec-00 Dec-01 Jun-021 Sep-022 Dec-022 Mar-03 Jun-03

Capital adequacy              
    Total regulatory capital to risk-weighted assets 25.0   13.6   27.3   31.1   30.5      
    Tier I regulatory capital to risk-weighted assets 23.3   12.3   26.1   29.7   28.8      
    Capital (net worth) to assets 14.2   8.8   17.3   17.8   17.6      
Asset composition              
  Sectoral distribution of loans (billions of drams)3              
    Industry (excluding energy sector) 20.8   24.2   25.2   14.2   16.3      
    Energy Sector 16.3   8.6   8.2   15.5   12.2      
    Agriculture 10.4   9.9   7.7   3.1   7.2      
    Construction 2.0   2.4   3.0   1.9   2.5      
    Transport and communication 2.1   1.9   1.8   0.8   0.8      
    Trade/commerce 12.7   13.4   13.9   12.7   13.9      
  Sectoral distribution of loans to total loans (percent of total) 100.0   100.0   100.0   100.0   100.0      
    Industry (excluding energy sector) 17.1   23.0   31.2   20.5   23.7      
    Energy Sector 13.3   8.1   10.1   22.3   13.9      
    Agriculture 8.5   9.4   9.6   4.4   9.0      
    Construction 1.6   2.3   3.7   2.7   3.7      
    Transport and communication 1.7   1.8   2.2   1.1   1.0      
    Trade/commerce 10.5   12.7   17.2   18.3   20.6      
Foreign exchange loans to total loans 85.9   84.7   84.1   81.9   82.5      
Asset quality4              
  Non-performing loans to gross loans 20.5   16.7   11.8   6.4   4.9      
  Provisions to non-performing loans 14.0   16.2   29.8   43.6   40.2      
  Spread between highest and lowest interbank rates 27.7   21.0   N/A   13.4   14.0      
Earnings and profitability              
  ROA (profits to period average assets) -0.9   -10.3   -1.3   0.6   7.6      
  ROE (profits to period average equity) -6.0   -127.9   -7.4   3.2   5.5      
  Interest margin to gross income 24.7   21.6   23.3   26.7   27.4      
  Noninterest expenses to gross income 29.4   33.1   32.3   34.5   35.2      
  Liquid assets to total assets 30.5   33.1   40.2   47.5   44.5      
  Liquid assets to total short-term liabilities 86.1   80.4   105.5   118.6   108.8      
  Customer deposits to total (non-interbank) loans 156.0   216.1   198.4   196.4   218.6      
  Foreign exchange liabilities to total liabilities 80.6   79.7   78.1   61.1   74.6      
Sensitivity to market risk              
  Gross open positions in foreign exchange to capital 22.5   97.8   21.9   24.4   15.3      

Source: Central Bank of Armenia
1Includes the data of 21 banks and excludes the data of 7 banks under interim administration.
2Includes the data of 20 banks and excludes the data of 8 banks under interim administration.
3Includes only loans to residents.
4Detailed data on classified loans are currently being prepared by the CBA.

Table 4. Armenia: Bank Compliance with Prudential Norms, 2001-031
(Number of Banks)2
      Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03

Capital adequacy (CAR)              
  Capital/risk-weighted assets              
    CAR < 12 % 9      1      1      1      0         
    12% < CAR < 15% 0      3      2      1      2         
    15% < CAR < 20% 2      1      1      2      3         
    20% < CAR < 30% 6      4      5      5      3         
    CAR > 30% 13      11      11      11      12         
  Core capital/risk-weighted assets              
    CAR < 8 % 9      1      1      0      0         
    8% < CAR < 13% 0      2      2      2      3         
    13% < CAR < 20% 3      3      1      2      2         
    20% < CAR < 30% 5      4      5      6      3         
    CAR > 30% 13      10      11      10      12         
Liquidity (LR)              
  Liquid assets/demand liabilities              
    LR < 80% 11      2      1      1      1         
    80% < LR < 100% 3      4      2      4      5         
    100% < LR < 150% 5      5      7      4      7         
    150% < LR < 200% 3      1      3      4      3         
    LR > 200% 8      8      7      7      4         
  Liquid assets/total assets 3              
    LR < 25%      12      4      4      2      5         
    25% < LR < 30% 3      1      2      5      2         
    30% < LR < 40% 7      7      7      3      7         
    40% < LR < 50% 1      1      1      4      2         
    LR > 50% 7      7      6      6      4         
Exposure limits 4              
  Single external borrower/capital                   
    Exposure > 20% 4      3      3      5      4         
  Single internal borrower/capital              
    Exposure > 5 1      0      1      1      0         
  Total internal borrower/capital              
    Exposure > 60 1      0      0      0      0         
Net open foreign exchange position              
  Total currencies position/capital              
    Exposure > 25% 1      0      0      0      1         
  Nonconvertible currencies position/capital              
    Exposure > 5%              
      2      1      1      1      1         
Asset quality              
  Nonperforming loans/gross loans (NPL)              
    NPL < 2% 12      6      5      5      6         
    2% < NPL < 4% 5      1      2      3      2         
    4% < NPL < 6% 2      2      3      2      5         
    6% < NPL < 10% 2      3      2      4      2         
    NPL > 10% 9      10      10      8      7         

Source: Central Bank of Armenia.
1Lower bounds (capital adequacy and liquidity) and upper bounds (exposure limits and open foreign exchange positions) reflect Armenian standards.
2Prudential ratios are calculated on the basis of 30 banks at the end of 2001 and 20 banks in 2002. The ratio on exposure limits is calculated based on 25 banks at end-2001 and 20 banks in 2002. Asset quality is calculated based on 30 banks at end-2001.
3Due to methodological differences, not all cases of a liquidity ratio below 25 percent constitute a violation of the prudential norm.
4 Some violations occurred after the CBA required a capital write-off.

Table 5. Armenia: Arrears of State Budget and SFSI
(In billions of drams; end of period)
2000 March June September December March June September December March June

Total arrears 44.3  46.3   38.5  39.1     42.2     41.4   45.2   35.2     19.8        
Total expenditure arrears 37.3  37.5   36.1  34.9     35.8     32.5   34.0   24.0     9.1        
  Current expenditures 34.6  35.2   33.3  32.5     31.4     29.0   30.6   21.7     7.4        
    Wages 0.5  0.4   0.4  0.4     0.4     0.4   0.4   0.3     0.3        
    Subsidies 1 0.9  0.9   0.8  0.8     0.8     0.9   0.8   0.7     0.7        
    Interest 3.4  4.2   1.9  2.5     3.1     3.7   4.3   1.2     0.0        
      Domestic interest 0.0  0.0   0.0  0.0     0.0     0.0   0.0   0.0     0.0        
      External Interest 3.4  4.2   1.9  2.5     3.1     3.7   4.3   1.2     0.0        
    Transfers 9.0  9.0   8.8  8.8     7.9     6.8   6.7   5.4     0.4        
      Family Allowances 4.1  4.1   4.1  4.1     3.1     2.9   2.8   2.8     0.3        
      Pension Contributions 1.1  1.1   1.1  1.1     1.1     1.1   1.1   1.1     0.0        
      Contribution to pension fund 0.6  0.6   0.4  0.4     0.4     0.0   0.0   0.0     0.0        
      Other 1 3.3  3.2   3.2  3.2     3.3     2.8   2.8   1.5     0.0        
    Goods and Services 1 3 20.8  20.8   21.5  20.1     19.2     17.3   18.5   14.0     6.0        
      Health 12.7  12.7   12.4  11.7     11.5     11.5   11.5   11.3     4.8        
      Education 1.7  1.6   1.8  1.8     2.2     2.2   2.3   2.1     0.9        
      Other 6.4  6.5   7.3  6.5     5.5     3.6   4.7   0.7     0.3        
  Capital Expenditures 1 2.7  2.3   2.8  2.4     4.4     3.5   3.4   2.3     1.7        
  Net lending 1 0.0  0.0   0.0  0.0     0.0     0.0   0.0   0.0     0.0        
External Amortization arrears 7.0  8.8   2.4  4.2     6.4     8.9   11.2   11.2     10.7        
Memorandum items:                      
  Domestic expenditure arrears      33.9   33.4   34.2  32.5     32.7     28.8   29.8   22.8     9.1        
    of which: social expenditures arrears 3 21.7  21.6   21.6  20.9     20.0     19.4   19.5   17.7     6.0        
  External payment arrears 10.4  12.9   4.3  6.6     9.5     12.7   15.5   12.4     10.7        
  SFSI stock of arrears 4.4  3.3   3.0  3.6     1.4     -0.2   0.0   0.0     0.0        

Source: Ministry of Finance and Economy.
1Arrears outstanding for more than 30 days.
2As specified in the TMU, the Authorities will compile the data for the quarter ending in March 2003 and June 2003 within 45 days after the end of each quarter.
3The December 2002 composition of arrears under Goods and Services is preliminary.

Table 6. Armenia: Cash Flow of the Consolidated Energy Sector1
(In billions of drams)
            Q1  Q2  Q3  Q4  Year Year w/o Armelnet Q1  Q2  Year

Revenues 79.9 65.1 20.2 15.1 12.8 22.6 70.7 64.0     17.8 11.2 55.4
  Electricity revenues collected 75.3 62.8 19.6 15.0 12.1 22.2 68.9 62.1     17.1 10.8 53.0
  Revenues collected for Thermal Energy Supply 3.6 1.0 0.3 0.1 0.6 0.0 1.0 1.0     0.6 0.1 1.4
  Non-Core Activities 1.0 1.3 0.3 0.1 0.1 0.4 0.9 0.9     0.2 0.3 1.0
Expenditures 101.3 105.7 24.1 16.0 17.6 36.3 93.9 77.2     24.4 14.6 69.3
  Inputs 40.1 47.3 10.4 3.8 3.3 12.6 30.0 30.1     14.2 4.6 30.1
    Imported Gas 38.4 39.0 8.0 2.1 1.3 12.4 23.7 23.8     12.4 3.5 24.0
    Nuclear Fuel 1.7 8.3 2.4 1.7 2.0 0.2 6.3 6.3     1.8 1.1 6.2
  O&M Costs 34.3 31.1 7.2 5.8 5.0 6.0 24.0 13.0     3.2 3.1 13.0
  Net Payment of Taxes Accrued 17.2 14.8 4.2 4.7 3.9 8.9 21.6 18.9     2.5 2.0 8.6
  Other Current Expenditures 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0     0.0 0.0 0.0
  Interest Payments 5.0 4.7 0.8 1.0 4.3 3.2 9.2 8.2     1.0 1.4 3.8
  Capital Expenditures 4.8 7.8 1.6 0.7 1.1 5.7 9.0 7.1     3.5 3.5 13.8
Primary Balance 3 -13.5 -29.7 -1.7 0.8 0.6 -4.9 -5.1 1.7     -2.3 1.2 2.7
Current Balance -11.6 -28.0 -1.6 0.8 0.7 -4.9 -4.9 2.0     -2.0 1.4 3.7
Balance -21.5 -40.6 -3.9 -0.9 -4.7 -13.7 -23.2 -13.3     -6.6 -3.4 -13.9
Financing available 21.5 40.6 3.3 1.4 4.8 . . . . . . . . .     . . . . . . . . .
  Domestic Sources 2.6 19.6 1.8 0.5 0.9 . . . . . . . . .     . . . . . . . . .
    Banks -2.3 -4.7 0.1 -2.1 -0.8 . . . . . . . . .     . . . . . . . . .
    Budgetary loans -0.6 3.2 5.0 0.1 -7.0 . . . . . . . . .     . . . . . . . . .
    Nonbank loans -9.2 15.6 -6.7 -0.9 4.9 . . . . . . . . .     . . . . . . . . .
    Tax Arrears 7.1 -0.1 0.7 3.0 0.1 . . . . . . . . .     . . . . . . . . .
    Production Reserves 4.2 5.1 2.3 2.2 1.6 . . . . . . . . .     . . . . . . . . .
    Pre-payment for electricity -0.5 -0.3 0.4 -1.8 2.3 . . . . . . . . .     . . . . . . . . .
    Collection of old arrears 3.8 0.9 0.1 0.0 0.0 . . . . . . . . .     . . . . . . . . .
  External Sources -0.3 1.3 1.4 -1.0 1.0 . . . . . . . . .     . . . . . . . . .
  Gov. Subsidies on external loans 4.9 7.2 0.0 2.0 2.9 . . . . . . . . .     . . . . . . . . .
  ArmRosGasProm Gas, debt for equity swap 14.3 12.6 0.0 0.0 0.0 . . . . . . . . .     . . . . . . . . .
Errors and Omissions 0.0 -0.0 0.0 0.0 0.0 . . . . . . . . .     . . . . . . . . .

Sources: Armenian authorities; and Fund staff estimates.
1 Starting 2003, the cash flows do not include the activities of the electricity distribution company ArmElnet, which was privatised at end-2002.
2 As specified in the TMU, the authorities will compile quarterly data for 2003 within 45 days after the end of each quarter. The figures displayed in the table are projections.
3 The primary balance is defined as current revenues minnus total expenditures excluding interest payments and foreign-financed capital expenditures.

1The term "debt" shall have the meaning set forth in Section 9(a) of the Guidelines on performance criteria on external debt, as modified by the Executive Board Decision No. 12274-(00/85) of August 24, 2000, and shall include all current (noncontingent) liabilities, which are created under a contractual arrangement through the provision of economic value in the form of financial or nonfinancial assets (including currency) or services, and/or income, and which require the debtor to make one or more payments in the form of such assets (including currency) or services at some future point(s) in time to discharge the principal and/or interest liabilities incurred under the contract. In particular, all instruments that share the characteristics of debt enumerated above (including loans, suppliers' credits, and leases) will be included in the performance criterion on external debt.
2 For program purposes, a loan is considered concessional if the grant element is at least 35 percent calculated using a discount factor based on the Commercial Interest Reference Rates (CIRRs) published by the OECD plus margins depending on the loan maturity. The margins are: 0.75 percent for repayment periods of less than 15 years, 1 percent for 15-19 years, 1.15 percent for 20-29 years, and 1.25 percent for 30 years or more. The average of the CIRRs over the last ten years will be used for loans with a maturity of at least 15 years and the average of the CIRRs for the preceding six months will be used for shorter maturities.
3Domestic nonbank holdings of treasury bills and treasury bonds are defined as total outstanding treasury bills and bonds less holdings by the banking system and the SFSI.
4As defined in CBA Resolution No. 201 (December 6, 1999).
5The table is in summary form. A more comprehensive table has been agreed in the form of an Excel workbook.