Press Release: IMF Completes Third Review of Armenia's PRGF Arrangement and Request for Waiver of Performance Criterion

April 2, 2003

The Executive Board of the International Monetary Fund (IMF) completed the third review of Armenia's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement and approved the request for waiver of performance criterion.

The Executive Board decision enables Armenia to draw an amount equivalent to SDR 10 million (about US$14 million) under the arrangement.

The PRGF arrangement was approved on May 23, 2001 (see Press Release No. 01/25) in a total amount equivalent of SDR 69 million (about US$95 million). So far, Armenia has drawn the equivalent of SDR 30 million (about US$41 million).

After the Executive Board's discussion on Armenia, Mr. Eduardo Aninat, Deputy Managing Director and Acting Chairman, stated:

"The Armenian authorities should be commended for the strong performance under the PRGF-supported program, in particular the reduction in the fiscal deficit, the repayment of domestic expenditure arrears, and continued low inflation. Continued implementation of sound macroeconomic policies and further structural reforms will be necessary to sustain high growth and facilitate further progress in poverty reduction.

"The fiscal program for 2003 includes measures aimed at improving budget execution and tax administration, while safeguarding social spending and preventing the accumulation of expenditure arrears. Monetary and exchange rate policies remain consistent with the central bank's inflation objective. Recent measures geared toward enhancing the effectiveness of banking supervision and bank resolution already yielded positive results, but further efforts will be needed. At the same time, the introduction of the deposit insurance scheme should be conducted in a prudent manner and the premium set at a level comparable to other transition economies.

"Building on the improvements in the performance of the energy sector during 2002, additional measures are required to deal with the sector's debts and governance problems. In this regard, the authorities' commitment to move toward management contracts for the state-owned companies, establish independent boards of directors, and begin public disclosure of financial audits and energy sector data is welcomed.

"The authorities expect to finalize their poverty reduction strategy paper by May 2003. It will be important to ensure that the paper contains an adequate prioritization and costing of poverty reduction measures in line with the medium-term expenditure framework. At the same time, further work is required to finalize an effective anti-corruption strategy and begin with its implementation.

"In view of the favorable performance under the 2002 program and the strength of the program for 2003, the Executive Board completed the third review under the PRGF arrangement and granted a waiver for the nonobservance of one performance criterion. Continued good performance under the program will be essential to address the key economic challenges facing Armenia and mobilize support for a successful poverty reduction strategy," Mr. Aninat said.


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