Press Release: IMF Approves Stand-By Credit and STF Drawing for Armenia

June 28, 1995

The International Monetary Fund today approved a 12-month stand-by credit of SDR 43.875 million (about $69 million), or 65 percent of quota, for Armenia, together with a second drawing of SDR 16.875 million (about $27 million) under the systemic transformation facility (STF)1, to support the Government's 1995-96 economic stabilization and reform program. The first STF drawing, also SDR 16.875 million, was approved on December 14, 1994 (see Press Release No. 94/86).


Although Armenia has faced a testing economic environment since its independence in 1991, the authorities have persevered with daring and difficult reform measures. The principal objective of the 1995 program, supported by the first drawing under the STF, was to reduce inflation to enable a resumption of sustained economic growth. In the early part of the year stabilization was taking hold and there were signs of a pickup in economic activity. After a cumulative fall in real GDP of nearly 60 percent during 1992-93, the decline in output turned around, with real GDP growth registering more than 5 percent in 1994. As a result of restrictive financial policies in the last quarter of 1994, monthly inflation declined from nearly 50 percent in the first half of the year to 27 percent in the last quarter and to 2 percent in the first quarter of 1995.

The 1995-96 Program

The principal objective of the economic program for 1995-96, supported by the stand-by credit and second STF drawing, is to establish the conditions necessary for sustainable economic growth and a recovery in living standards in the years ahead. Macroeconomic policies aim to reduce monthly inflation to 1 percent by the end of 1995 and to an average of less than 1 percent in 1996; to attain real GDP growth of 5 percent in 1995 and 8 percent in 1996; and to ensure that the Central Bank of Armenia's gross external reserve position is further bolstered, to a level equivalent to 2.4 months of imports by the end of 1996.

These stabilization objectives are to be achieved through a further improvement in public finances and implementation of an appropriately tight monetary policy. Fiscal policy aims at reducing the state government accrual (before taking account of arrears) deficit from 16.1 percent of GDP in 1994 to 8.6 percent of GDP this year. The thrust of this fiscal improvement is expected to come on the expenditure side, with a sharp reduction in current expenditure, and a curtailment of capital expenditure. The primary objective of monetary policy is to reduce inflation in line with the program objectives by strictly limiting central bank credit and ensuring that interest rates remain positive in real terms.

Structural Reforms

Structural reforms seek to achieve efficiency and raise capacity utilization through further progress toward full price liberalization, strengthening the administrative capacity of the Government, and continuing with the privatization of large enterprises. The legal framework will continue to be improved through the adoption of bankruptcy and collateral laws, and with a new land code scheduled to be adopted by the end of September 1995.

Addressing Social Costs

As part of its approach to develop a medium-term social assistance strategy, the Government has also been working closely with the World Bank to identify the most vulnerable groups, with the aim of providing both a short-term social safety net and medium-term measures to improve the efficacy of the system.

The Challenge Ahead

Armenia continues to face formidable economic challenges. Moreover, Armenia's economic program faces uncertainties beyond the country's control. The authorities' strong commitment to reform points toward a successful program implementation, although this will be affected by timely and adequate provision of financial assistance by the international community, which Armenia will continue to need for the foreseeable future.

Armenia joined the IMF on May 28, 1992. Its quota2 is SDR 67.5 million (about $106 million), and its outstanding use of IMF financing currently totals SDR 16.875 million.

Armenia: Selected Economic Indicators

  1994 1995* 1996*


(percent change)

Real economic growth 5.5 5.0 5.8
Inflation (monthly average) 28.3 2.3 0.8

(percent of GDP)

State government accrual balance,
    including grants (deficit –)
–16.1 –8.6 –6.6
External current account balance (deficit –) –35.2 –26.0 –25.9

(in months of imports)

Gross international reserves
    (end of period)
–0.8 –2.0 –2.4

Sources: Armenian authorities; and IMF staff estimates and projections.
1. The STF is a temporary financing facility designed to provide assistance to member countries facing balance of payments difficulties arising from severe disruptions in their traditional trade and payments arrangements owing to a shift from significant reliance on trading at nonmarket prices to a multilateral, market-based trading system.

2. A member's quota in the IMF determines, in particular, its subscription, voting weight, access to IMF financing, and allocation of SDRs.


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