IMF Staff Concludes the Fifth and Final Review under the Extended Fund Facility Arrangement and the 2017 Article IV Visit to Armenia

IMF News, April 12, 2017

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GDP growth in 2016 was 0.2 percent.
GDP growth is expected to reach around 3 percent in 2017, assuming the economy continues to build momentum.
End-year consumer price inflation is projected to reach around 1.75 percent in 2017.
Deflationary pressures persisted in 2016.
The fiscal deficit rose to 5.6 percent of GDP in 2016.
The current account deficit remained below 3 percent of GDP in 2016.
Reserve buffers were rebuilt during the period following the shocks.
Early 2017 indicators: economic activity has shown signs of recovery, with robust private sector credit growth supported by monetary policy easing.
Risks to the outlook noted: the recovery in remittances and copper prices may not endure, and growth in key trading partners could be weaker than expected.

The IMF-supported program is on track.
All end-December performance criteria and structural benchmarks have been met.
The team discussed a policy framework for 2017 as a basis for completion of the final review.
Revenue collection is expected to be above the 2017 budget projection, enabling additional growth-friendly foreign-financed capital spending relative to the budget.
Contingency planning is required given fragility of the recovery and risks to revenues; potential cuts in non-priority current spending should be considered in the event of a revenue shortfall.
The team supports the authorities’ plans to amend the existing pro-cyclical fiscal rule to enhance the credibility of the fiscal framework, while protecting growth.
Upon IMF Executive Board approval (scheduled for late June 2017), the IMF will disburse SDR 15.69 million, bringing total disbursements under the EFF arrangement to SDR 82.21 million.

In the financial sector, banks completed the process of meeting higher minimum capital.
The Central Bank of Armenia (CBA) should remain open to further policy easing, consistent with the inflation targeting framework.
The CBA should continue to strengthen the monetary policy transmission mechanism to better support the inflation targeting framework.
The CBA should maintain exchange rate flexibility as a key shock absorber.

Key challenges identified:
- Growth remains volatile and narrowly based.
- The export sector is relatively undiversified.
- Unemployment and poverty remain high.
- Public and external debt are on the increase.
Policy recommendations to promote sustainable and inclusive growth:
- Implement decisive reforms to attract foreign direct investment.
- Improve infrastructure and education.
- Tackle corruption.
- Enhance the business climate.
- Remain committed to a fiscal path that ensures debt sustainability, supported by rigorous implementation of the new tax code and prioritization of foreign-financed capital spending.

An IMF team led by Hossein Samiei visited Yerevan during March 29–April 12 to conduct discussions for the Fifth and Final Review under the Extended Fund Facility (EFF) arrangement and the 2017 Article IV consultation.
The team met with Prime Minister Karen Karapetyan, Deputy Prime Minister Vache Gabrielyan, Minister of Finance Vardan Aramyan, Central Bank Governor Arthur Javadyan, Minister of Energy Ashot Manukyan, Minister of Agriculture Ignati Arakelyan, SRC Chairman Vardan Harutyunyan, other senior government officials, and representatives of civil society, the business sector, and the international community.
Views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
The IMF Executive Board is scheduled to consider the review in late June 2017.

IMF Communications Department — Press Release No. 17/128 (April 12, 2017).