IMF Reaches Staff-Level Agreement on Second Review for Armenia’s Stand-By Arrangement, Request for Augmentation

IMF News, April 9, 2020

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IMF team reached a staff-level agreement with the Armenian authorities on the conclusion of the second review under their reform program supported by a three-year Stand-By Arrangement (SBA).
Agreement is subject to approval by the IMF’s Executive Board, which is scheduled to consider the review in mid-May.
Staff will recommend an increase in IMF financial support for Armenia by SDR128.80 million (about US$175 million).
Together with the authorities’ intention to draw purchase rights accumulated under the SBA, SDR 206 million (about US$280 million) would be available to be disbursed immediately after the Board meeting.
The additional financing is justified by urgent balance of payments financing needs resulting from the consequences of the spread of the COVID-19 virus and will be allocated to the budget to help meet urgent medical and socio-economic needs during the peak of the virus outbreak.

Economic growth is expected at -1.5 percent in 2020 given:
- COVID-related restrictions on domestic mobility and activity,
- substantially lower external demand,
- tighter financial conditions,
- disruptions in global trade and supply chains.
Projections are subject to very high uncertainty since the duration of containment measures is hard to predict.

Authorities focused on measures to contain the spread of COVID-19 and to ensure health system readiness.
Actions taken or underway include:
- Equipping the Ministry of Health with additional resources and legislative powers to expeditiously acquire necessary goods and equipment.
- Economic policy response framed around a set of measures announced to be about 2 percent of GDP that include liquidity provision to businesses, direct labor subsidies, and lump sum transfers to vulnerable individuals.
Staff welcomes the economic policy response and emphasizes:
- The authorities’ commitment to ensure strong governance and transparency in implementation of these programs.
- The need to continuously monitor the implementation to ensure effectiveness and evenhanded coverage.

The fiscal deficit in 2020 is expected to widen to about 5 percent of GDP due to lower revenues and higher spending on healthcare and economic support.
The emerging financing gap would be closed by mobilizing financing from the IMF and other partners to complement that available from the domestic capital market.
Government debt is projected to exceed 60 percent of GDP in 2020.
As the crisis abates, the authorities are committed to the medium-term fiscal goal of debt sustainability, which will see government debt-to-GDP gradually decline over the medium term in line with Armenia’s fiscal rule, while maintaining space for investment and social spending.

The Central Bank of Armenia (CBA) has:
- Promptly reduced the policy rate to boost inflation and support economic activity.
- Stood ready to adjust policies in case of capital outflow pressures and disorderly exchange rate movements to preserve financial stability.
- Provided liquidity that helped domestic financial markets to function generally smoothly since the onset of the pandemic.
CBA regulatory and supervisory responses have sought to balance preserving financial stability, maintaining banking system soundness, and sustaining economic activity.

The increase in IMF support will help contain short-term risks and provide resources to meet urgent medical and socio-economic needs during the peak of the virus outbreak, thereby preserving gains in economic potential and inclusion achieved over recent years.
Beyond the short term, staff welcomes the authorities’ intention to continue economic reform aimed at:
- Lifting inclusive and resilient growth,
- Safeguarding social spending,
- Bolstering financial sector resilience,
- Enhancing business climate and governance.

Press Release No. 20/140, April 9, 2020, IMF Communications Department.

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