IMF Executive Board Completes Third Review Under the Stand-By Arrangement for the Republic of Armenia and Approves US$36.9 Million Disbursement

IMF News, December 11, 2020

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IMF Executive Board Completes Third Review Under the Stand-By Arrangement for the Republic of Armenia and Approves US$36.9 Million Disbursement

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Bibliographic details

• Published: December 11, 2020

Overview

• The Executive Board completed the third review of the Republic of Armenia’s performance under the Stand-By Arrangement (SBA).
• Completion of the review allows the authorities to draw SDR 25.714 million (about US$37 million), bringing total disbursements to SDR 231.7 million (about US$ 332 million).
• Armenia’s three-year SBA is SDR 308.8 million (about US$ 443 million), equivalent to 239.75 percent of Armenia’s quota in the IMF; it was approved on May 17, 2019 and augmented on May 28, 2020.

Economic impact and outlook

• Armenia has been hit by twin shocks: the COVID-19 pandemic (now in its second wave) and recent military hostilities involving the Nagorno-Karabakh conflict zone.
• Projected GDP outcomes and growth:
  • The page states: "Armenia’s real GDP is projected to contract by 7 percent in 2020, with a return to positive growth expected next year."
  • The Executive Board statement notes: "Economic activity is projected to contract significantly in 2020, with growth of -7¼ percent."
  • Table 1 reports Real GDP (percent change) for 2020 as -7.3.
• The crisis has deteriorated the fiscal position; there are currently no signs of stress in the financial sector, though the full impact is still unfolding.
• The outlook beyond the current crises is "generally positive, contingent upon the anticipated global recovery and domestic reform implementation."

Policy response and Fund assessment

• Authorities’ response:
  • Implemented a broad-range of health, fiscal, financial, and monetary policy measures.
  • Took healthcare and anti-crisis measures to limit the pandemic’s impact while protecting vulnerable groups and safeguarding sustainability, as well as macroeconomic and financial stability.
• IMF Executive Board assessment (statement by Mr. Tao Zhang, Deputy Managing Director and Acting Chair):
  • Performance under the SBA has remained satisfactory despite sizable challenges.
  • The 2021 budget is appropriate given weak growth and is embedded in a clear medium-term fiscal strategy.
  • Authorities remain committed to measures to safeguard debt sustainability; public debt is expected to fall to around 60 percent of GDP over the medium-term.
  • Monetary policy has been accommodative, supporting the economy and keeping the banking sector liquid; inflation remains low and the exchange rate relatively stable for much of the year.
  • The Central Bank of Armenia should monitor market developments and stand ready to adjust monetary policy, while maintaining exchange rate flexibility under its inflation targeting framework.
  • Financial sector reforms are underway; supervisors should continue to identify vulnerabilities and stand ready to take relevant regulatory actions.
  • Structural reform agenda implementation remains critical to support recovery and promote inclusive growth (including improving the business climate, supporting SMEs, strengthening governance, and supporting health and education sectors).

Key statistics and projections (selected figures from Table 1)

• Real GDP (percent change): 2017: 7.5; 2018: 5.2; 2019: 7.6; 2020: -7.3; 2021: 1.0; 2022: 3.5; 2023: 4.7; 2024: 4.5; 2025: (not listed in table row for Real GDP percent change beyond 2024).
• Contribution to growth, Consumption expenditure: 2017: 9.0; 2018: 3.1; 2019: 9.3; 2020: -5.0; 2021: 2.5; 2022: 0.9; 2023: 2.9; 2024: 2.2; 2025: 2.1.
• Gross domestic product (in billions of drams): 2017: 5,564; 2018: 6,017; 2019: 6,569; 2020: 6,140; 2021: 6,344; 2022: 6,776; 2023: 7,399; 2024: 8,066; 2025: 8,798.
• Gross domestic product (in millions of USD): 2017: 11,527; 2018: 12,458; 2019: 13,673; 2020: 12,663; 2021: 12,819; 2022: 13,499; 2023: 14,607; 2024: 15,751; 2025: 16,960.
• Gross domestic product per capita (in USD): 2017: 3,869; 2018: 4,196; 2019: 4,605; 2020: 4,264; 2021: 4,317; 2022: 4,545; 2023: 4,918; 2024: 5,303; 2025: 5,709.
• CPI (period average; percent change): 2017: 1.4; 2018: 3.3; 2019: 4.0.
• CPI (end of period; percent change): 2017: 2.6; 2018: 1.8; 2019: 0.7; 2020: 1.5; 2021: 3.8.
• Unemployment rate (in percent): 2017: 20.8; 2018: 20.5; 2019: 18.9; 2020: 24.1; 2021: 24.3; 2022: 24.0; 2023: 23.9; 2024: 23.7.
• Investment (in percent of GDP): 2017: 18.4; 2018: 22.4; 2019: 17.4; 2020: 18.1; 2021: 16.4; 2022: 17.3; 2023: 17.8; 2024: 18.5; 2025: 19.1.
• National savings (in percent of GDP): 2017: 16.9; 2018: 15.5; 2019: 10.2; 2020: 12.2; 2021: 9.9; 2022: 11.1; 2023: 11.6; 2024: 12.4; 2025: 13.1.
• Reserve money (percent change, end of period): 2017: 8.8; 2018: 6.8; 2019: 7.3; 2020: 6.2; 2021: 4.9.
• Broad money (percent change, end of period): 2017: 7.4; 2018: 11.2; 2019: 1.6; 2020: 12.6; 2021: 7.8.
• Private sector credit growth (percent change, end of period): 2017: 16.5; 2018: 17.2; 2019: 6.0; 2020: 5.8; 2021: 2.0; 2022: 2.7; 2023: 3.0.
• Central government operations (in percent of GDP):
  • Revenue and grants: 2017: 21.2; 2018: 22.3; 2019: 23.8; 2020: 24.4; 2021: 23.6; 2022: 25.1; 2023: 25.6; 2024: 25.7.
  • Of which: tax revenue: 2017: 20.2; 2018: 20.9; 2019: 22.0; 2020: 22.1; 2021: 23.0; 2022: 23.3; 2023: 23.5.
  • Expenditure: 2017: 26.0; 2018: 24.8; 2019: 31.4; 2020: 29.2; 2021: 27.7; 2022: 27.2; 2023: 26.9.
  • Overall balance on a cash basis: 2017: -4.8; 2018: -1.8; 2019: -7.0; 2020: -5.6; 2021: -2.6; 2022: -1.7; 2023: -1.5; 2024: -1.2.
• Public and publicly-guaranteed (PPG) debt (in percent of GDP): 2017: 58.9; 2018: 55.7; 2019: 53.5; 2020: 66.3; 2021: 72.5; 2022: 71.2; 2023: 67.5; 2024: 64.8; 2025: 62.0.
• Central Government's PPG debt (in percent): 2017: 53.7; 2018: 51.2; 2019: 49.9; 2020: 63.1; 2021: 69.4; 2022: 68.5; 2023: 65.4; 2024: 63.2; 2025: 61.0.
• Share of foreign currency debt (in percent): 2017: 81.1; 2018: 80.0; 2019: 79.0; 2020: 72.1; 2021: 72.3; 2022: 72.0; 2023: 72.4; 2024: 71.4; 2025: 70.9.
• External sector (in millions of USD):
  • Exports of goods and services: 2017: 4,409; 2018: 4,907; 2019: 5,641; 2020: 3,749; 2021: 4,078; 2022: 4,802; 2023: 5,307; 2024: 5,661; 2025: 6,025.
  • Imports of goods and services: 2017: -5,651; 2018: -6,610; 2019: -7,470; 2020: -5,370; 2021: -5,780; 2022: -6,550; 2023: -7,173; 2024: -7,641; 2025: -8,130.
  • Exports of goods and services (percent change): 2017: 11.3; 2018: 14.9; 2019: -33.5; 2020: 10.5; 2021: 6.7; 2022: 6.4.
  • Imports of goods and services (percent change): 2017: 26.4; 2018: 17.0; 2019: 13.0; 2020: -28.1; 2021: 13.3; 2022: 9.5; 2023: 6.5.
  • Current account balance (in percent of GDP): 2017: -6.9; 2018: -7.2; 2019: -6.0; 2020: -6.5; 2021: -6.2; 2022: -6.1.
  • FDI (net): 2017: 222; 2018: 247; 2019: 397; 2020: 178; 2021: 196; 2022: 255; 2023: 319; 2024: 383; 2025: 421.
  • Gross international reserves (in millions of USD): 2017: 2,314; 2018: 2,259; 2019: 2,850; 2020: 2,251; 2021: 2,534; 2022: 2,568; 2023: 2,608; 2024: 2,621; 2025: 2,640.
  • Import cover (months of next year's imports): 2017: 4.2; 2018: 3.6; 2019: 4.6; 2020: 4.3; 2021: 3.9.
  • End-of-period exchange rate (dram per USD): 2017: 484; 2018: 480.
  • Average exchange rate (dram per USD): 2017: 483.

Policy recommendations and priorities highlighted

• Maintain accommodative monetary policy while the Central Bank monitors market developments and stands ready to adjust policy as necessary.
• Preserve exchange rate flexibility within the inflation targeting framework to absorb shocks.
• Supervisors should continue to identify vulnerabilities in the banking system and be prepared to take regulatory actions as needed.
• Prioritize implementation of the structural reform agenda to support recovery and inclusive growth, including:
  • Improving the business climate and supporting SMEs.
  • Strengthening the governance framework.
  • Continuing support to the health and education sectors.
• Safeguard debt sustainability through fiscal measures consistent with the medium-term fiscal strategy.

Source: IMF Executive Board Completes Third Review Under the Stand-By Arrangement for the Republic of Armenia and Approves US$36.9 Million Disbursement (Press Release No. 20/371), December 11, 2020.

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• Republic of Armenia and the IMF
• Special Drawing Rights (SDRs) -- A Factsheet
• Press Releases
• PRESS CENTER
• Stand-By Arrangement
• Press Release No. 19/173
• Press Release No. 20/2019
• https://www.imf.org/en/home