International Monetary Fund

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Program Note

Republic of Armenia

Last Updated: April 7, 2014

Current IMF-Supported Program

A 38-month, SDR 82.21 (approximately US$128 million) arrangement under the Extended Fund (EFF) was approved by the IMF Executive Board in March 2014. The First Review is planned for September 2014.


Despite sound performance under the 2010–13 Fund-supported program, challenges remain, in terms of macroeconomic stabilization, reduction of vulnerabilities, and medium-term growth dynamics. Inflation and growth remain highly volatile, as illustrated by a sharp slowdown of growth and a spike of inflation in 2013. The external current account deficit and dollarization continue to be high, keeping the economy vulnerable to shocks. Poverty and unemployment also remain high, and the transition to an alternative to the pre-2009 construction-led growth model has been slow. The main risks stem from spillovers from Russia and a worsening of economic conditions in Europe.

Role of the IMF

The EFF-supported program aims to consolidate macroeconomic stability, reduce external vulnerabilities, and support growth. Key policies include:

  • Providing a modest fiscal impulse in 2014 to support the growth recovery, before moving to a reduction of the fiscal deficit in 2015–16, with the aim of gradually reducing the public debt ratio;
  • Implementing reforms to improve the tax system, cast a wider tax net, and achieve gains in revenue administration;
  • Creating fiscal space to expand growth-supporting capital expenditure and address social needs;
  • Ensuring greater exchange rate flexibility and strengthening of the monetary framework;
  • Further strengthening financial sector supervision to maintain robust confidence in the banking system and improve its resilience to shocks; and
  • Improving the business environment, enhancing competitiveness, and reducing poverty.

In addition to financial support, the IMF has provided a wide-ranging program of technical assistance with Armenia, focused in particular on tax policy and revenue administration, management of public finances, macroeconomic modeling and the inflation targeting framework, contingency planning in the banking sector, and statistics. A full update under the Financial Sector Assessment Program took place in 2012. The IMF has coordinated its efforts with other agencies, including the World Bank, the European Bank for Reconstruction and Development, the Asian Development Bank, the European Union, and other bilateral partners.

Challenges Ahead

Key challenges are to implement the fiscal and structural reforms, while managing economic vulnerabilities and implementing appropriate policy responses if external shocks materialize.

  • Revenue reforms are moving forward, but raising revenues is challenging. Efforts in the area of revenue administration should start in 2014 and be complemented in 2015–17 with tax policy measures.
  • The banking sector remains sound and well-capitalized, but also heavily dollarized, and foreign currency lending is high, exposing banks to indirect credit risks. The Central Bank of Armenia monitors developments closely and stands ready to take steps to ensure that risks are well managed.
  • While Armenia has ample international reserves, balance of payments pressures remain. Continued fiscal discipline, together with exchange rate flexibility and structural reforms, will be needed to mitigate pressures, along with continued support from external partners.
  • Armenia’s economic growth remains dependent on Russia, which in turn is influenced by Europe, global oil prices, and geopolitical developments. With the shift in 2013 from possible free trade and association agreements with the EU to membership in the Eurasian Customs Union, clarity and ambition on the structural reform agenda are now even more important than before. 
  • Protecting the poor during the program period will continue to be critical. To this end, the authorities have committed to improving the efficiency and widening the coverage of social spending.

Armenia is well placed to weather these challenges. The policy package being implemented by the authorities, combined with financial support from the IMF and other partners, should enable Armenia to sustain strong economic growth, foster rising incomes and employment, and help reduce poverty.