Mission Concluding Statement 

During January 22-February 6, an International Monetary Fund (IMF) team held discussions with the Armenian authorities on the third review of the program supported by the Poverty Reduction and Growth Facility (PRGF).¹ Based on preliminary information, all but one of the quantitative targets for end-December 2002 was met and all structural measures scheduled under the program were implemented. Understandings were reached on most policies for the next review though further discussions on energy sector measures will be conducted this week. The review could be considered by the Fund's Executive Board after final understandings are reached on those measures. This would allow Armenia to draw the fourth tranche under the PRGF arrangement equivalent to about US$13 million.

The strong economic performance of the Armenian economy continued in 2002, with real GDP growing at 12.9 percent, the 12-month rate of inflation at 2 percent, a comfortable level of foreign exchange reserves, and a narrowing of the fiscal and current account deficits. Other important achievements include the higher level of tax collection during the second half of 2002, the rapid clearance of domestic expenditure arrears, and the steady implementation of measures under the program. During the mission, understandings were reached on actions to improve the administration of the value-added tax, introduce flexibility in the budget to prevent the accumulation of arrears, and prepare legislation to strengthen the execution of bank liquidations and the rules for creation, registration, and enforcement of pledges. The fiscal deficit for 2003 is projected at 2.4 percent of GDP, while total expenditure is budgeted to increase from 19.5 percent of GDP in 2002 to 21.8 percent in 2003. The authorities stated their commitment to clear the remaining government arrears by mid-2003 and increase social spending by at least 0.3 percent of GDP. The mission discussed with the authorities the need to strengthen banking supervision; set a deposit insurance premium at a level comparable to other transition economies; and improve the transparency of the operations of state-owned companies in the energy sector, control their large debts, and improve their efficiency and accountability.

The authorities expect to finalize the Poverty Reduction Strategy Paper (PRSP) this spring after taking account comments from various stakeholders including civil society. A medium-term expenditure framework for 2004-06 is also being prepared. The basic economic framework for these documents will be aligned with that of the PRGF-supported program.

¹ A three-year PRGF-supported program began in May 2001. The first two semi-annual reviews of the program were completed in September 2002.