Mission Concluding Statement 

An IMF staff team visited Yerevan during February 6-20 to hold discussions with the Armenian authorities on the fifth review of the program supported by the Poverty Reduction and Growth Facility (PRGF).

The Armenian economy continued to display high economic growth in 2003, expanding by nearly 14 percent. Consumer prices rose by 8.6 percent in December 2003 reflecting lower supply and higher prices of imported wheat and grains. Preliminary information suggests that the reform program remained broadly on track and the main targets were met. In 2003, Armenia continued to enjoy a strong inflow of foreign resources from a private Diaspora foundation and from multilateral donors. The business environment has also improved, contributing to an increase in investment. While wages increased rapidly, there is not yet enough information on recent poverty and employment indicators.

The authorities intend to carry out a further tightening of monetary conditions to ensure that recent increases in food prices are not passed onto other prices and to allow the exchange rate to respond to market forces. Government spending is broadly in line with the priorities set forth in the PRSP, though ongoing increases in food prices may necessitate further increases in family benefits and other social payments. The fiscal deficit in 2004 is projected at 1.9 percent of GDP compared to 1.5 percent of GDP in 2003.

The discussions focused on the next steps in the reform agenda, including improvements in the transparency and efficiency of tax and customs administration; the design of clear and transparent market-based rules for contracting within the energy sector and the liquidation of Armenergo (the state-owned midstream energy company); and the steps to develop the mortgage market focusing on strengthening institutions rather than compromising the independence of the central bank and the use of public funds. The mission also discussed with the authorities the implementation of their Poverty Reduction Strategy, the importance of speeding up the reporting system for schools, hospitals and other entities receiving transfers from the budget (noncommercial units), and the next steps to implement the anti-corruption strategy in consultation with key stakeholders and civil society.

The mission reached preliminary understandings on several aspects of a new semi-annual program through August 2004. Discussions will need to continue on measures to improve tax and customs operations, set up the reporting system for noncommercial units, take the appropriate steps to foster the development of the mortgage market, and ensure the prompt implementation of key energy sector reforms. If understandings on the pending issues are reached within the next few days, and if the program is approved by management, the Fund's Executive Board could consider a request for a disbursement of the sixth tranche (equivalent to about US$14 million) in late April or early May.