IMF Executive Board Completes Fifth Review Under Armenia's PRGF Arrangement and Approves US$5.2 Million Disbursement

Press Release No. 07/276
November 26, 2007

The Executive Board of the International Monetary Fund (IMF) has completed the fifth review of Armenia's economic performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement (see Press Release No. 05/123). The Executive Board also approved a request for modifying the end-December 2007 structural performance criterion on the tax filing process. The completion of the review enables the release of an amount equivalent to SDR 3.28 million (about US$5.2 million) under the arrangement, bringing the total amount drawn under the arrangement to an amount equivalent to SDR 19.68 million (about US$31.4 million).

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the country's Poverty Reduction Strategy Paper. This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½ -year grace period on principal payments.

Following the Executive Board's discussion on Armenia, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

"Armenia continues to benefit from a double-digit rate of growth, moderate inflation, a low fiscal deficit, and a comfortable reserves position. Moreover, good progress has been made in reducing poverty. Strong remittance inflows have dampened the impact of rapidly rising imports on the current account deficit. The medium-term outlook is positive, with a favorable outlook for investment.

"Sound fiscal and monetary policies will remain key to macroeconomic stability and external competitiveness, against the background of large-scale foreign exchange inflows and rising inflationary risks. The Central Bank of Armenia is committed to tightening monetary policy to keep inflation low, while maintaining a flexible exchange rate regime.

"Emerging expenditure pressures associated with pension reform and a potential hike in gas import prices create medium-term fiscal risks, calling for improved revenue mobilization and expenditure prioritization. Increasing the tax-to-GDP ratio in a transparent and nondiscretionary manner will be particularly important, to provide resources for the country's infrastructure needs and efforts to reduce poverty further.

"The authorities intend to press ahead with their structural reform agenda to remove remaining bottlenecks to broad-based growth. Policies aimed at boosting domestic competition and productivity are essential to improve external competitiveness. The tax administration modernization program will contribute to reducing tax evasion and strengthening the business environment," Mr. Portugal said.



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