Press Release No. 24/135

IMF Staff Reaches Staff Level Agreement with Armenia on the Third Review of the Stand-By Arrangement

May 3, 2024

• IMF staff and the Armenian authorities have reached a staff-level agreement on the third review under the 2022 Stand-By Arrangement (SBA), which the Armenian authorities treat as precautionary. The SBA aims to support the government’s policy and reform agenda to preserve economic and financial stability and support strong and sustainable growth.
• On the back of high domestic consumption and investment, GDP growth remained very strong by historical standards at 8.7 percent in 2023 and is expected to moderate to more sustainable levels of around 6 percent in 2024.
• Policy priorities are to preserve macroeconomic stability, further mobilize tax revenues to support priority spending including on refugee integration, strengthen institutional frameworks, and continue structural reforms to boost productivity and foster more inclusive growth.

Washington, DC: An International Monetary Fund (IMF) team, led by Iva Petrova, visited Yerevan during March 11-21, 2024, to conduct discussions for the third review under the Stand-By Arrangement (SBA) with Armenia. At the conclusion of the discussions, Ms. Petrova issued the following statement:

“I am pleased to announce that the IMF team and the Armenian authorities have reached a staff-level agreement on policies for the completion of the third review under the three-year SBA, which supports Armenia’s economic reform program. The agreement is subject to approval by the IMF’s Executive Board, which is scheduled to consider this review in mid-June. The Board approval would enable access of about US$24.4 million (SDR 18.4 million), bringing the total access to about US$97.7 million (SDR 73.6 million) since the inception of the SBA.

“Armenia’s strong growth momentum continued in 2023, with the economy growing by 8.7 percent, supported by robust private consumption, trade, and investment. Inflation declined significantly, reaching -1.2 percent in March (y-o-y), mainly due to falling food prices, appreciation of the dram, and the lagged effect of monetary policy tightening. The current account deficit remained contained at 2.0 percent of GDP in 2023, supported by strong tourism. The 2023 fiscal deficit at 2 percent of GDP was lower than projected due to spending under-execution. The banking system has strong capital and liquidity buffers, and its profitability continues to remain high.

“Growth is expected to moderate but remain robust at 6.0 percent in 2024, driven by consumption and public capital spending. Inflation is expected to pick up in the second half of the year. Significant risks to the outlook arise from geopolitical tensions and the possibility that growth in trading partners falters or capital inflows reverse abruptly. Growth could also surprise on the upside in the event of stronger-than-anticipated export receipts, and faster implementation of structural reforms planned under the 2021-26 Government Program.

“The 2024 budget deficit target remains appropriate, accommodating priority spending on social protection, infrastructure, and national security. Given a highly uncertain outlook and ongoing overheating risks, the 2025-27 medium-term expenditure framework needs to avoid creating excessive demand pressures and should strike a balance between preserving macro-fiscal stability and supporting Armenia’s development needs. With rising spending pressures, careful medium-term prioritization and decisive tax policy and revenue administration efforts will be needed to create fiscal space and keep debt at a moderate level. Implementation of reforms to improve government spending efficiency, enhance public financial management—including through robust fiscal risk management, transparency, and governance—and ensure higher-quality public investment remains critical to support the fiscal effort.

“The Central Bank of Armenia (CBA) has gradually reduced the policy rate, which is appropriate in the current low inflation conditions. Future rate decisions should remain dependent on the evolution of inflation and inflation expectations. Implementing the CBA’s new communication strategy to enhance monetary policy transparency and ensure clarity of its objectives will support the newly adopted risk-based approach to monetary policy decision making. The flexible exchange rate should remain a key shock absorber, and the authorities’ commitment to maintain healthy international reserve buffers is welcome. Efforts should continue to strengthen the CBA’s prudential and supervisory frameworks to help stem financial sector risks, as well as to preserve the CBA’s operational independence.

“The government’s structural reform agenda appropriately focuses on fostering inclusive growth, including by boosting labor force participation among the vulnerable population, upgrading the insolvency framework, and encouraging diversification in the country’s export basket and markets. Achieving these objectives requires developing and implementing concrete and fully costed employment and export strategies; and prioritizing governance reforms to support investment and improve the business environment.

“The IMF team thanks the Armenian authorities, private sector, development partners, and diplomatic community for fruitful discussions and cooperation.”