Press Release No. 05/252

Press Release: IMF Completes First Review Under PRGF for the Republic of Armenia and Approves US$4.7 Million Disbursement

November 14, 2005

The Executive Board of the International Monetary Fund (IMF) today completed the first review of the Republic of Armenia's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review enables Armenia to draw an amount equivalent to SDR 3.28 million (about US$4.7 million), which will bring total disbursement under the arrangement to SDR 6.56 million (about US$9.4 million).

The Executive Board approved the three-year arrangement on May 25, 2005, (see Press Release No. 05/123) for a total amount equivalent to SDR 23 million (about US$32.8 million) to support the government's economic program through 2008.

Following the Executive Board discussion, Agustín Carstens, Deputy Managing Director and Acting Chair, said:

"Armenia's economy continues to perform strongly. Prudent fiscal and monetary policies, strong external inflows, and ongoing structural reforms have contributed to double-digit growth, low inflation, and declining poverty in 2005. The outlook is for continued robust growth in 2006, underpinned by buoyant investment and remittance inflows.

"The authorities made good progress in structural reforms in 2005. They adopted a comprehensive two-year Tax Action Plan to improve tax and customs administrations. Two major amendments to tax legislation that reduce exemptions and loopholes have been submitted to parliament. Moreover, an operational review of customs is currently under way. Steps have also been taken to strengthen banking supervision and improve corporate governance of the financial sector. The financial performance of the energy, water, and irrigation sector has continued to improve.

"The thrust of the authorities' economic program for 2006 is to maintain macroeconomic stability and keep inflation below 3 percent. The Central Bank of Armenia will continue to focus on maintaining price stability, and to limit intervention in the foreign exchange market to smoothing out volatility in the exchange rate.

"The government will also continue to pursue reforms aimed at enhancing growth prospects and alleviating poverty. In particular, structural reforms in the fiscal area focus on improving tax and customs administration to mobilize domestic revenues to finance capital, and social expenditures. As part of the efforts to improve the business climate, the government will continue with the implementation of its anti-corruption action plan. Financial sector reforms should boost financial intermediation and reforms in the public utility sector will emphasize improving its services and financial viability," Mr. Carstens said.

The PRGF is the IMF's concessional facility for low income countries. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a PRSP. This is to ensure that each PRGF-supported program is 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.