Press Release No. 14/453

Press Release: IMF Staff Reaches Preliminary Staff-Level Agreement on the First Review Under the Extended Fund Facility Arrangement and Concludes 2014 Article IV Mission to Armenia

October 1, 2014

An IMF mission led by Mark Horton visited Yerevan during September 17–30 to conduct discussions for the First Review under the Extended Fund Facility (EFF) arrangement and the 2014 Article IV consultations. Upon return to IMF HQ, Mr. Horton made the following statement today:

“Armenia’s economic performance has slowed in 2014 in the context of Russia’s downturn and sluggish growth in Europe. Exports, remittances, and domestic demand are weaker, and growth is expected to decelerate to 2.6 percent this year from 3.5 percent in 2013. The external current account will widen somewhat and inflation will remain below the Central Bank of Armenia’s (CBA) target range (4 ± 1.5 percent). Policies in 2015 aim to support a pick-up of growth to 3.3 percent, but there are downside risks from a further slowdown in Russia and Europe. Over the medium term, decisive implementation of structural reforms and an improvement in the regional outlook will support higher growth.

“The Fund-supported program is broadly on track. The June fiscal balance target was met by a large margin, reflecting under-execution of capital projects. The CBA met the June target for holdings of foreign exchange reserves. Structural reforms are advancing, although overall progress was mixed. Progress was registered in financial sector reforms, the adoption of an “open skies” framework for civil aviation, which is delivering increased flights at lower costs, and in preparatory work for overhauling bankruptcy processes. Delays in competition and regulatory reforms reflected the government transition this May.

“The mission reached preliminary agreement on a policy framework for the rest of 2014 and 2015 that could form the basis for completion of the First Review. This includes a moderate expansion of the budget deficit in 2015 to support demand. Fiscal measures will also include efforts to strengthen capital spending execution, improve tax administration, and mitigate fiscal risks. The CBA will continue its commitment to a flexible exchange rate and inflation-targeting regime. Other reforms aim to enhance the financial sector, the business climate and competition, implement the new pension law, and ensure sustainability and greater efficiency in the energy sector.

“The IMF Board is tentatively scheduled to consider the review by the end of the year. Upon approval, the IMF will disburse SDR 11.74 million, bringing total disbursements under the EFF to SDR 23.48 million.

“The mission met with Prime Minister Hovik Abrahamyan, Minister of Finance Gagik Khachatryan, Central Bank Governor Arthur Javadyan, Minister of Economy Karen Chshmaritian, Minister of Energy and Natural Resources Yervand Zakharyan, Minister of Labor and Social Affairs Artem Asatryan, Minister of Agriculture Sergo Karapetyan, as well as senior government officials, representatives of the international community, the business sectors, and civil society. The mission thanks the authorities and other Armenian interlocutors for their cooperation and hospitality.”