Press Release No. 21/336

IMF Staff Concludes the Fourth and Fifth Review under the Stand-By Arrangement and the 2021 Article IV Consultation with Armenia

November 16, 2021

• GDP growth is expected to reach 5½ percent in 2021 and 5¼ in 2022, while inflation is projected to moderate in 2022 from its recent highs.
• Policy priorities are to further accelerate vaccinations, preserve macroeconomic stability, and continue economic reforms to foster a stronger, greener, and more inclusive growth.

Washington, DC: An International Monetary Fund (IMF) team, led by Nathan Porter, conducted discussions during October 19-November 12, 2021 for the 2021 Article IV consultation, as well as the combined fourth and fifth reviews of Armenia’s economic program, which is supported by an IMF Stand-By Arrangement (SBA). At the conclusion of the discussions, Mr. Porter issued the following statement:

“We are pleased to announce that the IMF team has concluded discussions for the 2021 Article IV consultation and has reached a staff-level agreement with the Armenian authorities for the conclusion of the fourth and fifth review under their economic reform program, which is supported by a three-year Stand-By Arrangement. The agreement is subject to approval by the IMF’s Executive Board, which is scheduled to consider this review in mid-December. About $72.5 million (SDR 51.429 million) would become available after the Board meeting.

“The economy posted almost 5 percent growth in the first half of 2021 supported by strong external and domestic demand. Annual CPI inflation accelerated to 9.1 percent in October driven by pent-up consumption, supply constraints, global and domestic food inflation, and pass-through from dram depreciation in early 2021. The fiscal deficit narrowed in the first half of 2021 owing to strong revenue collection, and a gradual scaling down of the emergency spending that helped mitigate the impact of the twin shocks that hit Armenia in 2020. The banking system’s capital and liquidity buffers have remained strong, and the external position has also strengthened, with the currency appreciating over the past few months.

“The recovery is expected to continue, with GDP growth of 5½ and 5¼ percent in 2021 and 2022, respectively. While growth could accelerate faster next year on the back of strong reforms, downside risks are also elevated, including from the ongoing fourth wave of COVID-19 infections, geopolitical tensions, a slowdown in external demand, and potentially heightened global financial market volatility. Inflation is expected to begin moderating by mid-2022, as the effect of supply-side and external shocks dissipate, and recent monetary policy actions have their full impact. The Central Bank of Armenia continues to proactively manage the challenges from above-target inflation and an uncertain global environment, and should remain ready to adjust its monetary stance as necessary while allowing the exchange rate to be a shock absorber. The draft 2022 budget balances near-term support with the medium-term needs for higher capital spending and is in line with Armenia’s fiscal rules and the need to rebuild fiscal buffers over time. Robust exports and remittances are expected to narrow the current account deficit in 2021.

“Beyond the near-term, it is important to maintain the strong policy and reform efforts, building fiscal buffers and further strengthening medium-term sustainability; reducing inflation towards the Central Bank’s target of 4 percent; safeguarding financial stability; and delivering sustained, green, and inclusive growth. In this regard, we share many of the objectives of the Government’s 5-year program which focuses on the pursuit of a knowledge-based, export-oriented, investment-driven growth strategy, aimed at reducing poverty and improving living standards. To achieve these objectives, it is important to develop concrete action plans with associated key performance indicators and costing, fully operationalize the recently approved public investment management decree, complete the PPP operational framework, strengthen fiscal risk management, transparency and governance, and improve the business environment, while at the same time creating space through growth-friendly revenue-enhancing tax policies, spending prioritization, and higher quality public investment.

“The IMF team thanks the Armenian authorities, representatives of civil society, private sector, development partner, and diplomatic community for fruitful discussions and cooperation.”