Press Release No. 23/382

IMF Staff Completes Second Review under the Stand-By Arrangement and the 2023 Article IV Consultation with Armenia

November 7, 2023

• Armenia’s strong growth momentum continued in 2023, with the economy growing by 10.5 percent in the first half of the year. GDP growth is expected to reach 7 percent in 2023 and decelerate to more sustainable levels of around 5 percent in 2024.
• Policy priorities are to preserve macroeconomic stability, strengthen economic resilience, and continue structural reforms in the product and labor market, revenue mobilization and public investment management, and improving the business environment to boost productivity and foster more inclusive growth.
• The IMF team and the Armenian authorities reached a staff-level agreement on the second review of the Stand-By Arrangement (SBA). The SBA, which the Armenian authorities are treating as precautionary, aims to ensure policy continuity and support the government reform agenda.

Washington, DC: An International Monetary Fund (IMF) team, led by Iva Petrova, visited Yerevan during September 13-25 to hold discussions with the Armenian authorities for the 2023 Article IV consultation and the second 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 has concluded discussions for the 2023 Article IV consultation and has reached a staff-level agreement for the conclusion of the second review under the authorities’ economic reform program, which is supported by an IMF three-year SBA. The agreement is subject to approval by the IMF’s Executive Board, which is scheduled to consider the review in mid-December. The Board approval would enable access of about US$24.3 million (SDR 18.4 million), bringing the total access to about US$72.9 million (SDR 55.2 million).

“Notwithstanding the unfavorable global economic environment, Armenia’s strong growth momentum continued in 2023 with the economy growing by 10.5 percent in the first half of the year supported by robust private consumption and services trade. Inflation has remained subdued, including due to proactive monetary policy, exchange rate appreciation, and falling food and transportation prices. However, service price inflation has been stickier. The overall fiscal balance recorded a surplus of 0.7 percent of GDP through September 2023 and central government debt remains sustainable. The banking system has strong capital and liquidity buffers, and its profitability continues to remain high.

“We expect growth to ease, reaching 7 and 5 percent in 2023 and 2024, respectively, as income and capital flows moderate, and global and domestic financial conditions continue to remain tight. While growth could surprise on the upside in the event of a renewed bout of income and capital flows and strong implementation of reforms, downside risks are elevated, including from geopolitical tensions, tight global financial conditions, slowdown in external demand, and abrupt reversal of capital flows.

“The authorities have responded proactively to the needs of the more than 100,000 ethnic Armenian refugees from Nagorno Karabakh, including by providing cash support to address essential needs, temporary shelters, as well as financial aid to cover accommodation and utility expenses. The ongoing comprehensive assessment of their medium-to-long term needs—including those related to housing, education, employment, and social protection—would assist in their integration in Armenia.

“The draft 2024 budget appropriately accommodates refugee support, while ensuring macroeconomic stability. The fiscal deficit is expected to support priority social and capital expenditures, with efforts continuing to improve revenue mobilization. It should also help keep the economy from overheating and maintain a moderate debt level.

“Amid deflationary pressures with a still positive output gap, the Central Bank of Armenia (CBA) has started gradual normalization of monetary policy and should continue its data-dependent approach to ensure inflation expectations remain anchored. The flexible exchange rate should remain a key shock absorber. The CBA continues its efforts to strengthen its prudential and supervisory frameworks to help stem financial sector risks, including from rising housing prices.

“In the medium term, it is important to maintain the strong policy and reform momentum, building fiscal buffers and further strengthening medium term sustainability; keeping inflation expectations anchored; safeguarding financial stability; completing governance reforms; and boosting productivity to deliver sustained and inclusive growth. The knowledge-based, export-oriented, and investment-driven growth strategy envisaged in the 2021-26 Government Reform Program requires a steadfast implementation of structural reforms and an enabling investment environment. To achieve this, it is important to develop and implement concrete and fully costed employment and export strategies; upgrade the insolvency framework and prioritize governance reforms to support investment and improve the business environment; implement the public investment management action plan to improve the implementation and quality of capital expenditures; and create fiscal space through revenue enhancing tax policies—including via rationalization of tax expenditures—and ongoing tax administration reforms.

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