Table 1. Armenia: Summary of Macroeconomic and Structural Adjustment Policies,
1998-2001
|
 |
Policy Area |
Objectives and Targets |
Strategies and Measures |
Timing |
|
| |
Fiscal Policy
|
Tax policy and Administration
|
Mobilize additional revenue: broaden tax base, and simplify tax structure
|
1. Amendments to the VAT Law to increase the threshold for paying VAT from dram 2 million to dram 3 million, including a "reasonable grounds" provision(s) for persons expected to exceed the VAT thresh
old will be submitted to parliament for approval. Enterprises earning below the threshold will continue to pay the presumptive tax.
|
19981
|
|
|
2. The government will seek to conclude all remaining reciprocity agreements with
other CIS countries so as to finalize the move to a VAT based on a destination principle.
|
1998-1999
|
|
|
3. The government will conduct a review of the deferment procedures on VAT
payments on duty free and non-excisable goods with the technical assistance of the IMF.
|
1999
|
|
|
4. An amendment to the Enterprise Profit Tax phasing out tax holidays will be
submitted to parliament.
|
19981
|
|
|
5. The government will prepare a comprehensive list of remaining tax exemptions
and will develop a timetable to streamline it. The list of remaining exemptions will be published in the form of a decree
before the end of 1998. Implementation of this plan will be conducted during the period ending December 1999.
|
1998-19991
|
|
Improve tax administration and enforce tax collections
|
6. The structure of interest charges on unpaid taxes and penalties will be
consolidated from two rates to one rate, and the government will take steps to ensure that such penalty rate will remain a few
percentage points above the average treasury bill rate.
|
1998-1999
|
|
|
7. The appeals procedure for taxpayers disputing their tax liabilities will be
modified to allow for two sequential levels of appeal.
|
19981
|
|
|
8. The government will review the Law on Taxes to ensure that it addresses
appropriately the issue of transfer pricing activities and thin capitalization between associated partners with the technical
assistance of the IMF.
|
1999
|
|
|
9. The High Level Committee for large tax debtors will address and resolve the
cases of the 30 largest debtors in 1998, and it will seek to resolve the remaining 30 largest cases by mid-1999.
|
1998-1999
|
|
|
10. The High Level Committee will issue a provision which will hold responsible a
manager/entrepreneur who knowingly applies an enterprise's funds contrary to the terms of agreement for rescheduling a tax
debt that leads to any loss of tax revenue.
|
1999
|
|
|
11. The government will review the problems hampering the assessment and
collection of the Land and Property taxes and submit to the parliament for approval amendments to such laws. Such amendments
will include considering the assignment of responsibility for collecting these taxes to the local authorities.
|
1998-1999
|
Expenditure management and budget control
|
Improve expenditure control and management
|
12. The 1999 draft budget will consolidate the operations of the republican
government and the Pension and Employment Fund, and will include a detailed projection of the consolidated operations of the
local governments. Local governments will not be allowed to borrow, except with the specific approval of the MFE, and those
that will receive budgetary transfers will be required to have approved budgets prior to the beginning of the fiscal
year.
|
1998-20012
|
|
|
13. The draft 1999 Budget Law to be submitted by the government in 1998 will
include a provision to allow more flexibility to allocate expenditures between categories by authorizing the MFE to specify
rules governing the reappropriation of line items.
|
1998-19922
|
|
|
14. The draft 1999 Budget Law to be submitted by the government in 1998 will
include a provision to provide more flexible power than sequestration for the MFE to restrain expenditure when a shortfall in
revenue emerges during the year.
|
1998-1999
|
|
|
15. The government will prepare a list of all existing sectoral extrabudgetary
funds before the end of 1998.
|
19982
|
|
|
16. During 1999, the government will develop a strategy and complete all
necessary work to ensure that the number of extrabudgetary funds in operation in the year 2000 will be significantly
reduced.
|
1999
|
|
|
17. Guidelines for assessing the need for loan guarantees by the government and
the CBA will be established and the system for recording loan guarantees will be refined.
|
1998-1999
|
|
|
18. Monthly reporting by the Project Management Units (PMUs) on foreign loan
disbursements to the treasury will be established.
|
19982
|
|
|
19. The government will develop and implement a Medium Term Public Expenditure
Framework (MTPEF). Before the end of 1998, the government will establish a unit which will be in charge of its
preparation.
|
1998-2001
|
Intergovernmental Fiscal Relations
|
Strengthen the budgeting and budgetary control of local governments and
municipalities
|
20. The government will develop, in consultation with the World Bank and the IMF,
a strategy for the reform of the current framework of intergovernmental relations, including tax expenditure assignments and
mechanisms for budget equalization across municipalities.
|
1999-2001
|
|
Monetary Operations, Bank Supervision and Policy
Coordination
|
Improve the operation of monetary policy
|
Prevent an excessive use of credit from the CBA
|
21. The CBA will establish an intra-quarterly government borrowing rate above the
average treasury bill rate.
|
1998-1999
|
|
|
22. The government will take steps toward replacing intra-quarter direct credit
to government with additional treasury bill auctions. If needed the CBA will add liquidity to the market to support the
auctions.
|
1998-2001
|
|
Simplify reserve requirement
|
23. The CBA will eliminate the option for banks to hold 50 percent of required
reserves against foreign exchange deposits in foreign currency.
|
1998-19993
|
|
Facilitate short-term financing
|
24. The administrative procedures for the Lombard facility will be amended to
allow for overnight loans.
|
19983
|
|
Improve the operation of monetary policy
|
25. The use of monetary policy instruments will be streamlined further by
increasing the reliance on repo and reverse repo operations for short-term fine tuning of liquidity.
|
1998-2001
|
|
|
26. The CBA will limit its foreign exchange operations to the smoothing of
exchange market fluctuations, and the exchange rate will move in either direction in response to market trends. The CBA's
policy response to deviations from the inflation target, or from the paths of dram broad money and broad money, will be guided
by an indicative target for reserve money, which will be subject to an upward limit to allow for some limited intra-monthly
variability.
|
1998-20003
|
|
Strengthen banking regulation and supervision
|
27. The CBA will reduce the limit on the aggregate open foreign exchange position
of commercial banks to 30 percent for the aggregate position to be effective from April 1, 1999, and to 25 percent from
January 1, 2000. The individual exposure to certain currencies (as defined by the CBA) will be limited to 10 percent of
capital from October 1, 1998, and to 5 percent from January 1, 2000.
|
1998-19993
|
|
|
28. The CBA will raise the general capital adequacy ratio to a level of 12
percent effective April 1, 1999. The minimum core capital adequacy will be set at 8 percent of risk-weighted assets effective
April 1, 1999.
|
1998-19993
|
|
|
29. The government will submit to parliament amendments to the Banking Law to
require a minimum capital level for new banks at the new higher level to be required for existing banks, based on a resolution
which has been approved by the CBA. Existing banks will be able to avail themselves of a phased in period to achieve the new
minimum capital level.
|
1998-1999
|
|
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30. The CBA will implement loan classification guidelines that include factors
other than number of delinquent days and require banks to establish a more comprehensive loan loss reserve
methodology.
|
1998-1999
|
|
|
31. The CBA will establish classification and appraisal guidelines to determine
the overall quality of the banks' investment portfolios.
|
1998-1999
|
|
|
32. The government, in consultation with the CBA, will submit to parliament
amendments to the Banking Law to give bank regulators the power to restrict dividend payments when banks are experiencing
financial difficulties.
|
1998-1999
|
|
|
33. The CBA will monitor closely the timeliness and accuracy of commercial banks'
financial reporting and will continue to require annual independent audits of banks.
|
1998-2000
|
Fiscal/Monetary Policy Coordination
|
Enhance coordination between fiscal and monetary policies
|
34. The MFE, in coordination with the CBA, will prepare on a regular and timely
basis a monthly financing strategy of the budget which will be built into the monthly liquidity program of the CBA. They will
also set up a permanent committee that will analyze the monthly fiscal and monetary outcomes.
|
1998-2001
|
Trade Policy
|
Maintain liberal and streamlined tariff regime
|
35. The government will maintain the present low level of tariffs and the tariff
regime with two bands at 0 and 10 percent.
|
1998-2001
|
|
External Sector
|
External debt
|
Enhance management and analysis
|
36. The External Debt Management Department of the MFE will install and use a
computerized system of debt management with assistance from donors.
|
1998-1999
|
Humanitarian aid and grants in kind
|
Strengthen management of external assistance
|
37. The External Relations Department in the MFE will start publishing quarterly
reports on all external grants and loans in kind received as well as the monetization of such grants and loans.
|
1999
|
Foreign direct investment
|
Streamline administrative procedures
|
38.The Ministry of Trade and Industry will establish a one-stop-shop for the
formation of new businesses, particularly with FDI.
|
1998-1999
|
|
|
39.The government will issue a decree requiring state and private sector
enterprises to notify the Ministry of Statistics within 30 days of receiving any FDI. Information from commercial banks will
continue to be forwarded to the Ministry of Statistics by the CBA.
|
1998-1999
|
|
Other Structural Measures
|
Privatization
|
Delineate clearly the enterprises which will remain under public sector domain
and monitor their financial position on a regular basis
|
40. In accordance with defined criteria, the government will publish a list of
enterprises that will remain under public sector domain and develop a system to monitor their financial performance. During
1999, a pilot system of monitoring the five large enterprises will be started.
|
1998-1999
|
|
|
41. Privatize all bakeries and mills or initiate liquidation proceedings for
those that failed to sell after a third auction.
|
1998
|
|
Use of privatization proceeds to improve external debt and debt service
profile and to finance a PIP
|
42. The government will develop a comprehensive strategy for the use of
privatization proceeds with the assistance of the World Bank and the Fund as part of its overall MTPEF strategy. Until the
strategy is adopted, the use of these resources for budgetary support should be limited and geared toward financing clearly
identified investment projects and maintenance expenditures, which could not be accommodated in the budget due to resource
constraints, as well as to improve the external debt and debt service profile. The government will request that the World Bank
assist in setting up a system to design and monitor the type of expenditures which will be eligible to be funded by either
additional tax revenues or by an authorized use of privatization proceeds from the special account. The government will seek
the assistance of the Fund in developing the strategy to improve the debt and debt service profile using privatization
proceeds.
|
1998-1999
|
Bank Restructuring
|
Restructure the banking sector
|
43. The government will sell all its shares in Ardshinbank.
|
1998-1999
|
|
|
44. The government will design, evaluate the macroeconomic implications, and
implement a strategic plan for the Savings Bank centered on privatization. The government will require a full IAS audit for
1998 and 1999, and a valuation of the bank, based on the net asset value of the balance sheet and the net present value of
future earnings, including an allowance for the franchise value of the branch network.
|
1998-2000
|
|
|
45. The government will remove all remaining government representatives from the
boards of directors and the management of all private commercial banks.
|
1998
|
|
|
46. The government will examine in detail alternative schemes for a deposit
insurance program with technical assistance from multilateral institutions.
|
1998-1999
|
Foster the development of financial markets
|
Develop a transparent institutional framework
|
47. The government and the CBA will establish a Securities and Exchange
Commission, as well as develop and adopt a new securities market regulatory framework, which will include a code of conduct
for primary dealers to be developed in consultation with market participants.
|
1998-2001
|
|
Facilitate transactions in the secondary market
|
48. The government and the CBA will establish a comprehensive capital markets
infrastructure including: (i) a trading mechanism; (ii) a clearance and settlements system; (iii) a depository; and (iv) an
enhanced registry system.
|
1998-2001
|
Energy sector reforms
|
Ensure financial viability of the energy sector
|
49. The government will take steps to ensure strict enforcement of existing
legislation that enables energy enterprises to suspend services to customers with payments arrears, especially for those
budgetary organizations which may have received services in excess of their budgetary appropriations.
|
1998-2001
|
|
|
50. The government will establish and publish dram and physical consumption (GW
h) limits for 1999 on the budgetary support for strategic consumers. Continued budgetary support will be made conditional on
strategic consumers reporting regularly on (i) their financial operations; (ii) collections as percent of tariff; and (iii)
payments for energy as a percent of energy received.
|
19984
|
|
|
51. The government will ensure implementation of the Financial Rehabilitation
Plan in the power sector for the period 1998-2000. With the objective of reaching full cost recovery levels by July 1999, as
required under the Energy Law, the Energy Regulatory Commission will announce (i) a minimum 12.5 percent increase in the
average electricity tariff to be effective no later than January 1, 1999; and (ii) a timetable for semi-annual tariffs
reviews.
|
1998-20004
|
|
|
52. The government will require the preparation of electricity companies'
accounts according to international accounting standards (IAS), and an audit of their accounts in accordance with
international auditing standards.
|
1998-2000
|
|
Privatize energy companies to improve efficiency
|
53. The government will implement a program of power privatization as provided in
Government Decision 551 of December 2, 1997. In particular, the government will formulate and agree with the World Bank a
privatization action plan for electric distribution companies before the end of 1998. The plan will set a benchmark for
1999-2000 that at least 50% of the overall distribution capacity (by market share) will be offered for privatization with
majority of shares offered to strategic investors. International privatization consultants will have been contracted by
January 1, 1999.
|
1998-2001
|
Public Sector Reform
|
Review role of the state
|
54. The government will conduct a review of the role of the state in a market
economy. On the basis of this review, the government will: (i) develop a program of institutional and civil service reforms
starting in 1999; (ii) strengthen the cabinet office of government; and (iii) develop and implement a medium term civil
service reform strategy.
|
1998-2001
|
|
Restructure budgetary employment
|
55. The government's program for restructuring budgetary employment will start in
the health and education sectors in the context of the rationalization strategies indicated below.
|
1999
|
|
Introduce professional merit-based civil service
|
56. The government will appoint a high level working group on civil service
reform to coordinate and oversee civil service reform issues.
|
19985
|
|
|
57. Develop a medium term civil service reform strategy.
|
1998-1999
|
|
|
58. Submit to parliament a draft Civil Service Law consistent with the
recommendations received from the World Bank and prepare regulations on a timely basis so as to be able to implement the law
as soon as approved by parliament.
|
1998-1999
|
|
|
59. The government, with the assistance from the World Bank and UNDP, will (i)
review the current structure of control and internal and external audit functions and develop and submit amendments to the
relevant laws; (ii) identify and implement measures to strengthen the institutional capacity in charge of control and
auditing.
|
1998-2001
|
|
Improve service delivery
|
60. The government will conduct a service delivery survey to assess user
satisfaction with public services and to identify agencies and priorities for improvement. On the basis of survey findings,
the government will develop a program for improving service delivery in targeted agencies and/or regions.
|
1998-1999
|
Education
|
Increase the general quality of educational services and the effectiveness and
targeting of public expenditure in the sector
|
61. The government will submit to parliament a draft Law on Education which will
identify areas for private and public financing in the sector, introduce new financing mechanisms (per capita financing in
general education), define school autonomy, expand role of municipalities in managing primary and secondary
schools.
|
19986
|
|
|
62. The government will strengthen the capacity for monitoring the quality of
general education. The first delivery survey will be launched in 1999, which will result in developing a school rating. The
Ministry of Finance and Economy will approve a new reporting format for educational institutions that receive public funds
which would provide a comprehensive coverage of available funding and detailed breakdown of actual spending.
|
1999-2001
|
Health
|
Improve the general quality of health services and the effectiveness and
targeting of public expenditure in the sector
|
63. The government will provide further rationalization of the Basic Benefit
Package (BBP) system for the 1999 budget by ensuring its consistency with available funding, by making improvements in both
contract arrangements with hospitals, and monitoring of the implementation of the BBP by hospitals.
|
19986
|
|
|
64. The government will develop and approve a three-year strategic plan for the
sector that will spell out a longer term vision for public involvement in the sector as well as explicit priorities for
hospital restructuring, medical training, government licensing and reporting. On the basis of this plan, the government will
proceed with hospital rationalization including privatization of hospitals and reduction in the number of doctors in public
funded hospitals.
|
1999-2001
|
Social Safety Net
|
Social protection
|
65. The government adopted a resolution in November 1999 which modified the
existing system of social benefits to a means-tested single vulnerability benefit starting effective January 1, 1999. The
government will submit to parliament in 1999 a draft Law on Family Benefits. The full transition will be completed in
2000.
|
1998-2000
|
|
Social insurance
|
66. The government will issue a resolution stating its commitment to develop a
pension reform strategy. The resolution will include the main principles of such a strategy.
|
1999
|
|
|
67. The government will approve a plan for rationalization of both collection of
payroll taxes and payments of pensions to recipients.
|
1999
|
Statistical Reform
|
Improve statistics
|
68. The government will seek assistance from the IMF to assess and improve the
quality, timeliness and dissemination of the national accounts, in general, and of the GDP deflator, and GDP on a constant
price basis that is currently being published on a quarterly basis, in particular.
|
1998-1999
|
|
|
69. The Ministry of Statistics will conduct a pilot survey of FDI using the
questionnaire prepared by the former IMF resident expert on balance of payments statistics.
|
1999
|
|
|
70. The Ministry of Statistics will conduct four consecutive quarterly surveys on
nonfactor services in line with the recommendation of the Fund STA Department.
|
1999
|
|
|
71. The Ministry of Statistics will establish a statistics advisory committee,
including representatives from other ministries, the CBA, and the private sector.
|
1999
|
|
1This measure has already been implemented.
2This measure has already been implemented.
3This measure has already been adopted.
4This measure has already been implemented.
5This measure has already been implemented.
6This measure has already been implemented.
|
