Press Release No. 03/203

Press Release: IMF Completes Fourth Review Under PRGF for the Republic of Armenia, Grants Waiver, and Approves Disbursement of US$14 Million

November 24, 2003

Armenia's PRGF arrangement for the equivalent of SDR 69 million (about US$100 million) was approved on May 21, 2001 (see Press Release No. 01/25). So far, the equivalent of SDR

40 million (about US$58 million) have been disbursed.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper, or PRSP. This is intended 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 5 ½-year grace period on principal payments.

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

"The Armenian authorities are to be commended for the satisfactory implementation of their PRGF-supported program. Prudent macroeconomic policies and structural reforms have contributed to a continued very strong economic performance, with growth exceeding expectations, low inflation, and declining public debt ratios. Armenia's comprehensive and participatory PRSP provides a sound basis for Fund concessional assistance. To sustain Armenia's strong growth while achieving broad-based job creation and improved living standards, the authorities will need to strengthen the tax system and increase social and infrastructure expenditures, and press ahead with their structural reform agenda, including through prompt implementation of an effective anti-corruption strategy.

"The fiscal program for 2004 contains important steps to increase tax revenue and social expenditures. To meet the government's objectives, it will be important that the envisaged tax policy measures as well as the reforms in tax and customs administration are fully implemented, and that the effectiveness of social spending is closely monitored. The authorities are also expected to improve the transparency of public expenditures by enhancing audit and reporting requirements and producing budget execution reports at the level of the general government. Going forward, a sustained tax revenue effort will be needed to help achieve the PRSP objectives.

"Monetary policy is appropriately geared toward achieving the central banks' inflation objective of 3 percent. Continued vigilance and, if necessary, preemptive action in the period ahead will remain important, as will close monitoring of inflation in the event of an increase in utility prices. To foster confidence in the banking system and increase lending to the private sector, further efforts will be needed to enhance the legal framework of the financial sector and strengthen banking supervision.

"The recently approved financial rehabilitation plan for the energy, water, irrigation, and transport sectors is welcome. It will now be important to move ahead with reforms to restructure these sectors, improve their governance, and bolster efficiency, all of which will further help reduce fiscal and quasi-fiscal costs that are ultimately born by the Armenian people.

"The authorities are about to finalize a comprehensive anti-corruption strategy in consultation with civil society and donors. Prompt and vigorous implementation of an effective strategy will be essential to improve the business climate and income distribution, and foster broad-based and sustained economic development," Mr. Carstens stated.