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IMF Approves in Principle US$87 Million PRGF Credit to Armenia

International Monetary Fund
Published Date:
April 2002
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The Executive Board of the International Monetary Fund (IMF) today approved in principle a three-year loan of SDR 69 million (about US$87 million) under the Poverty Reduction and Growth Facility (PRGF)1 to support the government’s economic program.

A final decision by the IMF Executive Board is pending discussion of Armenia’s Interim Poverty Reduction Strategy Paper (I-PRSP) by the World Bank Executive Board, which is expected to take place on May 22, 2001. The first disbursement of SDR 10 million (about US$13 million) under the new PRGF-supported program will become available when the final decision is made by the IMF Executive Board.

Following the Executive Board’s discussion, Eduardo Aninat, Deputy Managing Director and Acting Chairman, stated:

“Armenia’s comprehensive and ambitious macroeconomic and structural reform program in the 2001-03 period is a continuation of efforts to ensure sustained and rapid economic growth as the cornerstone of efforts to reduce poverty.

“The Armenian authorities’ medium-term strategy to pursue high and sustained growth through an improvement in the overall business climate, with competitive markets guiding the allocation of resources, is appropriate. The success of this strategy depends on consolidating and sustaining macroeconomic stability, and proceeding decisively with the next stage of structural, legal, and institutional reforms. The authorities’ program is expected to promote domestic savings and private investment, maintain the official international reserve position, and reduce the external debt burden over time.

“To attain the authorities’ medium-term growth and poverty reduction objectives, the program contains measures to strengthen the public finances so as to eliminate the outstanding stock of budgetary arrears, maintain a rate of monetary growth consistent with continued price stability, progressively eliminate losses by state-owned enterprises, and further improve regulation of the banking sector. The program also emphasizes improved governance through increasing transparency and reducing corruption, which is essential to ensure that an acceleration in economic growth will succeed in reducing poverty. The envisaged reforms are consistent with the Interim Poverty Reduction Strategy Paper and will be appropriately modified once the Poverty Reduction Strategy Paper has been finalized,” Mr. Aninat said.

ANNEX: Program Summary

Real GDP growth in Armenia exceeded 6 percent during the first nine months of 1999, but following the political assassinations in October 1999, the economic situation deteriorated in late 1999 and early 2000. In the second quarter of 2000, economic growth resumed, while price stability was ensured.

The new three-year economic program focuses on policies that would enable Armenia to reduce its remaining fiscal vulnerabilities and ensure sustained and rapid economic growth as the cornerstone for its efforts to reduce poverty. The envisaged policies are consistent with the I-PRSP, which sets out the main elements of the authorities’ broader program aimed at achieving these goals.

The program anticipates that structural measures and improvements in governance, together with an improvement in the fiscal position and an appropriate monetary policy, should lead to increased private investment (including foreign direct investment) and sustained, rapid economic growth and poverty reduction.

Under the program, real GDP growth is projected to average around 6 percent during 2001-03, annual inflation will be held to 3 percent, and the gross official reserve position of the Central Bank of Armenia will be maintained at around VA months of imports. The external position is expected to strengthen due to foreign direct investment in the export sector, production by new or newly privatized firms of goods that are competitive with imports, and anticipated private inflows.

In 2001, real GDP and inflation are projected to be broadly in line with the medium-term targets under the program. The overall state budget deficit is targeted to fall to 4.0 percent of GDP in 2001 (on an accrual basis) from 6.4 percent in 2000. Revenue and grants are projected to increase by 0.7 percent of GDP in 2001 compared with 2000, and total expenditure is projected to fall by 1.6 percent of GDP. This deficit reduction, combined with a projected increase in net private investment of about 2 percentage points of GDP in 2001 (mainly because of major new investments financed by the Armenian diaspora), would keep the current account deficit under control.

Selected reforms are included in the program in the structural and governance areas that are essential to ensure macroeconomic stability, to establish an improved environment for private investment and growth, and to reduce poverty. In particular, the authorities intend to improve tax administration and expenditure control, progressively eliminate financing gaps in the quasi-fiscal sectors, further improve regulation of the banking sector, and improve governance and reduce corruption by increasing transparency and accountability.

A major effort to reduce poverty is central to the authorities’ program, given the sharp increase in poverty in the 1990s and the associated increase in income inequality. In the authorities’

I-PRSP, prepared in collaboration with the IMF and World Bank staffs, their strategy consists mainly of: measures to enhance economic growth prospects, since the key to poverty alleviation will be economic growth; measures to fight corruption and to reform the civil service; improved targeting of the allocation of family allowances and strengthened administrative capacity for monitoring and evaluation; pension reform; shifting of government expenditures toward the poor (particularly in the health and education sectors); and measures to strengthen labor market policies.

The Republic of Armenia became a member of the IMF on May 28, 1992. Armenia’s quota2 is SDR 92 million (about US$116 million), and its outstanding use of IMF credit currently totals SDR 133 million (about US$168 million).

Republic of Armenia: Selected Economic Indicators, 1998-2003
1. Gross Domestic product Real GDP growth (percent change)
Nominal GDP (in billions of drams)9599881,0321,1491,2541,369
Nominal GDP (in billions of U.S. dollars)1,8991,8471,9152,0892,2802,489
2. Inflation (CPI, percent change)
(In percent of GDP)
3. Central government
Revenue and grants17.119.316.517.217.618.0
Balance (accrual)−4.8−7.2−6.4−4.0−2.5−3.0
4. Monetary indicators
Reserve money (percent change)
Broad money (percent change)36.013.638.712.0
Broad money velocity (end of period)
(Dram per U.S. dollar)
5. Exchange rates
Period average505535540
6. External indicators(In millions of U.S. dollars, unless noted otherwise)
Current account balance (excl. official transfers)−515−401−382−394−375−361
In percent of GDP−27.1−21.7−19.9−18.9−16.4−14.5
Total external debt7878558629681,0481,105
In percent of GDP41.446.345.146.346.044.4
Gross international reserves298305314336344347
In months of imports of GNFS3.
Source: Armenia authorities; and IMF staff estimates.
Source: Armenia authorities; and IMF staff estimates.

On November 22, 1999, the IMF’s concessional facility for low-income countries, the Enhanced Structural Adjustment Facility ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It was intended that PRGF-supported programs will in time be 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 (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. At this time for the Republic of Armenia, pending the completion of a PRSP, a preliminary framework has been set out in an I-PRSP, and a participatory process is underway. It is understood that all policy undertakings in the I-PRSP beyond the first year are subject to reexamination and modification in line with the strategy that is to be elaborated in the PRSP. Once completed and broadly endorsed by the Executive Boards of the IMF and World Bank, the PRSP will provide the policy framework for future reviews under this PRGF arrangement. PRGF loans carry an annual interest rate of 0.5%, and are repayable over 10 years with a 5½-year grace period in principal payments.


A member’ quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.

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