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IMF Executive Board Approves Three Year, US$34.2 Million Poverty Reduction and Growth Facility Arrangement for the Republic of Armenia

International Monetary Fund
Published Date:
June 2005
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The Executive Board of the International Monetary Fund (IMF) today approved a three year, SDR 23 million (about US$34.2 million) arrangement under the Poverty Reduction and Growth Facility (PRGF) for the Republic of Armenia to support the government’s economic program through 2008. The decision will enable the Republic of Armenia to draw an amount equivalent to SDR 3.28 million (about US$4.9 million) from the IMF immediately.

Following the Executive Board’s discussion, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, said:

“Armenia’s economic performance continued to be strong in 2004 and early 2005. Real GDP grew strongly, mainly driven by a boom in agriculture and construction, while inflation fell, aided by an appropriately tight monetary policy and the continued appreciation of the dram. Encouragingly, poverty and inequality indicators have improved notably in recent years, owing mainly to higher salaries, private transfers from abroad, and state social assistance.

“The authorities’ new three-year PRGF-supported program aims at consolidating macroeconomic stability, generating additional domestic resources to finance poverty-reducing and growth-enhancing expenditures, and boosting private sector activities. Tax and customs administration reforms, the heart of the program, will focus on raising domestic resources in a transparent and nondiscretionary manner, thereby helping to create a business climate conducive to economic activity and strengthening the tax base, which will be needed as external aid flows diminish over the medium term.

“The Central Bank of Armenia (CBA) will continue to focus on maintaining price stability, amid strong capital and remittance inflows. The CBA will maintain the flexible exchange rate regime, while enhancing the instruments for sterilizing capital inflows. Fiscal consolidation over the medium term will facilitate containing the monetary effect of capital inflows.

“The program envisages financial sector reforms. The authorities will strengthen banking supervision and improve corporate governance, particularly of banks, to expand financial intermediation. They will step up the pace of reforms in the nonbank financial sector, including by implementing an appropriate supervisory and regulatory framework in the insurance sector.

The authorities are determined to address remaining problems in the energy and water sectors, with the support of the World Bank,” Mr. Carstens stated.

The PRGF is the IMF’s concessional facility for low income countries. It is 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 PRSP. This is 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 5½-year grace period on principal payments.


Recent Economic Developments

Armenia’s macroeconomic performance was strong in 2004. Real GDP grew by 10.1 percent, driven by a boom in agriculture and continued private construction activities. The 12-month CPI inflation fell from 8.6 percent in 2003 to 2 percent in December 2004, aided by tight monetary policy and the continued nominal appreciation of the dram. Strong macroeconomic performance continued in early 2005, with real GDP growing by 7.8 percent (year-on-year) in the first quarter, led by construction, and 12-months inflation at 1.3 percent in April.

Fiscal policy remained sound in 2004. Both expenditures and tax revenues were in line with program targets. The central government deficit of 1.7 percent of GDP, however, was somewhat higher than programmed, mainly due to the deferment of a major grant to 2005. Fiscal performance in early 2005 was on track to meet the overall budget deficit of 2.9 percent of GDP.

Program Summary

Armenia’s economic program, which is to be supported by the new arrangement under the Poverty Reduction and Growth Facility, aims to achieve more broad-based growth and generate employment-creating economic activities in order to further reduce poverty. A main pillar of the reform program is to generate additional domestic resources, which would finance poverty-reducing and growth-enhancing expenditures as official assistance is likely to decline over time. Prudent monetary and fiscal policies aim at maintaining macroeconomic stability, while financial sector development and the improved governance envisage by the program would support dynamic economic growth.

Program targets for 2005 comprise 8 percent real GDP growth, 3 percent annual inflation and an overall fiscal deficit of 2.9 percent of GDP. The medium-term outlook through 2008 envisages annual real GDP growth of at least 6 percent, supported by robust investment in the private sector. Monetary policy would target annual inflation of 3 percent. The fiscal deficit would be maintained below 3 percent of GDP, although it is not expected to fall much lower as social and infrastructure needs remain high and execution rates continue to improve.

Republic of Armenia: Selected Economic Indicators, 2001-2005
Real Sector
Real GDP growth (percent change)9.613.213.910.18.0
GDP (in millions of U.S. dollars)2,1202,3732,8053,5524,217
GNI per capita6807679021,1181,326
Inflation (in percent)
Period average3.
Central government operations (in percent of GDP)
Revenue and grants17.018.817.815.615.8
Overall balance (commitment basis)-3.8-0.4-1.1-1.7-2.9
Monetary Indicators
Reserve money (end-of-period growth rate, in percent)
Broad money (end-of-period growth rate, in percent)4.334.010.422.318.5
Broad money velocity7.
External Sector
Current account balance (including transfers)
In millions of U.S. dollars-200-148-191-167-213
In percent of GDP-9.5-6.2-6.8-4.7-5.1
External debt
In millions of U.S. dollars9061,0261,0981,1831,229
In percent of exports of goods and services132131877467
Gross official international reserves (in millions of U.S. dollars)329430502541582
In months of imports of goods and services3.
Sources: Armenian authorities; and IMF Staff estimates.
Sources: Armenian authorities; and IMF Staff estimates.

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