Armenia’s growth has picked up in 2011, led by manufacturing, mining, and services, while agriculture has rebounded from the collapse. Credit continues to grow rapidly, particularly in foreign currency and based on strong inflows to banks. Inflation has come down sharply, reflecting policy rate hikes, spending restraint, the agriculture recovery, and favorable global price developments. Challenges include safeguarding financial system stability, strengthening tax revenues to ensure sustainability and support pro-growth and pro-poor spending, improving the business environment to enhance growth and reduce poverty and unemployment, and reducing external imbalances.
An International Monetary Fund (IMF) mission led by Mr. Mark Horton visited Yerevan during September 7 - September 20 to conduct discussions for the Third Review of the Extended Fund Facility (EFF)/Extended Credit Facility (ECF) arrangements. At the conclusion of the visit, Mr. Horton issued the following statement:
“Discussions were productive and there was progress on the set of policies and actions for the rest of 2011 and 2012. Further discussions will be conducted in Washington, DC during the Annual Meetings of the IMF and the World Bank later this week.
“Overall macroeconomic conditions have improved. As a result of a rebound in the agricultural sector and dynamic industry and services sectors, growth outturns are set to improve this year in line with our previous projection of 4.6 percent growth. With less supportive external conditions, the growth projection was reduced to 4 percent in 2012 with risks markedly tilted to the downside. Inflation has significantly moderated, driven by falling global commodity prices and the agricultural rebound. Headline inflation reached 4.8 percent in August (year over year), and is expected to remain subdued in the rest of 2011 and 2012.
“Program performance remains broadly satisfactory. The fiscal balance has continued to improve, with the overall deficit expected to come down to below 4 percent in 2011 from 5 percent in 2010. In order to ensure debt sustainability, the deficit is expected to continue to be reduced in 2012. However, the government still expects to create fiscal space to support private sector-led growth and reduce poverty with the implementation of a strong package to increase tax revenues. The package will be based on new legislative initiatives and renewed tax administration efforts.
“The Central Bank continues to show a commitment to a flexible exchange rate and the inflation targeting regime, engaging in limited foreign exchange interventions to smooth volatility. Central Bank also continues to further improving tools to monitor risks in the banking system.
“The structural agenda continues to progress, with signs of improvement in the business environment mainly in the area of inspection, competition legislation, business registration processes, and VAT refunds.
“The mission met with President Serzh Sargsyan, Prime Minister Tigran Sargsyan, Minister of Finance Vache Gabrielyan, Central Bank Governor Arthur Javadyan, Minister of Economy Tigran Davtyan, Minister of Energy and Natural Resources Armen Movsisyan, Minister of Agriculture Sergo Karapetyan, as well as senior government officials, representatives of the international community, the banking and business sectors, and civil society. The mission would like to thank the authorities and the citizens of Armenia for their warmth and hospitality.”