IMF Executive Board Completes Fifth Review Under EFF/ECF Arrangement for Armenia and Approves US$51.4 Million Disbursement

The postcrisis recovery in Armenia has accelerated, but challenges remain. Economic policies have been broadly consistent with IMF advice. Credit growth has been strong, especially in foreign currency (FX). The banking system is sound. The central bank (CBA) is improving the regulatory and supervisory framework in line with Financial SectorAssessment Program (FSAP) recommendations. Risks are mainly on the downside and come from potential external shocks, political uncertainties, and regional conflicts. Strong adjustment is continuing in 2012 with the deficit again expected to be lower than budgeted.

Abstract

The postcrisis recovery in Armenia has accelerated, but challenges remain. Economic policies have been broadly consistent with IMF advice. Credit growth has been strong, especially in foreign currency (FX). The banking system is sound. The central bank (CBA) is improving the regulatory and supervisory framework in line with Financial SectorAssessment Program (FSAP) recommendations. Risks are mainly on the downside and come from potential external shocks, political uncertainties, and regional conflicts. Strong adjustment is continuing in 2012 with the deficit again expected to be lower than budgeted.

The Executive Board of the International Monetary Fund (IMF) today completed its fifth review of Armenia’s economic performance under a program supported by Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements. The completion of the review enables the authorities to draw an additional SDR 33.5 million (about US$51.43 million), bringing total disbursements under the arrangements to SDR 211.8 million (about US$324.4 million). The three-year SDR 266.8 million (about US$408.7 million) EFF and ECF arrangements with Armenia were approved by the IMF’s Executive Board on June 28, 2010 (see Press Release No. 10/263).

The Executive Board also approved the authorities’ request for a waiver of nonobservance of the end-June 2012 performance criterion on the floor on net official international reserves, which was missed due to unexpected market pressures, and the modification of this same performance criterion for the end-December 2012.

The Executive Board also concluded today the 2012 Article IV Consultations with Armenia, which discusses economic policies from a medium-term perspective, and considered an Ex Post Assessment Update report on Fund relations with Armenia.

Following the Executive Board’s discussion, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, stated:

“Armenia’s economy has continued to recover from the deep recession experienced in 2008-09 in the context of the global financial crisis. Growth accelerated in 2012, and is expected to be around potential in 2013. Nonetheless, vulnerabilities remain, particularly due to the large current account deficit and high degree of dollarization in the banking sector.

“Policies under the program remain broadly on track, but net international reserves came under unexpected pressures in May-June when the central bank acted to avoid a destabilization of the market. Since then, the central bank has been able to buy back part of the lost reserves. However, full recovery of reserves would have involved undue pressures on the market.

“Fiscal consolidation has continued to play a key role in the stabilization of the economy, and the authorities’ commitment to continue with that fiscal strategy is welcome. Going forward, fiscal consolidation should rely more on increasing revenues to allow for higher social and investment spending while reducing the deficit and debt.

“The financial sector remains sound, and steps have been taken recently to enhance supervision and the liquidity of the system. For the business environment more generally, structural reforms have continued, but further measures are needed to strengthen the legal framework, improve governance, and enhance competitiveness.”

Republic of Armenia: 2012 Article IV Consultation and Fifth Reviews Under the Extended Fund Facility and Under the Extended Credit Facility, and Request for Waiver and Modification of Performance Criterion—Staff Report; Press Release; Public Information Notice; and Statement by the Executive Director for Republic of Armenia
Author: International Monetary Fund. Middle East and Central Asia Dept.