IMF Executive Board Completes Sixth Review Under EFF/ECF Arrangement for Armenia and Approves US$84 Million Disbursement

This paper discusses the Republic of Armenia’s Sixth reviews under the Extended Fund Facility Arrangement, and the Extended Credit Facility Arrangement. The Central Bank of Armenia has kept the policy rate at 8 percent since 2011, and has narrowed the corridor around the policy rate from 600 to 300 basis points while strengthening fine-tuning operations. Interbank interest rates have become less volatile. External adjustment slowed considerably in 2012, and external vulnerabilities persist. The current account deficit improved by just 0.3 percentage points of GDP as exports, and remittances grew at a healthy pace, as did imports.

Abstract

This paper discusses the Republic of Armenia’s Sixth reviews under the Extended Fund Facility Arrangement, and the Extended Credit Facility Arrangement. The Central Bank of Armenia has kept the policy rate at 8 percent since 2011, and has narrowed the corridor around the policy rate from 600 to 300 basis points while strengthening fine-tuning operations. Interbank interest rates have become less volatile. External adjustment slowed considerably in 2012, and external vulnerabilities persist. The current account deficit improved by just 0.3 percentage points of GDP as exports, and remittances grew at a healthy pace, as did imports.

The Executive Board of the International Monetary Fund (IMF) on June 24th completed the sixth and final 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 allows the authorities to draw an additional SDR 55 million (about US$84 million), bringing total disbursements under the arrangements to the full SDR 266.8 million (US$407.2 million) available. The three-year 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 Board’s decision on the sixth review was taken on a lapse of time basis.1

Policies have largely delivered on the objectives of the EFF/ECF-supported program, which concludes in September. Growth reached 4.7 percent in 2011, 7.2 percent last year, and continues to be strong in 2013. Inflation has remained below the CBA’s 4 percent target, and shocks have been short-lived. The Central Bank of Armenia (CBA) has permitted greater flexibility of the dram over the past year, rebuilt reserves following sizeable intervention May-June 2012, and strengthened the monetary framework and operations. The CBA has also moved decisively to implement Financial Sector Assessment Program and IMF technical assistance recommendations. Banking sector indicators remain sound. The reduction of the fiscal deficit over the past three years, which has included substantial tax revenue increases, has reestablished fiscal sustainability and contributed to external adjustment.

At the same time, significant challenges and vulnerabilities remain. Robust growth has resumed, but has reflected in part rapid growth of credit and consumption, favorable weather, and high metals prices. More progress is needed to continue the external adjustment, reduce poverty, further restore buffers, and enhance the business climate and private sector- and export-led growth. Implementation of the authorities’ stated policy plans should help address these challenges and vulnerabilities.

1

The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.

Republic of Armenia: Sixth Reviews Under the Extended Fund Facility Arrangement and the Extended Credit Facility Arrangement
Author: International Monetary Fund. Middle East and Central Asia Dept.