Abstract
IMF Country Report No. 22/366
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IMF Country Report No. 22/366
REPUBLIC OF ARMENIA
REQUEST FOR A STAND-BY ARRANGEMENT—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE ALTERNATE EXECUTIVE DIRECTOR
December 2022
In the context of the Staff Report for the Request for a Stand-By Arrangement, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board and summarizing the views of the Executive Board as expressed during its December 12, 2022 consideration of the staff report on issues related to the IMF arrangement.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on December 12, 2022, following discussions that ended on October 6, 2022 with the officials of Armenia on economic developments and policies underpinning the IMF arrangement under the Stand-By Arrangement. Based on information available at the time of these discussions, the staff report was completed on December 7, 2022.
A Statement by the Alternate Executive Director for Armenia.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of the Republic of Armenia*
Memorandum of Economic and Financial Policies by the authorities of the Republic of Armenia*
Technical Memorandum of Understanding*
*Also included in the abovementioned Staff Report
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
© 2022 International Monetary Fund
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© 2022 International Monetary Fund
Press Release
PR22/429
IMF Executive Board Approves New Stand-By Arrangement for Armenia
FOR IMMEDIATE RELEASE
The Executive Board of the International Monetary Fund (IMF) approved SDR 128.8 million (about US$171.1 million) 36-Month Stand-By Arrangement (SBA) for Armenia to help maintain macroeconomic stability, provide insurance against downside risks, and support structural reform agenda.
The Armenian authorities have indicated that they will treat the arrangement as precautionary. The new SBA will serve as insurance in case shocks generate balance of payments needs.
The arrangement is based on the authorities’ homegrown economic program that aims to achieve investment-driven, knowledge-based, and export-led growth, while preserving macroeconomic, fiscal, and financial stability and reducing poverty.
Washington, DC – December 12, 2022: The Executive Board of the International Monetary Fund (IMF) today approved a 36-month Stand-By Arrangement (SBA) for Armenia amounting to SDR 128.80 million (about US$171.1 million or about 100 percent of Armenia’s quota in the IMF).
Upon the Board’s approval, an amount equivalent to SDR 18.40 million (about US$24.4 million) becomes immediately available to Armenia, and the remaining amount will be made available, subject to six semi-annual reviews.
The Armenian authorities have indicated that they will treat the arrangement as precautionary. The new SBA will serve as insurance in case shocks generate balance of payments needs and will support the authorities’ reform efforts.
Following the Executive Board discussion, Mr. Bo Li, Deputy Managing Director and Acting Chairman, issued the following statement:
“The Armenian economy has maintained a strong growth momentum, supported by robust consumption and a surge in inflows of income, capital, and labor. While growth is projected to be robust, inflation and the current account deficit have also increased, and the outlook is subject to significant uncertainty due to spillovers from Russia’s war in Ukraine, global financial tightening, and a slowdown in major trading partners. Against this background, the authorities’ program—supported by a Stand-by Arrangement, which the authorities intend to treat as precautionary—seeks to maintain economic and financial stability and advance structural reforms to promote sustainable and inclusive growth.
The authorities’ fiscal policy framework is expected to keep debt on a declining path in line with Armenia’s fiscal rules. In 2023, the fiscal stance will continue to provide targeted support to the economy while further strengthening fiscal resilience. Over the medium term, fiscal space for priority social and capital spending will be supported by revenue-enhancing tax policy measures and efforts to strengthen the revenue administration, as well as to improve government spending efficiency, the public investment management process, and fiscal risk management.
The CBA’s monetary policy is appropriate and proactively aiming to stem inflationary pressures. Efforts to foster capital market development will help enhance monetary policy effectiveness. The CBA’s commitment to exchange rate flexibility and maintaining healthy reserve buffers will continue to serve the economy well in the event of external shocks.
The financial system is in good health. Continued monitoring of financial sector risks and enhancing of macroprudential tools will help mitigate risks associated with the rapid rises in housing prices and mortgage lending. Strengthening the supervisory and resolution frameworks will further buttress financial system resilience.
Implementation of a strong package of structural reforms guided by the 2021–26 Government Program will help foster export-led, investment-driven, and knowledge-based growth. Reforms will promote access to finance, labor force participation, and trade diversification.”
Armenia: Selected Economic and Financial Indicators, 2019–27
Gross international reserves in months of next year’s imports of goods and services, including the SDR holdings.
Armenia: Selected Economic and Financial Indicators, 2019–27
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Act. | Act. | Act. | Proj. | ||||||||
| National income and prices | |||||||||||
| Real GDP (percent change) | 7.6 | -7.2 | 5.7 | 11.0 | 4.5 | 4.5 | 4.5 | 4.5 | 4.5 | ||
| Consumption expenditure, Contrib. to Growth | 10.7 | -10.5 | 4.0 | 12.2 | 2.5 | 2.4 | 2.2 | 2.0 | 1.9 | ||
| Gross fixed capital formation, Contrib. to Growth | 0.7 | -0.2 | 1.1 | 2.5 | 2.5 | 2.6 | 2.7 | 2.8 | 3.0 | ||
| Changes in inventories, Contrib. to Growth | -3.9 | 0.1 | 0.7 | -2.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Net exports of goods and services, Contrib. to | 0.1 | 3.4 | -0.2 | -1.7 | -0.5 | -0.5 | -0.4 | -0.3 | -0.3 | ||
| GroGsr so wdothmestic product (in billions of drams) | 6,543 | 6,182 | 6,983 | 8,294 | 9,186 | 10,023 | 10,893 | 11,816 | 12,810 | ||
| Gross domestic product (in millions of USD) | 13,619 | 12,642 | 13,861 | 18,583 | 20,648 | 22,225 | 23,829 | 25,526 | 27,382 | ||
| Gross domestic product per capita (in USD) | 4,597 | 4,269 | 4,679 | 6,273 | 6,969 | 7,501 | 8,042 | 8,614 | 9,239 | ||
| CPI (period average; percent change) | 1.4 | 1.2 | 7.2 | 8.8 | 7.5 | 5.1 | 4.5 | 4.2 | 4.1 | ||
| CPI (end of period; percent change) | 0.7 | 3.7 | 7.7 | 10.0 | 6.0 | 4.5 | 4.0 | 4.0 | 4.0 | ||
| GDP deflator (percent change) | 1.0 | 1.8 | 6.9 | 7.0 | 6.0 | 4.5 | 4.0 | 3.8 | 3.7 | ||
| Unemployment rate (in percent) | 18.3 | 18.2 | 15.3 | 14.8 | 14.7 | 14.6 | 14.5 | 14.4 | 14.3 | ||
| Investment and saving | (in percent of GDP) | ||||||||||
| Investment | 17.4 | 19.7 | 20.7 | 22.6 | 23.3 | 23.6 | 23.9 | 24.2 | 24.4 | ||
| National savings | 10.1 | 15.9 | 17.0 | 17.0 | 17.8 | 18.2 | 18.5 | 18.9 | 19.4 | ||
| Money and credit (end of period) | (percent change) | ||||||||||
| Reserve money | 8.8 | 18.3 | 17.1 | 6.2 | 4.4 | 11.2 | 10.7 | 5.2 | 6.1 | ||
| Broad money | 11.2 | 9.0 | 13.1 | 11.8 | 10.2 | 12.0 | 9.7 | 7.5 | 7.6 | ||
| Private sector credit growth | 18.5 | 14.3 | -3.9 | 3.0 | 4.0 | 5.3 | 5.3 | 5.0 | 4.9 | ||
| Central government operations | (in percent of GDP; unless otherwise indicated) | ||||||||||
| Revenue and grants | 23.9 | 25.2 | 24.1 | 24.6 | 24.7 | 25.0 | 25.3 | 25.5 | 25.9 | ||
| Of which: tax revenue | 22.1 | 22.0 | 22.1 | 22.4 | 22.8 | 23.1 | 23.4 | 23.6 | 23.9 | ||
| Expenditure | 24.9 | 30.6 | 28.7 | 27.0 | 27.7 | 27.5 | 27.3 | 27.0 | 26.9 | ||
| Overall balance on a cash basis | -1.0 | -5.4 | -4.6 | -2.5 | -3.0 | -2.5 | -2.0 | -1.5 | -1.0 | ||
| Public and publicly-guaranteed (PPG) debt | 53.7 | 67.4 | 63.4 | 55.3 | 53.9 | 52.4 | 51.1 | 49.7 | 48.3 | ||
| Central Government’s PPG debt (in percent) | 50.1 | 63.5 | 60.3 | 51.3 | 50.0 | 48.7 | 47.8 | 47.1 | 46.3 | ||
| Share of foreign currency debt (in percent) | 80.6 | 77.0 | 72.6 | 67.7 | 65.4 | 63.6 | 61.8 | 60.6 | 59.9 | ||
| External sector | (in millions of USD; unless otherwise indicated) | ||||||||||
| Exports of goods and services | 5,794 | 3,818 | 5,012 | 7,786 | 8,525 | 9,034 | 9,533 | 10,117 | 10,743 | ||
| Imports of goods and services | -7,603 | -5,082 | -6,120 | -9,244 | -10,080 | -10,660 | -11,252 | -11,905 | -12,579 | ||
| Exports of goods and services (percent change) | 17.6 | -34.1 | 31.3 | 55.3 | 9.5 | 6.0 | 5.5 | 6.1 | 6.2 | ||
| Imports of goods and services (percent change) | 13.8 | -33.2 | 20.4 | 51.0 | 9.1 | 5.8 | 5.6 | 5.8 | 5.7 | ||
| Current account balance (in percent of GDP) | -7.3 | -3.8 | -3.7 | -5.6 | -5.5 | -5.4 | -5.4 | -5.3 | -5.0 | ||
| FDI (net) | 233 | 86 | 342 | 649 | 376 | 470 | 541 | 562 | 579 | ||
| Gross international reserves | 2,850 | 2,616 | 3,230 | 3,746 | 3,547 | 3,491 | 3,377 | 3,262 | 3,178 | ||
| Import cover 1/ | 6.7 | 5.1 | 4.2 | 4.5 | 4.0 | 3.7 | 3.4 | 3.1 | 2.9 | ||
| End-of-period exchange rate (dram per USD) | 480 | 523 | 480 | … | … | … | … | … | … | ||
| Average exchange rate (dram per USD) | 480 | 489 | 504 | … | … | … | … | … | … | ||
Gross international reserves in months of next year’s imports of goods and services, including the SDR holdings.
Armenia: Selected Economic and Financial Indicators, 2019–27
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Act. | Act. | Act. | Proj. | ||||||||
| National income and prices | |||||||||||
| Real GDP (percent change) | 7.6 | -7.2 | 5.7 | 11.0 | 4.5 | 4.5 | 4.5 | 4.5 | 4.5 | ||
| Consumption expenditure, Contrib. to Growth | 10.7 | -10.5 | 4.0 | 12.2 | 2.5 | 2.4 | 2.2 | 2.0 | 1.9 | ||
| Gross fixed capital formation, Contrib. to Growth | 0.7 | -0.2 | 1.1 | 2.5 | 2.5 | 2.6 | 2.7 | 2.8 | 3.0 | ||
| Changes in inventories, Contrib. to Growth | -3.9 | 0.1 | 0.7 | -2.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||
| Net exports of goods and services, Contrib. to | 0.1 | 3.4 | -0.2 | -1.7 | -0.5 | -0.5 | -0.4 | -0.3 | -0.3 | ||
| GroGsr so wdothmestic product (in billions of drams) | 6,543 | 6,182 | 6,983 | 8,294 | 9,186 | 10,023 | 10,893 | 11,816 | 12,810 | ||
| Gross domestic product (in millions of USD) | 13,619 | 12,642 | 13,861 | 18,583 | 20,648 | 22,225 | 23,829 | 25,526 | 27,382 | ||
| Gross domestic product per capita (in USD) | 4,597 | 4,269 | 4,679 | 6,273 | 6,969 | 7,501 | 8,042 | 8,614 | 9,239 | ||
| CPI (period average; percent change) | 1.4 | 1.2 | 7.2 | 8.8 | 7.5 | 5.1 | 4.5 | 4.2 | 4.1 | ||
| CPI (end of period; percent change) | 0.7 | 3.7 | 7.7 | 10.0 | 6.0 | 4.5 | 4.0 | 4.0 | 4.0 | ||
| GDP deflator (percent change) | 1.0 | 1.8 | 6.9 | 7.0 | 6.0 | 4.5 | 4.0 | 3.8 | 3.7 | ||
| Unemployment rate (in percent) | 18.3 | 18.2 | 15.3 | 14.8 | 14.7 | 14.6 | 14.5 | 14.4 | 14.3 | ||
| Investment and saving | (in percent of GDP) | ||||||||||
| Investment | 17.4 | 19.7 | 20.7 | 22.6 | 23.3 | 23.6 | 23.9 | 24.2 | 24.4 | ||
| National savings | 10.1 | 15.9 | 17.0 | 17.0 | 17.8 | 18.2 | 18.5 | 18.9 | 19.4 | ||
| Money and credit (end of period) | (percent change) | ||||||||||
| Reserve money | 8.8 | 18.3 | 17.1 | 6.2 | 4.4 | 11.2 | 10.7 | 5.2 | 6.1 | ||
| Broad money | 11.2 | 9.0 | 13.1 | 11.8 | 10.2 | 12.0 | 9.7 | 7.5 | 7.6 | ||
| Private sector credit growth | 18.5 | 14.3 | -3.9 | 3.0 | 4.0 | 5.3 | 5.3 | 5.0 | 4.9 | ||
| Central government operations | (in percent of GDP; unless otherwise indicated) | ||||||||||
| Revenue and grants | 23.9 | 25.2 | 24.1 | 24.6 | 24.7 | 25.0 | 25.3 | 25.5 | 25.9 | ||
| Of which: tax revenue | 22.1 | 22.0 | 22.1 | 22.4 | 22.8 | 23.1 | 23.4 | 23.6 | 23.9 | ||
| Expenditure | 24.9 | 30.6 | 28.7 | 27.0 | 27.7 | 27.5 | 27.3 | 27.0 | 26.9 | ||
| Overall balance on a cash basis | -1.0 | -5.4 | -4.6 | -2.5 | -3.0 | -2.5 | -2.0 | -1.5 | -1.0 | ||
| Public and publicly-guaranteed (PPG) debt | 53.7 | 67.4 | 63.4 | 55.3 | 53.9 | 52.4 | 51.1 | 49.7 | 48.3 | ||
| Central Government’s PPG debt (in percent) | 50.1 | 63.5 | 60.3 | 51.3 | 50.0 | 48.7 | 47.8 | 47.1 | 46.3 | ||
| Share of foreign currency debt (in percent) | 80.6 | 77.0 | 72.6 | 67.7 | 65.4 | 63.6 | 61.8 | 60.6 | 59.9 | ||
| External sector | (in millions of USD; unless otherwise indicated) | ||||||||||
| Exports of goods and services | 5,794 | 3,818 | 5,012 | 7,786 | 8,525 | 9,034 | 9,533 | 10,117 | 10,743 | ||
| Imports of goods and services | -7,603 | -5,082 | -6,120 | -9,244 | -10,080 | -10,660 | -11,252 | -11,905 | -12,579 | ||
| Exports of goods and services (percent change) | 17.6 | -34.1 | 31.3 | 55.3 | 9.5 | 6.0 | 5.5 | 6.1 | 6.2 | ||
| Imports of goods and services (percent change) | 13.8 | -33.2 | 20.4 | 51.0 | 9.1 | 5.8 | 5.6 | 5.8 | 5.7 | ||
| Current account balance (in percent of GDP) | -7.3 | -3.8 | -3.7 | -5.6 | -5.5 | -5.4 | -5.4 | -5.3 | -5.0 | ||
| FDI (net) | 233 | 86 | 342 | 649 | 376 | 470 | 541 | 562 | 579 | ||
| Gross international reserves | 2,850 | 2,616 | 3,230 | 3,746 | 3,547 | 3,491 | 3,377 | 3,262 | 3,178 | ||
| Import cover 1/ | 6.7 | 5.1 | 4.2 | 4.5 | 4.0 | 3.7 | 3.4 | 3.1 | 2.9 | ||
| End-of-period exchange rate (dram per USD) | 480 | 523 | 480 | … | … | … | … | … | … | ||
| Average exchange rate (dram per USD) | 480 | 489 | 504 | … | … | … | … | … | … | ||
Gross international reserves in months of next year’s imports of goods and services, including the SDR holdings.
Title page
REPUBLIC OF ARMENIA
REQUEST FOR A STAND-BY ARRANGEMENT
December 7, 2022
EXECUTIVE SUMMARY
Context. The economy has maintained a strong momentum, driven by robust consumption and a surge in inflows of income, capital, business, and labor. Inflation has increased markedly due to the sharp rise in food and energy prices and the booming economy, but proactive monetary policy tightening and GDP growth deceleration are projected to bring inflation down in 2023. While robust growth should continue over the medium-term, uncertainty is elevated and downside risks are significant due to the ongoing war in Ukraine and sanctions on Russia, global financial tightening, slowdown in major trading partners, and high food and energy prices. Structural challenges also remain, including high unemployment, weak business environment, and low productivity growth.
Program request and objectives. Against this, the authorities have requested a new SBA to help maintain macroeconomic, financial, and fiscal stability, provide insurance against downside risks, and support their structural reform agenda. Specific policies under the program will include:
A fiscal path for 2023–25 consistent with the cyclical position of the economy, anchored by the fiscal rules and keeping debt moderate throughout the program period. Fiscal structural reforms will help mobilize revenue and build fiscal space for growth-enhancing spending, improve expenditure planning, and strengthen fiscal risk management.
A proactive and data dependent monetary policy stance in view of the evolution of inflation and inflation expectations. Exchange rate policy will preserve the existing two-way flexibility of the dram, while maintaining healthy reserve buffers and limiting foreign exchange interventions to mitigating disorderly market conditions.
Financial sector measures to stem risks associated with the rapid rises in housing prices and mortgage lending, preserve banks’ capital buffers, and strengthen the regulatory and supervisory framework.
A package of structural reforms to facilitate trade and diversification, strengthen governance, improve the business environment, foster employment, advance digitalization, and build resilience against climate risks.
Access under the new SBA. A 36-month SBA is proposed with access of 100 percent of quota (SDR 128.8 million). The authorities intend to treat the arrangement as precautionary. In the event of a shock, access to IMF financing and donors’ support will help maintain a reserve cover above 100 percent of the IMF reserve adequacy metric.
Approved By:
Thanos Arvanitis (MCD) and Martin Cihak (SPR)
Discussions were held during September 26–October 6, 2022, in Yerevan. The team comprised I. Petrova (head), M. Al Taj, M. Atamanchuk, M. El Said, G. Lisi (MCD), M. Raissi (Resident Representative), L. Chumo (MCM), M. Coelho (FAD), L. O’Sullivan (SPR). A. French, J. Garrido, and H. Gupta (LEG) joined virtually. M. Aleksanyan, V. Janvelyan and L. Karapetyan (IMF Office) supported the mission. M. Scholer (OED) participated in meetings with the authorities. N. Reyes and C. Segura Santana (MCD) provided research assistance and B. Laumann and S. Zolotareva (MCD) assisted with document preparation. The mission met with Deputy Prime Minister Grigoryan, Governor of the Central Bank of Armenia Galstyan, Minister of Finance Khachatryan, Minister of Economy Kerobyan, Chairman of the State Revenue Committee Badasyan, and other senior government officials.
Contents
CONTEXT
RECENT DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Building Fiscal Space and Capacity to Support Growth-Enhancing Policies
B. Ensuring Price Stability and Financial Sector Resilience
C. Strengthening Growth Prospects
THE NEW STAND-BY ARRANGEMENT
STAFF APPRAISAL
FIGURES
1. Real Sector Developments
2. External Developments
3. Fiscal Developments
4. Monetary Developments
5. Financial Developments
TABLES
1. Selected Economic and Financial Indicators, 2019–27
2. Balance of Payments, 2019–27
3a. Central Government Operations, 2019–27 (In billions of Armenian drams)
3b. Central Government Operations, 2019–27 (In percent of GDP)
4. Monetary Accounts, 2019–23
5. Financial Soundness Indicators for the Banking Sector, 2019–22
6. Proposed Fund Credit Available and Timing of Reviews Under the Standby Arrangement
7. Indicators of Capacity to Repay the Fund, 2022–30
ANNEXES
I. Spillovers from the War in Ukraine
II. External Sector Assessment
III. Risk Assessment Matrix
IV. Illustrative Adverse Scenario
V. Public Debt Sustainability Analysis
VI. Reforming the Insolvency Regime
VII. Armenia’s Agricultural Sector: Recent Trends and Policy Priorities
APPENDIX
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment I. Technical Memorandum of Understanding
