Numbers & Statistics

IMF Executive Board Concludes 2019 Article IV Consultation with the Republic of Armenia

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Via IMF (Den Internationale Valutafond)

On May 17, 2019, the Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation

[1]

with the Republic of Armenia.

Armenia’s economy continues to perform well. Activity expanded by 5.2
percent in 2018, aided by a pickup in private investment and continued
recovery in remittances, and annual consumer price index (CPI)
inflation fell to 1.9 percent in March. The current account deficit
widened to 9.1 percent of GDP in 2018, primarily owing to stronger
capital goods imports, weaker primary income, and some measurement
issues. Fiscal consolidation is on track, supported by strong tax
administration efforts, with public debt as a share of GDP declining in
2018. Monetary and financial conditions remain stable with limited
pressure on the exchange rate. The banking sector is well-capitalized,
and credit growth has been supporting economic activity. On the
structural front, the fiscal rule was redesigned and improved in
December 2017. A full-fledged pension reform came into effect in July
2018. A draft public-private partnership law has been prepared in
consultation with international development partners, including the
IMF. The new government has pledged to speed up reform, in particular
to decisively combat corruption and improve governance, with a view to
promoting inclusive and sustainable growth.

Looking ahead, growth is expected to moderate to a more sustainable
level of 4.6 percent in 2019 and stabilize at 4.5 percent over the
medium term. The authorities are aiming for higher medium-term growth
supported by reform. CPI inflation is projected to converge to the
Central Bank of Armenia’s (CBA’s) medium-term target of 4 percent over
the next two years. The current account deficit is expected to improve
to 7.3 percent of GDP in 2019, as transitory factors begin to fade, and
gradually fall to a more sustainable level of around 6 percent of GDP,
as exports continue to grow and imports moderate somewhat.

Downside risks to growth are mostly external. They include increased
global trade tensions and turbulence in global financial markets, both
of which could lower trading partners’ growth, remittances, and
commodity prices. On the upside, faster progress on the reform agenda
could boost potential growth.

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Executive Board Assessment

[2]

Executive Directors agreed with the thrust of the staff appraisal. They
commended the authorities’ efforts in recent years to maintain
macroeconomic stability and strengthen policy frameworks. Directors
noted that Armenia remains vulnerable to external shocks and faces
structural challenges in its transition toward a dynamic,
private‑sector led emerging market economy. In this context, they
welcomed the new government’s reform agenda, particularly
anti‑corruption efforts to improve governance and the business
environment, to foster sustainable and inclusive growth. Directors
emphasized that ownership and resolute implementation are key to the
success of the reforms.

Directors supported the authorities’ fiscal consolidation plans, guided
by the fiscal rule, aiming to bring central government debt to below 50
percent of GDP in the medium term, while leaving adequate fiscal space
for critical spending. They noted that the authorities’ tax reform,
including the simplification of the personal income tax system, is
aimed at improving compliance and supporting economic activity.
However, they cautioned that careful monitoring is needed to avoid a
fall in revenues and a worsening of income distribution. Directors also
underscored the need for accompanying sustainable compensating measures
and strong tax administration efforts. Strengthening revenue
mobilization would help preserve debt sustainability while also
creating needed space for growth‑enhancing infrastructure and social
spending. In this regard, further efforts to improve public investment
management were encouraged.

Directors considered that the current monetary policy stance remains
appropriate and that policy should remain focused on bringing inflation
back to its medium‑term target. At the same time, they underscored the
importance of continued exchange rate flexibility in responding to
external shocks, maintaining foreign exchange reserves at an adequate
level, and protecting competitiveness. Foreign exchange market
interventions should be limited to preventing disorderly market
fluctuations.

Directors encouraged further strengthening of the monetary and
financial sector policy frameworks. To increase the effectiveness of
inflation targeting and monetary transmission mechanism, they noted the
need to develop a well‑functioning interbank market, enhance
communication, and promote de‑dollarization. In supporting a more
resilient financial sector and strengthening the macroprudential
framework, Directors welcomed the authorities’ commitment to bolstering
banks’ foreign exchange liquidity buffers, and encouraged measures to
develop capital markets further and increase access to finance.

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Directors noted the importance of advancing structural
reforms to foster sustainable and inclusive growth through measures
that promote private sector development, attract more FDI, and increase
diversification. They welcomed the government’s strong commitment
through its five‑year program to strengthen governance, enhance
competition, and improve the business climate. Measures to enhance
human capital and foster female labor market participation were also
encouraged.

It is expected that the next Article IV consultation with the Republic
of Armenia will be held in accordance with the Executive Board decision
on consultation cycles for members with Fund arrangements.


Table 1. Armenia: Selected Economic and Financial
Indicators, 2016–23

2016

2017

2018

2019

2020

2021

2022

2023

Act.

Act.

Act.

Projections

National income and prices:

Real GDP (percent change)

0.2

7.5

5.2

4.6

4.5

4.5

4.5

4.5

Final consumption expenditure, Contrib. to Growth

-0.9

7.4

2.7

3.3

3.4

2.7

3.5

2.1

Gross fixed capital formation, Contrib. to Growth

-2.4

1.5

0.8

6.8

4.6

5.0

4.2

3.1

Changes in inventories, Contrib. to Growth

0.7

1.1

4.0

-4.6

0.0

0.0

0.0

0.0

Net exports of goods and services, Contrib. to Growth

3.1

-1.2

-1.8

-1.2

-3.4

-3.1

-3.2

-0.6

Gross domestic product (in billions of drams)

5,067

5,569

6,003

6,549

7,102

7,745

8,437

9,169

Gross domestic product per capita (in U.S. dollars)

3,524

3,872

4,186

4,533

4,764

5,068

5,386

5,710

CPI (period average; percent change)

-1.4

1.0

2.5

2.1

3.0

3.7

4.0

4.1

CPI (end of period; percent change)

-1.1

2.6

1.8

2.5

3.3

3.8

4.1

4.3

GDP deflator (percent change)

0.3

2.2

2.5

4.3

3.8

4.4

4.2

4.0

Unemployment rate (in percent)

20.2

18.6

18.1

17.9

17.7

17.8

17.7

17.6

Investment and saving (in percent of GDP)

Investment

18.0

19.0

22.4

23.6

24.1

24.4

24.9

25.6

National savings

15.8

16.6

13.3

16.3

16.8

17.5

18.4

19.4

Money and credit (end of period)

Reserve money (percent change)

13.1

-1.0

17.8

9.0

9.5

8.5

8.5

8.5

Broad money (percent change)

17.5

18.5

7.4

7.0

9.5

8.5

8.5

8.5

Private sector credit growth (percent change)

6.0

16.5

17.2

16.0

15.5

13.0

12.5

11.0

Central government operations (in percent of GDP)

Revenue and grants

21.4

21.2

21.7

22.6

22.8

22.8

22.9

23.2

Of which
: tax revenue

20.1

20.2

20.6

21.0

21.3

21.5

21.7

21.9

Expenditure

27.0

26.0

23.5

25.2

24.9

24.7

24.7

25.0

Overall balance on a cash basis

-5.6

-4.8

-1.8

-2.5

-2.1

-1.9

-1.8

-1.8

Public and publicly-guaranteed (PPG) debt

56.7

58.9

55.8

54.6

53.7

52.3

51.1

50.1

Central Government’s PPG debt (in percent)

52.0

53.7

51.4

51.0

50.8

50.2

49.5

49.0

Share of foreign currency debt (in percent)

80.9

81.1

77.5

77.6

76.5

75.4

73.9

74.3

External sector

Exports of goods and services (in millions of U.S. dollars)

3,500

4,307

4,669

5,074

5,361

5,744

6,137

6,625

Imports of goods and services (in millions of U.S. dollars)

-4,516

-5,710

-6,583

-7,132

-7,467

-7,892

-8,371

-8,875

Exports of goods and services (percent change)

11.6

23.0

8.4

8.7

5.7

7.2

6.8

7.9

Imports of goods and services (percent change)

2.2

26.4

15.3

8.3

4.7

5.7

6.1

6.0

Current account balance (in percent of GDP)

-2.3

-2.4

-9.1

-7.3

-7.3

-6.9

-6.5

-6.2

FDI (net, in millions of U.S. dollars)

272

228

266

296

318

346

376

407

Gross international reserves (in millions of U.S. dollars)

2,204

2,314

2,249

2,284

2,373

2,418

2,468

2,633

Import cover 1/

4.6

4.2

3.8

3.7

3.8

3.5

3.3

3.4

End-of-period exchange rate (dram per U.S. dollar)

484

484

484

Average exchange rate (dram per U.S. dollar)

480

483

483

Sources: Armenian authorities; and Fund staff estimates and
projections.

1/ Gross international reserves in months of next year’s
imports of goods and services, including the SDR holdings.



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