An IMF mission led by Mark Horton visited Yerevan during September 5–18 to conduct discussions for the Fifth Review of the Extended Fund Facility/Extended Credit Facility arrangements and the 2012 Article IV consultations. After return to IMF headquarters, Mr. Horton made the following statement:
“Macroeconomic conditions have continued to improve over the past year. With a positive harvest and dynamic mining and services sectors, growth is expected to reach 6.2 percent in 2012 and to moderate to 4.3 percent in 2013, as the economy returns to trend and given conditions in Europe and Russia. Inflation remains moderate, driven by the agricultural rebound and a sound policy framework, and is expected to remain within the target band (4±1.5 percent) of the Central Bank of Armenia (CBA) during the rest of 2012 and in 2013.
“Program performance remains broadly satisfactory. The fiscal balance has continued to improve, with the deficit expected to decline to about 2 percent of GDP in 2012, and to increase moderately to 2.6 percent next year as large capital projects are implemented.
“The CBA has shown strengthened commitment to a flexible exchange rate and the inflation-targeting regime. The CBA continues to improve its monetary policy tools and its monitoring of risks, particularly those associated with foreign currency lending. An external shock beginning in the second quarter of 2012 led to sizeable intervention in the foreign exchange market to prevent excessive volatility, and the end-June performance criterion on reserves was missed. A waiver and corrective actions will be needed to complete the Fifth Review.
“Structural reforms are progressing, although at a slower-than-desirable pace. A level playing field for all businesses—including in the key area of tax administration—would be an important breakthrough for the business environment. The mission looks forward to the first results of the “Regulatory Guillotine” project, which aims at substantially streamlining regulation and red-tape, and to ongoing enforcement actions by the Competition Committee.
“The mission reached preliminary agreement on a policy framework for the rest of 2012 and 2013 that could form the basis for completion of the review. The IMF Board is tentatively scheduled to consider the review in early December. Upon approval, the IMF would disburse US$52 million, bringing total disbursements under the EFF/ECF to about US$327 million.
“The authorities expressed strong interest in a follow-up IMF arrangement, after the current program concludes in mid-2013, and possibly covering the next 3 years. They noted that a new program would provide policy support for continued external and fiscal adjustment, strengthened policy buffers and fiscal space, and growth-enhancing structural reforms during a period of elevated repayment of crisis-related assistance. Before discussions on a new Fund program can begin, the IMF Board should consider the findings of an Ex Post Assessment (EPA) of Fund programs since 2005, when the last EPA was completed. The findings of the EPA, now under preparation, will also help guide design of the new program.
“The mission met with 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 Transport Gagik Beglaryan, 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 other Armenian representatives for their warmth and hospitality.”