The World Bank Board of Executive Directors approved a US$50 million loan for the Third Development Policy Financing (DPF-3) for Armenia to support a wide range of reforms promoting fiscal, social and environmental sustainability and strengthening competitiveness. This is the third in a programmatic series of four DPFs, supporting the Government of Armenia in meeting its strategic objective of job creation, which is the country’s overarching development challenge.
There are two pillars under this operation: the first one includes measures increasing the fiscal space, improving the financial sustainability of key sectors, enhancing the efficiency of social protection programs, and improving environmental and social safeguards in the mining industry, which accounts for over half of Armenia’s exports. The second pillar focuses on strengthening the business environment, improving trade facilitation and connectivity, and supporting access to credit.
“The Operation is designed to reinforce Armenia’s macroeconomic stability and resilience through increased attention to fiscal sustainability, and to continue efforts to improve competitiveness in the context of an uncertain external environment,” saysLaura E. Bailey, World Bank Country Manager for Armenia. “The program supports reforms that affect the poor and the bottom 40 percent of the welfare distribution by protecting the scope of public transfers and addressing other social needs, as well as enhancing employment opportunities as a result of increased competitiveness and improved business environment.”
The Operation supports several reform measures implemented by the Government, and focuses specifically on the development of the Unified Tax Code through expanding the tax base, rationalizing rates, improving transparency of tax policy and closing major loopholes in the current tax legislation The new Tax Code will address issues related to complex, unsystematic and occasionally contradictory regulations reducing voluntary tax compliance, distorting the horizontal equity of taxation and creating uncertainty for businesses and households.
“The main purpose of the new Tax Code is to enhance domestic revenue mobilization, and support long-term growth and sustainable levels of public debt and deficit. The Bank will continue working with the authorities to strengthen provisions for critical social spending and infrastructure and ensure that the re-distributional and equity aspects of the tax reform are not undermined. The latter can be addressed through progressive taxation and increased efficiency and improved targeting of public spending increasing access to basic services by the poor and vulnerable,” says Gohar Gyulumyan, World Bank Co-Task Team Leader of the Project.
Another focus area of this Operation will be around the enabling and enacting the new Law on Social Services, that is aimed at providing social services in an integrated way. Amending the legal framework on Waste Management will improve the management of mining waste and reduce negative environmental impacts.
The Operation will also work on streamlining customs clearance procedures for e-trade at post services, introducing the principle of business notification streamlining the current licensing process, improving the legal and institutional framework for the aviation sector geared towards refining Armenia’s connectivity with the rest of the world and developing a legal and regulatory framework for consolidated supervision of banks and financial institutions supporting financial stability and transparency, that would deepen investor confidence.
The Third DPF in the total amount of US$50 million is an IBRD flexible loan with fixed spread with a 14.5-year grace period and repayment of over 25 years.
Since joining the World Bank in 1992 and IDA in 1993, the total IDA and IBRD commitments to Armenia amount to US$2.2 billion.