Armenia's outlook remains challenging, says IMF

By bne IntelliNews December 15, 2016

The International Monetary Fund (IMF) predicts GDP growth to the tune of 2.7% and 3% in Armenia in 2017 and 2018 respectively, the multilateral lender announced upon completing an extended arrangement review of the country on December 13.

Armenia signed a $111.5mn agreement with the IMF in March 2014. The last review will lead to the release of the fourth, $21mn, tranche as part of this program. In its review, the IMF noted that the shortfall in budget revenues in 2016 was mainly caused by exogenous factors, such as higher-than-anticipated capital expenditure, which prompted Yerevan to seek external financing for its budget deficit. In addition to the IMF, the World Bank and the French Development Agency will finance the country's deficit with $50mn and €40mn loans, respectively.

David Lipton, first deputy managing director at the IMF, said that the “program performance has been broadly satisfactory, despite continued adverse external developments that have contributed to subdued domestic demand, weak revenues and deflationary conditions. Looking forward, the outlook remains challenging, calling for sustained policy efforts to secure macroeconomic and financial stability and to foster sustainable and inclusive growth”.

Fiscal consolidation will be necessary in order to ensure that the country's foreign debt, currently at 50% of GDP, does not exceed 60% of GDP in the medium term. Armenian authorities have developed a new tax code aimed at enhancing collection and fighting evasion, but the IMF recommends prioritising the monitoring of foreign-financed capital expenditure to strengthen revenue administration.

The central bank has eased monetary policy in recent years to support economic growth and a recovery in lending. Looking ahead, the IMF recommends bringing inflation closer to the regulator's 4% target - inflation at has been negative for the last half-year - while maintaining exchange rate flexibility to respond to external shocks and improve competitiveness.

The enforcement of higher minimum capital requirements starting in January will support the resilience of the banking sector, the lender concluded.

Related Articles

Nakhchivanis meet Iranians to discuss widening energy trade

The speaker of parliament of the disputed Nakhchivan Autonomous Republic—a landlocked exclave of Azerbaijan—has met with Iran’s economy minister to voice readiness for the securing of more ... more

Agreements with Armenia highlight of uneventful EU Eastern Partnership summit

The EU and Armenia signed a comprehensive and advanced partnership agreement and a common aviation area agreement at the Eastern Partnership summit on November 24, according to an ... more

Iranian-style KitKat may be headed for EEU as part of free trade deal

Iran is set to export biscuits and chocolate as part of a broader free trade deal with Eurasian Economic Union (EEU) states, Tehran’s Financial Tribune daily reported on November 1. Iranian ... more