By Emil Danielyan
A delegation from the International Monetary Fund will arrive in Yerevan on Saturday to start two-week talks with the Armenian authorities on the release of more IMF loans held back since September. The IMF officials will be insisting that the government take additional administrative measures which they believe will allow it to meet the revenue target set by this year’s state budget.
The IMF representative in Yerevan, Garbis Iradian, said on Thursday an agreement on the issue would clear the way for the disbursement of two more loan tranches worth $13 million each in April.
The money is part of the Fund’s Poverty Reduction and Growth Facility (PRGF), a $87 million low-interest credit designed to shore up the hard currency reserves of the Armenian Central Bank. The three-year lending program was launched by the IMF board of directors last May with the release of its first $13 million installment.
The second tranche, due in September, was blocked after Armenia’s tax authorities posted worse-than-expected results in the third quarter of 2001. The IMF, which is known for its advocacy of tight fiscal discipline, continued to withhold the money even after an improvement in the four-quarter tax collection.
It now says that the authorities are unlikely to collect the projected amount of revenues this year unless they make it more difficult for businesses to evade taxes. The suggested measures include levying value-added tax (VAT) on all imported goods at the point of their entry into Armenia and reducing the number of such commodities exempt from VAT.
“It is our key requirement that has to be discussed in detail with the authorities,” Iradian told RFE/RL in an interview. “We feel strongly that this is the best way to enhance tax administration and ensure the collection of 194 billion drams.”
The government’s 2002 budget calls for the ministry for state revenues and the customs department to collect 194 billion drams ($347 million) in taxes and import duties or 16 percent more than in 2001. The tax revenues alone are supposed to surge by nearly one quarter.
The Armenian minister for state revenues, Yervand Zakharian, told RFE/RL on January 21 that the tax authorities can meet the target without resorting to the measures suggested by the IMF. But he said the government is ready to show flexibility at the upcoming negotiations.
Any agreements reached at the talks will have to be endorsed by the IMF board which is scheduled to meet on April 12.
Iradian praised the authorities for a “significant improvement” in tax collection in November and December, saying that it was the main reason why the IMF dropped its objections to the release of a $15 million budgetary loan from the World Bank. The second tranche of the bank’s Structural Adjustment Credit (SAC-4), also delayed in October, was unblocked late last week.
“Before the disbursement of [the second tranche] of the SAC-4 by the World Bank there was a comfort letter from the IMF expressing its overall satisfaction with the macroeconomic situation,” Iradian said.
“Overall the performance of the Armenian economy [in 2001] was satisfactory with the exception of the shortfall in tax revenues in the third quarter and the poor performance of the energy sector. These are two areas that we are deeply concerned about,” he added.
Iradian further noted that the IMF shares the World Bank concerns about the sustainability of Armenia’s economic growth which hit a record-high rate of 9.6 percent last year. “We agree with the overall assessment of the World Bank and think that the high growth rates registered by Armenia in the past two years might not be sustainable over the next few years unless there are some major policy changes.”
A World Bank study on Armenia’s growth patterns, unveiled on Wednesday, suggests a package of policy recommendations designed to speed up the restructuring of Soviet-era enterprises, attract investment, and encourage the creation of new businesses in the next three to five years. It concludes that poor business and investment environment, weak managerial skills in the private sector, and instability in the region are the key constraints to sustainable economic growth in Armenia.
According to Iradian, the IMF has a similar recipe for economic development, better governance, improved investment climate and a fight against rampant corruption being its main ingredients.