By Emil Danielyan
The International Monetary Fund (IMF) has formally approved $540 million in promised loans to Armenia that are designed to help its authorities reduce knock-on effects of the global economic crisis.
In a statement issued at the weekend, the IMF said $237 million of the “stand-by arrangement” will be disbursed immediately while the remainder will come in nine installments “subject to quarterly reviews”
The IMF’s managing director, Dominique Strauss-Kahn, announced the impending release of the emergency loan package last Tuesday immediately after Armenia’s government and Central Bank (CBA) allowed a nearly 20 percent devaluation of the national currency, the dram. The CBA had for months kept the dram’s exchange rate unchanged with heavy dollar injections in the local currency market, a policy increasingly criticized by politicians and economists critical of the Armenian authorities.
The IMF statement confirmed that the dram depreciation was a key condition for the release of its loans repayable in 28 months. It said the authorities also pledged to enhance banking supervision and cut record-high public spending projected for this year.
“The authorities intend to cut back on non-priority spending while providing an increase in social spending of 0.3 percent of GDP, relative to the budget, to protect the poor through well-targeted social safety nets,” revealed the statement.
The government has yet to announce any downward revisions of Armenia’s 2009 state budget that envisages a 15 percent rise in government expenditures projected to total 945.5 billion drams ($2.6 billion). In order to meet this target, the government needs to increase its tax and other revenues by 21 percent, an objective which looks increasingly unrealistic given the deteriorating economic situation in the country.
In fact, the government’s tax revenues fell by 10.6 percent year on year in January, according the Armenian Ministry of Finance. Proceeds from value-added tax (VAT), the largest source of those revenues, were down by about 13 percent from the January 2008 level.
The worse-than-expected tax collection reflected a 0.7 percent fall in Armenia’s Gross Domestic Product registered in January. The IMF anticipates that the Armenian economy will contract by 1.5 percent in 2009 after more than a decade of robust growth.
“With the adverse global developments, real growth is expected to contract in 2009, reflecting the downturn in Russia and other countries in the region,” the IMF’s deputy managing director Murillo Portugal, said in the statement. Still, he said Armenia’s medium-term economic prospects “remain good.”
Portugal also reaffirmed the IMF support for the Armenian authorities’ strategy of minimizing the fallout from the global economic downturn. “The Fund is confident that the policy package put in place by the authorities is appropriate and strong,” he said.
(Photolur photo: Dominique Strauss-Kahn.)