The World Bank announced on Wednesday the disbursement of a $25 million loan to Armenia that will finance a part of its state budget deficit projected to reach 149 billion drams ($410 million) this year.
Bank officials said the low-interest loan, called the Development Policy Operation (DPO), will help the Armenian government boost social spending and improve access to pre-school education and health services in poor communities.
World Bank loans were a key source of deficit funding for the Armenian authorities until the early 2000s. The authorities had largely balanced budgets in the following years only to again resort to large-scale external borrowing following the outbreak of the global financial crisis in late 2008.
Armenia received a $60 million budgetary loan from the Washington-based development bank in July 2009, at the height of the recession. No such funds were disbursed last year, which saw a renewed growth in state revenues.
The government posted a budget deficit equivalent to less than 2 percent Gross Domestic Product in January-November 2010. It has forecast a deficit-to-GDP ratio of almost 4 percent for 2011.
Jean-Michel Happi, head of the World Bank office in Yerevan, said the authorities have pledged to cut it to around 3 percent by the end of 2012. He also told journalists that the bank will likely approve another budgetary credit, worth roughly $20 million, for Armenia later this year.
In a separate statement, the bank’s Washington headquarters indicated that the latest loan was conditional on “key reforms” aimed at improving the country’s business climate and reforming the tax administration.
“Sustained reforms in tax, customs, and economic competition, coupled with the introduction of a modern regime for the mining sector that is socially and environmentally responsible, are needed to sustain the recovery and generate jobs,” Asad Alam, the World Bank director for the South Caucasus countries, was quoted as saying.
“But it is still important for the country to maintain the coverage of the social safety nets, while at the same time increasing their efficiency,” added Alam.
The 2011 state budget calls for a 7 percent rise in public expenditures projected to total just over 1 trillion drams ($2.75 billion). The spending target is based on the assumption that the Armenian economy will grow by 4.6 percent this year. It was on course to expand by more than 2.6 percent in 2010.