The International Monetary Fund announced on Tuesday the release of $56 million in fresh loan tranches to Armenia, praising the authorities in Yerevan for cutting the state budget deficit, reforming taxation and curbing inflation.
The IMF at the same time again urged them to do more improve the country’s business environment. It also warned of “increasing downside risks” to the Armenian economy emanating from the outside world.
The two loan installments are part of a three-year lending program for Armenia worth $413 million that was launched by the Washington-based fund in June 2010. Their disbursement raised to $224.3 million the total amount of low-interest funds allocated to the Armenian government and Central Bank under that scheme.
“The Armenian authorities should be commended for continued implementation of sound
policies under the Fund-supported program, which have helped underpin the moderation of inflation this year and the continuing post-crisis recovery,” Nemat Shafik, the IMF’s deputy managing director, said in a statement.
“Fiscal policies have been prudent, with the budget deficit reduced significantly again in
2011, and further consolidation planned for 2012 and beyond,” he said. “This should help ensure fiscal and debt sustainability and reduce vulnerabilities.”
Shafik also praised a newly adopted package of fresh amendments to tax legislation which the Armenian government hopes will help to raise its tax revenues by over 13 percent next year. The amendments are meant to primarily target wealthy Armenians.
The government and Prime Minister Tigran Sarkisian in particular have repeatedly described improved tax collection as a key element of their strategy of improving the country’s flawed business environment. Successive Armenian governments have been under pressure from the IMF and the World Bank to carry out such reforms.
Shafik stressed the importance of “broad-based reforms” that would reduce red tape and create a level playing field for all businesses. “While progress is being made, a decisive breakthrough is needed to reduce regulation, improve transparency and
evenhandedness, and promote domestic competition,” he said.
“Armenia faces increasing downside risks from the global environment, which may
exacerbate its existing vulnerabilities,” warned the senior IMF official. “While the ongoing fiscal adjustment and higher reserves targets have helped strengthen buffers, the elevated post-crisis public debt burden now limits policy space.”
Shafik appeared to refer to fallout from renewed recession in Europe and elsewhere in the world. Officials in Yerevan acknowledge that it could slow Armenia’s economic recovery and call into question the government’s 2012 budgetary targets.