The Armenian government has secured $80 million in fresh loans from the World Bank that will cover about one-quarter of its state budget deficit projected for this year.
The World Bank’s governing board approved the disbursement of the two loans repayable in 25 years at a meeting held in Washington late on Tuesday. The head of the bank’s office in Yerevan, Jean-Michel Happi, signed a corresponding agreement with Finance Minister Vache Gabrielian the next day.
“The loans are allocated to the Republic of Armenia as budgetary assistance,” the Armenian Ministry of Finance said in a statement.
The government’s 2012 budget deficit is projected at 128 billion drams ($330 million), a level equivalent to 3.1 percent of Gross Domestic Product. Total budgetary expenditure is to rise by about 5 percent to over 1.04 trillion drams ($2.7 billion).
A statement by the World Bank said the new loans will finance “pro-poor spending” on social safety net programs, education and healthcare. It indicated that their release is tied to further reform of Armenia’s business environment promised by the government. That includes the introduction of a “one-stop-shop” registration of businesses and simplification of tax and customs procedures.
“Though economic recovery is underway, Armenia’s challenges are to foster entry and competition, including in tradable sectors, and to diversify the sources of growth,” the statement quoted Happi as saying.
Such reforms are also advocated by the International Monetary Fund. The IMF approved $56 million in additional loan tranches to the government and the Central Bank of Armenia in December. Some of that money will also be used for deficit funding.
The World Bank board also announced Tuesday the release of a separate $11 million credit that will finance more infrastructure projects in rural areas of the country. “The proposed project will directly benefit 50 rural communities,” Asad Alam, the World Bank director for the South Caucasus, said in a statement.