The International Monetary Fund has disbursed a fresh loan to Armenia, completing a $407 million lending program that has bolstered macroeconomic stability in the country in the last three years.
The allocation worth around $84 million is the sixth and final installment of the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) arrangements launched by the IMF in June 2010 following a severe recession that hit the Armenian economy. The low-interest loans have been used for financing the Armenian government’s budget deficits and shoring up the national currency, the dram.
In a statement issued late on Monday, the fund’s executive board said IMF-backed government policies have since helped to accelerate economic growth, rein in inflation, strengthen the Armenian banking sector and cut the budget deficits. “The reduction of the fiscal deficit over the past three years, which has included substantial tax revenue increases, has reestablished fiscal sustainability and contributed to external adjustment,” it said.
“At the same time, significant challenges and vulnerabilities remain,” cautioned the statement. “Robust growth has resumed, but has reflected in part rapid growth of credit and consumption, favorable weather, and high metals prices. More progress is needed to continue the external adjustment, reduce poverty, further restore buffers, and enhance the business climate and private sector- and export-led growth.”
The release of the fresh loan tranche coincided with yet another visit to Armenia by a high-level IMF mission. Mark Horton, the mission chief, met with Prime Minister Tigran Sarkisian earlier on Monday. An Armenian government statement said the two men praised the results of the three-year IMF scheme and discussed “issues related to a new bilateral program.”
The government has yet to publicly specify the amount of fresh IMF loans sought by it. The fund’s outgoing resident representative in Armenia, Guillermo Tolosa, indicated last month that continued IMF funding is conditional on a more radical reform of Armenia’s flawed business environment.
In a joint article circulated on May 14, Tolosa and Horton warned that the authorities in Yerevan must end the privileged treatment of some businesspeople and improve tax collection if they are to speed up Armenia’s economic development. “We think the gradualist approach has run its course. Unless changes are deep and swift, the positive results that Armenians desire will also be gradual in coming, if they come at all,” they wrote.
Tolosa subsequently downplayed that unusually blunt message, saying that the authorities have made progress in recent years. He said they have assured the IMF that they are committed to implementing “deeper and more comprehensive” reforms.
Visiting Poland late last month, President Serzh Sarkisian said greater Western economic assistance to his country is vital for the success of those reforms.