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The World Bank has disbursed a $72 million budgetary loan to the Armenia government and pledged to provide, over next four years, $873 million in additional funding which it hopes will spur job creation in the country.

In a statement issued after a meeting of its executive board in Washington late on Thursday, the bank said the fresh loan, called the Development Policy Operation (DPO), will help the Armenian government bolster macroeconomic stability and the improve the domestic business environment.

“This is the first DPO in a series of three operations, supporting the Government of Armenia in meeting its strategic objectives, including stronger job creation, which is Armenia’s overarching development challenge,” read the statement. “The Operation is designed to help Armenia reduce poverty and promote shared prosperity through growth enhancing reforms.”

The loan will cover part of the government’s budget deficit next year projected at roughly 110 billion drams ($270 million), equivalent to less than 3 percent of Gross Domestic Product. The government plans to slightly cut the deficit despite a more than 8 percent rise in public spending envisaged by its draft 2014 budget. Much of these extra expenditures will be channeled into public-sector salaries and pensions which are due to rise in the coming months.

The draft budget was submitted to parliament last month and is expected to be passed without major amendments soon.

The World Bank said helping the government spend more on social programs “will enhance the Armenian economy’s resilience to shocks and long-term stability.” It implied that the DPO credit is conditional on a further improvement of the country’s problematic investment climate.

In particular, the Armenian authorities have committed themselves to downsizing various agencies empowered to inspect businesses. They are also supposed to overhaul banking regulations to facilitate small and medium-sized businesses’ access to credit.

The disbursement raised to more than $1.7 billion the total amount of World Bank loans provided to Armenia since 1992. Most of these funds have been spent on budget deficits, road construction and other infrastructure projects.

In a related development, the World Bank also approved its new assistance strategy for Armenia that calls for $873 million in total funding from 2014-2017. “This Country Partnership Strategy aims to support private sector-led job creation to underpin Armenia’s development”, Henry Kerali, the World Bank director for the South Caucasus, was quoted as saying in a separate statement. He said this will be achieved, among other things, through “improving the ease of doing business.”

Not all of the promised assistance will take the form of low-interest loans. The statement said the bank’s commercial arm, the International Finance Corporation, will invest in Armenian mining and food-processing firms.
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