The International Monetary Fund has signaled the impending release of a fresh $125 million loan to Armenia designed to support macroeconomic stability and more structural reforms promised by its government.
A high-level IMF mission announced late on Tuesday that it has reached an agreement with the Armenian authorities on the terms of the Extended Fund Facitlity (EFF) credit and expects it to be approved by the fund’s executive board early next month. The mission headed by Mark Horton has repeatedly visited Yerevan in recent months.
The new credit, which is due to be disbursed in several installments over the next three years, represents a significant reduction in IMF funding for Armenia’s government and Central Bank.
The fund’s previous three-year lending program completed last July was worth approximately $410 million. It was launched in 2010 to help the country recover from a severe 2009 recession. The loans were used for financing the Armenian government’s budget deficits and shoring up national hard currency reserves.
“The objectives of the IMF-supported program that concluded last July were largely achieved,” Horton said in a statement. He cautioned, however, that economic growth in the country slowed significantly last year and remains “volatile.”
“Poverty and unemployment also remain high, and further reforms are needed to support and strengthen growth and continue Armenia’s transformation into a dynamic, emerging market economy,” added Horton.
The IMF official said that the authorities in Yerevan have pledged to carry out such reforms in their 12-year “development strategy” which they will start implementing this year. In particular, he said, they will seek to improve the business climate and “create a stronger environment for foreign direct investment.”
“Risks to the program exist, but they are manageable,” continued Horton. “Downside risks include adverse geopolitical events and external shocks, including a weakening of [remittance] inflows in the context of a protracted slowdown in Russia.”
The external factors are one of the reasons why the Armenian economy was on track to expand by less than 4 percent in 2013, well below a 7 percent target that was set by President Serzh Sarkisian. The latter said in March 2013 that he will sack his government if it fails to meet that growth target. Sarkisian’s political allies have downplayed that statement in recent months, saying that Prime Minister Tigran Sarkisian and other cabinet members will keep their jobs.