By Emil DanielyanThe International Monetary Fund said on Thursday that the release of its next $13 million loan to Armenia is conditional on more government efforts to address “significant shortcomings” in the collection of taxes and customs duties.
While praising the country’s “strong” macroeconomic performance this year, the IMF said it has not yet agreed with the Armenian government the terms for the disbursement of the fifth installment of its $95 million Poverty Reduction and Growth Facility (PRGF), a three-year lending program launched in May 2001.
“Discussions will continue during the next few weeks on measures to improve tax administration, remove exemptions, and increase tax collection in 2004,” the fund’s Yerevan office said in a statement. “Once understandings have been reached, the IMF Executive Board will consider…allowing Armenia access to the fifth tranche under the PRGF arrangement equivalent to about US$13 million.”
The statement followed two weeks of talks in Yerevan last month between senior Armenian officials and a visiting IMF mission. It said that although the two sides reached “understandings” on several policy areas, the Armenian authorities should do more to improve tax collection and ensure equal treatment for all taxpayers.
The amount of taxes and import fees collected by the government has increased steadily in recent years. Still, it totaled a modest 198 billion drams ($341 million) or about 15 percent of the Gross Domestic Product in 2002. That proportion is low even by the ex-Soviet standards, reflecting the widespread tax evasion in Armenia.
The government intends to raise the revenues to 287 billion drams this year and says it is on track to meet the target, helped by a continuing robust economic growth which hit 14.8 percent in the first half of 2003. But the IMF believes that while the government has improved the administration of the vital value-added tax, its proceeds from the corporate profit tax remain “weak.” It wants the elimination of some tax exemptions that “create distortions in the economy and hinder the efficiency of the tax system.”
“The authorities stated their intention to move decisively in this area to ensure uniformity of treatment among taxpayers and harness efficiency gains,” the IMF statement said. They also promised to unveil their strategy for reducing poverty and rampant government corruption later this year, it said.
The drawing up of a comprehensive anti-corruption plan is also one of the key conditions for the release of the second half of a $40 million loan by the World Bank which is due to cover a large part of Armenia’s 2003 budget deficit. The bank’s representative in Yerevan, Roger Robinson, told RFE/RL last week that the authorities must also improve the investment climate and amend the banking and labor legislation.
Unlike the World Bank loan, the IMF money is designed to shore up the hard currency reserves of the Armenian Central Bank and thereby sustain the relatively stable exchange rate of the national currency, the dram. Armenia has received four PRGF tranches worth approximately $53 million over the past two years.