The Armenian economy is recovering from the global recession faster than expected and should expand by around 4 percent this year, the International Monetary Fund (IMF) said on Wednesday.
Still, a senior IMF official cautioned that sustainable robust growth in the country requires significant improvements in the tax administration and business environment.
Both the IMF and the Armenian authorities forecast late last year a growth rate of only 1.2 percent for 2010, citing the lingering impact of the global financial crisis on the domestic economy. The authorities revised the projection upwards after recording a 5.5 percent increase in GDP in the first quarter of the year.
Mark Lewis, the head of an IMF mission visiting Yerevan, offered an even more positive outlook. “While economic conditions remain difficult, the Armenian economy is gradually recovering,” he told a news conference. “Growth is expected to rebound in 2010, external inflows are picking up, and public finances have improved.”
But Lewis warned that growth will be stunted by poor tax collection, arbitrary actions of tax officials and the presence of “powerful oligopolies” which he said play an important role in the domestic economy. He repeated an IMF argument that the amount of taxes collected by the Armenian government is “very low by international standards” in both absolute and relative terms.
The government’s tax revenues were an equivalent to almost 16.5 percent of Gross Domestic Product last year. The proportion is one of the lowest in the former Soviet Union, highlighting the scale of tax evasion in Armenia.
The government and Prime Minister Tigran Sarkisian in particular have repeatedly declared improved tax administration a top priority. Sarkisian pledged earlier this month to step up an ongoing government crackdown on tax fraud.
In Lewis’s words, more needs to be done to tackle the problem. “In addition, there is a perception that certain officials of the State Revenue Committee sometimes have negative impacts on the business environment through their treatment of taxpayers,” he said.
“Thus, if Armenia is going to raise its economic growth, it has to deal with this problem,” added the IMF official.
Lewis further called into question stated government efforts to break up de facto monopolies controlled by a handful of wealthy government-linked tycoons and create a level playing field for all entrepreneurs. “Whether there has been progress to reduce the weight of oligopolies is too early to say,” he said.
Nonetheless, the IMF mission seemed largely satisfied with the results of its two-week negotiations with various Armenian officials. A written statement issued by it said the authorities in Yerevan have pledged, among other things, to “widen the tax base through improvements in the tax administration.”
The mission said it will recommend the IMF’s Executive Board to disburse a fresh $52 million to Armenia soon. The latter has already received roughly $560 million in anti-crisis loans from the fund since March 2009.