The International Monetary Fund called for a more radical improvement of the business environment and tax collection in Armenia on Tuesday as it announced the release of more than $51 million in fresh loans to the authorities in Yerevan.
A senior IMF official said doing business in the country remains “difficult” because of its geopolitical isolation, government corruption and a lack of clear and predictable government regulations.
The loans approved by the fund’s Executive Board in Washington are the latest installments of a $409 million lending program that was launched in June 2010 to facilitate Armenia’s recovery from a deep economic recession. Their allocation raised to about $325 million the total amount of funding drawn by the Armenian government and Central Bank under the three-year arrangement.
“Armenia’s economy has continued to recover from the deep recession experienced in 2008-09 in the context of the global financial crisis. Growth accelerated in 2012, and is expected to be around potential in 2013,” Nemat Shafik, the IMF’s deputy managing director, said in a statement issued in connection with the disbursement.
Shafik praised the government for cutting the state budget deficit since 2010 but stressed the need for more government efforts to boost tax revenues and “strengthen the legal framework, improve governance, and enhance competitiveness.”
“Armenia remains well below all its comparators regarding its tax revenue-to-GDP [ratio,]” Guillermo Tolosa, the IMF’s resident representative in Yerevan, told a news conference. He said the Armenian authorities have failed to substantially increase that proportion so far.
Tolosa also stated that the business environment in Armenia still leaves much to be desired despite wide-ranging structural reforms implemented by the authorities in the last few years. “The situation has been improving,” he said. “Armenia has been climbing in the [World Bank’s] Doing Business rankings quite significantly, which reflects the fact that there have been considerable efforts in this regard. But it is still difficult to do business and attract foreign investment, especially when these difficult times [around the world] come.”
“The reasons why it’s difficult to do business here are multi-dimensional,” continued the IMF official. “We think that the key problem here for businessmen is of course geopolitics. The second most important problem has to do with the fact that it’s still difficult to deal with the government on many fronts.”
“It’s difficult to predict exactly how much has to be paid for different government obligations and government officials,” he said, referring to corrupt practices hampering economic activity.
The annual Doing Business survey released by the World Bank in October indicated a further improvement of the investment climate in Armenia, singling out the areas of tax administration and investor protection. Armenia ranked 32nd among 184 economies rated by the bank on 11 aspects of government regulation of mainly small and medium-size businesses. It occupied 50th place in the 2011 rankings.
Tolosa praised the government for giving more powers to the State Commission for the Protection of Economic Competition (SCPEC) last year and said it is planning to enact new legislation that would further strengthen the antitrust body. Still, he implied that the SCPEC has so far failed to liberalize sectors of the Armenian economy dominated by a handful of wealthy entrepreneurs.
In that context, Tolosa called for a major reform of the Armenian customs service, a key source of complaints from local businesspeople. “There are some practices that could lead to unfair advantages for some players in the market,” he said.