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IMF Finalises Armenian Programme Review, Outlines Challenges With Fr

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  • IMF Finalises Armenian Programme Review, Outlines Challenges With Fr

    IMF FINALISES ARMENIAN PROGRAMME REVIEW, OUTLINES CHALLENGES WITH FRAGILE RECOVERY
    BYLINE: Venla Sipila

    World Markets Research Centre
    Global Insight
    March 31, 2010

    The International Monetary Fund (IMF) has completed its third review
    of Armenia's performance under the current Stand-By Arrangement
    (SBA), allowing for Armenia to withdraw a disbursement of 48.485
    million Special Drawing Rights (SDR, some US$73.6 million), bringing
    the total support so far extended under the SBA to 350.425 million
    SDR. The lender also approved a request for a waiver of non-observance
    of the end-2009 performance criterion regarding the targeted level of
    net domestic assets at the Central Bank of Armenia (CBA). Armenia's
    28-month IMF programme was first approved in March last year, then
    amended in June, and in a slight modification, some payment instalments
    were brought forward in late 2009 (seeArmenia: 3 November 2009:). Upon
    completion of the review, the IMF noted that Armenia's performance
    under the programme has been strong, and supportive macroeconomic
    policies have contributed to the emerging economic recovery.

    However, this recovery still remains fragile and external
    vulnerabilities persist, while a medium-term fiscal consolidation
    plan needs to be credibly implemented. The latter task remains
    challenging in light of the continued need for high social spending,
    especially given the fragility of the upturn. However, the IMF trusts
    in the authorities' commitment to progress with reforms of tax policy
    and fiscal administration. Further, in order to control inflation
    pressures, monetary policy should become more neutral following an
    accommodative period that was needed to support the real economy in
    the deep recession. Flexible exchange rate policy will be continued,
    while the authorities seek to strengthen the monetary transmission
    mechanism so as to increase effectiveness of monetary policy. The
    current IMF programme also seeks to continue on a wide structural
    reform path, in order to strengthen the production base and to support
    long-term growth potential.

    Significance:Finalisation of the programme review follows a preliminary
    approval by an IMF mission in February (seeArmenia: 19 February
    2010:). The immediate liquidity boost from the IMF instalment is
    badly needed given Armenia's vast external financing gap. Due to the
    deepness of the recent recession, challenges in Armenian recovery
    are considerable. At the same time, Armenia naturally also has to
    address numerous long-standing reform tasks, such as strengthening
    fiscal administration and making the economy more competitive.

    Continued access to concessionary credits remains important. Assuming
    further reform progress, Armenian access to external support from
    international financial institutions should remain good. Thus,
    its external solvency risks, while high, should remain manageable,
    although debt ratios are likely to deteriorate this year (seeArmenia:
    1 February 2010:).
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