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AS EXPECTED, IMF APPROVES FURTHER SUPPORT FOR VULNERABLE ARMENIAN ECONOMY
IHS Global Insight
January 12, 2015
by Venla Sipila
The Executive Board of the International Monetary Fund (IMF) on 22
December completed the first review of Armenia's economic performance
under its current Extended Fund Facility (EFF) programme. This
allows Armenia to withdraw SDR11.74 million (special drawing rights;
USD17 million) in the framework of the SDR82.2-million arrangement,
approved in March. The Board also concluded its Article IV consultation
with Armenia, endorsing the previous staff appraisal. Key pillars
of Armenia's Fund-supported transition programme remain monetary
policy geared towards inflation targeting, exchange rate flexibility,
and fiscal policy that allows for higher spending in the near term,
following underspending last year, but also secures longer-term
fiscal sustainability via a stronger revenue base. Cautioning of
several threats to economic performance, both of domestic and external
origin, the Fund Board identifies substantial, yet manageable risks to
Armenia's IMF programme. Among the key vulnerabilities of the economy
is the wide current-account deficit. Consolidation of the external
imbalances has faced obstacles with the significant negative impact
of the Russian downturn on exports and remittance inflows. Among the
positives mentioned by the Fund Board in relation to management by
Armenian officials of the recently intensified external financial
market pressures is the implementation of daily limits to foreign
currency auctions.
Significance:The positive conclusion to the Board review was expected,
given Armenia's fairly convincing track record of IMF programme
implementation, as well as the earlier encouraging staff assessment
(seeArmenia: 3 October 2014:Positive IMF staff assessment promises
support for fragile Armenian economy). Then again, especially given
the heightened risks related to the overall economic performance
and the current account deficit, additional concessional external
financing was also extremely needed. Armenia's economic and financial
vulnerability is underlined by the persistent regional geopolitical
tensions. The sharp weakening of the Russian rouble also exerts
downward pressure on the dram. Meanwhile, the IMF assessment also
highlights the still-vast need for structural reforms to support
growth potential, reduce dollarisation, create jobs, reduce poverty
and improve the business environment.
IHS Global Insight
January 12, 2015
by Venla Sipila
The Executive Board of the International Monetary Fund (IMF) on 22
December completed the first review of Armenia's economic performance
under its current Extended Fund Facility (EFF) programme. This
allows Armenia to withdraw SDR11.74 million (special drawing rights;
USD17 million) in the framework of the SDR82.2-million arrangement,
approved in March. The Board also concluded its Article IV consultation
with Armenia, endorsing the previous staff appraisal. Key pillars
of Armenia's Fund-supported transition programme remain monetary
policy geared towards inflation targeting, exchange rate flexibility,
and fiscal policy that allows for higher spending in the near term,
following underspending last year, but also secures longer-term
fiscal sustainability via a stronger revenue base. Cautioning of
several threats to economic performance, both of domestic and external
origin, the Fund Board identifies substantial, yet manageable risks to
Armenia's IMF programme. Among the key vulnerabilities of the economy
is the wide current-account deficit. Consolidation of the external
imbalances has faced obstacles with the significant negative impact
of the Russian downturn on exports and remittance inflows. Among the
positives mentioned by the Fund Board in relation to management by
Armenian officials of the recently intensified external financial
market pressures is the implementation of daily limits to foreign
currency auctions.
Significance:The positive conclusion to the Board review was expected,
given Armenia's fairly convincing track record of IMF programme
implementation, as well as the earlier encouraging staff assessment
(seeArmenia: 3 October 2014:Positive IMF staff assessment promises
support for fragile Armenian economy). Then again, especially given
the heightened risks related to the overall economic performance
and the current account deficit, additional concessional external
financing was also extremely needed. Armenia's economic and financial
vulnerability is underlined by the persistent regional geopolitical
tensions. The sharp weakening of the Russian rouble also exerts
downward pressure on the dram. Meanwhile, the IMF assessment also
highlights the still-vast need for structural reforms to support
growth potential, reduce dollarisation, create jobs, reduce poverty
and improve the business environment.