ArmenPress
March 24 2005

IMF MISSION PRAISES ARMENIAN AUTHORITIES FOR STRONG REFORM MOMENTUM

YEREVAN, MARCH 24, ARMENPRESS: A press release by IMF said an IMF
team visited Armenia March 3-17th 2005. The mission met with
President Kocharian, Prime Minister Margarian, the Ministers of
Finance and Economy, Trade and Economic Development and Energy, the
Chairman of the Central Bank of Armenia, and other senior officials.
It said since the conclusion of the Armenia’s PRGF program, which
the IMF Executive Board reviewed in December 2004, the Armenian
authorities maintained strong reform momentum. In recent weeks,
loopholes in the simplified tax were eliminated. The State Tax
Service merged the central audit department with the large taxpayers
unit. The collection function of the State Fund of Social Insurance
(SFSI) was moved to the STS. As a result of this reform, social
contributions increased substantially. The authorities passed decrees
lengthening the time for conducting audits to a maximum of 45 days.
The payment of VAT refunds to exporters improved significantly, and
the STS are now paying off the backlog of claims.
Armenia’s macroeconomic performance continues to be impressive. In
2004, GDP increased 10.1 percent, fueled by strong private
construction and agriculture. Inflationary pressured eased during the
second half of 2004, as the appreciation of the Dram exerted downward
pressure on import prices. In 2004, the central government fiscal
deficit was 1.7 percent of GDP. Tax revenue performance during the
first two months of 2005 has been particularly strong.
The mission held discussions on new program that could be
supported by a 3-year PRGF program. In the coming days, the
government will review the proposed Memorandum of Economic and
Financial Policies. If agreement is reached in the coming weeks, the
proposed program could be presented to the IMF executive board in
late May.
The main challenges for 2005 will be to consolidate the
macroeconomic gains of the recent past and to continue implementation
of the structural reform agenda. The focus of the prospective program
will be reforms in tax policy, revenue administration and the
financial sector. On tax policy, the authorities agreed to limit VAT
exemptions at the border effective 2006. In tax administration, the
program will focus on enhancing tax audits, tax arrears collection,
and the VAT refund mechanism. In the area of customs reform, the
authorities agreed to an operational review of the State Customs
Committee (SCC).
Agreement was also reached on measures to strengthen banking
supervision. The CBA intend to complement the existing
compliance-based approach with risk-based supervision. In this
regard, the CBA will introduce a bank risk-rating process; greater
focus on bank management; and increased emphasis on banks’ internal
policies, controls, and business strategies. The proposed program
also focuses on addressing key weaknesses in corporate governance of
banks, with the authorities agreeing to implement many of the
recommendations made by the recent FSAP update mission.