An International Monetary Fund (IMF) team led by Hossein Samiei visited Yerevan during March 29–April 12 to conduct discussions for the Fifth and Final Review under the Extended Fund Facility (EFF) arrangement and the 2017 Article IV consultation.

At the conclusion of the visit, Mr. Samiei issued the following statement:

“Armenia continues to be affected by external shocks. Since late 2014, the significant decline in remittances and copper prices have weighed heavily on growth, adversely impacting the fiscal position. GDP growth in 2016 was only 0.2 percent, deflationary pressures persisted, the fiscal deficit rose to 5.6 percent of GDP, while the current account deficit remained below 3 percent of GDP and reserve buffers were rebuilt. In the financial sector, banks completed the process of meeting higher minimum capital. In early 2017, economic activity has shown signs of recovery, with robust private sector credit growth supported by monetary policy easing. We project GDP growth and end-year inflation to reach around 3 percent and 1.75 percent, respectively, in 2017. There are risks to the outlook: the recovery in remittances and copper prices may not endure, and growth in key trading partners could be weaker than expected.

“The IMF-supported program is on track. All end-December performance criteria and structural benchmarks have been met. The team discussed a policy framework for 2017 as a basis for the completion of the final review. Additional growth-friendly foreign-financed capital spending is appropriate given strong evidence that revenue collection will surpass the budget projection. However, the fragility of the recovery and risks to revenues require contingency plans, including potential cuts in non-priority current spending in the event of a revenue shortfall. The team supports the authorities’ plans to amend the existing pro-cyclical fiscal rule to enhance the credibility of the fiscal framework, while protecting growth. The Central Bank of Armenia (CBA) should remain open to further policy easing, consistent with the inflation targeting framework. The IMF Executive Board is scheduled to consider the review in late June 2017. Upon approval, the IMF will disburse SDR 15.69 million, bringing total disbursements under the EFF arrangement to SDR 82.21 million.

“Looking ahead, Armenia continues to face significant challenges: growth remains volatile and narrowly based; the export sector is relatively undiversified; unemployment and poverty remain high; and public and external debt are on the increase. This warrants decisive action to promote sustainable and inclusive growth, including reforms to attract foreign direct investment, improve infrastructure and education, tackle corruption, and enhance the business climate. The authorities should also remain committed to a fiscal path that ensures debt sustainability, supported by a rigorous implementation of the new tax code and prioritization of foreign-financed capital spending. The CBA should strengthen the monetary policy transmission mechanism to better support the inflation targeting framework and maintain exchange rate flexibility as a key shock absorber.

“The team met with Prime Minister Karen Karapetyan, Deputy Prime Minister Vache Gabrielyan, Minister of Finance Vardan Aramyan, Central Bank Governor Arthur Javadyan, Minister of Energy Ashot Manukyan, Minister of Agriculture Ignati Arakelyan, SRC Chairman Vardan Harutyunyan, as well as other senior government officials, and representatives of civil society, the business sector, and the international community. The mission thanks the authorities and other interlocutors for their cooperation and hospitality.”