The team of the International Monetary Fund reaches a staff level agreement with the Armenian authorities for the completion of the second review of Armenia’s reform program, which is supported by the IMF. End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country.

The press release reads as follows:

"An International Monetary Fund (IMF) team led by Nathan Porter conducted discussions on the second review of Armenia’s reform program supported by the IMF Stand-By Arrangement (SBA) during March 12-April 8, 2020. At the conclusion of the mission, Mr. Porter issued the following statement:

“We are happy to announce that the IMF team reached a staff-level agreement with the Armenian authorities on the conclusion of the second review under their economic reform program supported by a three-year SBA. The agreement is subject to approval by the IMF’s Executive Board, which is scheduled to consider the review in mid-May. The staff will also recommend an increase in IMF financial support for Armenia by SDR128.80 million (about US$175 million), which together with the authorities’ intention to draw purchase rights accumulated under the SBA would make SDR 206 million (about US$280 million) available to be disbursed immediately after the Board meeting. Such an increase is justified in the context of the urgent balance of payments financing needs resulting from the consequences of the spread of the COVID-19 virus. This financing will be allocated to the budget to help the authorities’ efforts in meeting urgent medical and socio-economic needs during the peak of the virus outbreak, thereby preserving the gains in economic potential and inclusion that Armenia has achieved over recent years.

“As elsewhere, the current global crisis will significantly weaken Armenia’s near-term economic outlook. Although projections are subject to very high uncertainty, since the duration of the containment measures is hard to predict, economic growth is expected at -1.5 percent in 2020 given COVID-related restrictions on domestic mobility and activity, substantially lower external demand, tighter financial conditions, and disruptions in global trade and supply chains.

“The authorities are appropriately focused on measures to contain the spread of COVID-19 and ensure that Armenia’s health system is ready to meet the needs of the population. They have been working to equip the Ministry of Health with additional resources and legislative powers to expeditiously acquire necessary goods and equipment. Staff also welcomes the authorities’ economic policy response aimed at aiding businesses and vulnerable people in order to avoid more permanent socio-economic damage. This response is framed around a set of measures announced to be about 2 percent of GDP that include liquidity provision to businesses, direct labor subsidies, and lump sum transfers to vulnerable individuals. The authorities are committed to ensure strong governance and transparency in implementation of these programs. Staff encourages the authorities to continuously monitor the implementation of these measures to ensure their effectiveness and evenhanded coverage.

“The fiscal deficit in 2020 is expected to widen to about 5 percent of GDP, due to lower revenues and higher spending on healthcare and economic support. The emerging financing gap would be closed by mobilizing financing from the IMF and other partners to complement that available from domestic capital market. While the government debt is projected to exceed 60 percent of GDP in 2020, as the crisis abates, the authorities are committed to the medium-term fiscal goal of debt sustainability, which will see government debt-to-GDP gradually decline over the medium term in line with Armenia’s fiscal rule, while maintaining space for investment and social spending.

“The Central Bank of Armenia has moved quickly to respond to the COVID-19 crisis within its dual mandate of price and financial stability. It promptly reduced the policy rate to boost inflation and support economic activity, yet it stands ready to adjust policies in case of capital outflow pressures and disorderly exchange rate movements to preserve financial stability. Domestic financial markets have generally functioned smoothly since the onset of the pandemic helped by CBA liquidity provision. The CBA’s regulatory and supervisory responses have been appropriately balancing the goals of preserving financial stability, maintaining banking system soundness, and sustaining economic activity.

“Beyond the short term, staff welcomes the authorities’ intention to continued economic reform aimed at lifting inclusive and resilient growth, safeguarding social spending, bolstering financial sector resilience, and enhancing business climate and governance.”