The Executive Board of the International Monetary Fund (IMF) completed the second review under the Stand-By Arrangement with Armenia. This provides the country with access to about US$24.4 million (SDR 18.4 million), bringing the total access to about US$73.3 million (SDR 55.2 million). The Armenian authorities continue to treat the SBA as precautionary.
Armenia’s strong growth momentum continued through 2023. Supported by robust private consumption and investment, the economy is projected to grow by 7 percent in 2023 before moderating to 5 percent in 2024. Over the medium-term, growth is projected to reach its potential of around 4.5 percent, while steadfast implementation of structural reforms under the program could increase potential growth further. Inflation is projected to revert to the central bank’s target of 4 percent by mid-2024 and stabilize around it. The current account is projected to reach 3 percent of GDP in 2023 and 2024 due to robust consumption and investment demand. Foreign direct investment and capital inflows have moderated. Fiscal overperformance has persisted, with the overall fiscal balance remaining in surplus through September 2023, owing to higher than anticipated revenue collection and spending under-execution, notwithstanding the authorities’ prompt fiscal support to address the urgent needs of Nagorno-Karabakh’s refugees.
The Executive Board today also concluded the 2023 Article IV consultation with Armenia. The associated press release will be issued separately.
Following the Executive Board’s discussion today, Mr. Bo Li, Deputy Managing Director and Acting Chair, made the following statement:
“Armenia’s economy has managed to overcome recent external shocks and faces a favorable outlook, with strong growth in the context of moderate inflation. The program performance remains broadly satisfactory. However, an uncertain domestic and external environment warrant continued policy prudence and unwavering reform effort.
“The policy focus of the 2024 budget on preserving macroeconomic stability and providing humanitarian and development support to NK refugees is welcome. In the medium term, a gradual fiscal deficit reduction, anchored on Armenia’s fiscal rules, will ensure that public debt remains moderate. Progress on structural fiscal reforms including tax expenditure rationalization and SOE ownership policy will help contain fiscal risks and mobilize revenues to support priority expenditures on health, social protection, and capital projects.
“The monetary policy stance is appropriate and has helped ease inflation. The CBA should remain proactive in case strong demand conditions pose risks to the inflation outlook. The CBA’s plan to transition to a risk-based approach to price stability should ensure that the credibility of the inflation targeting framework is preserved. The flexible exchange rate has served Armenia well in absorbing external shocks, while building reserve buffers.
“In the face of rising financial sector risks, particularly in the housing sector, the CBA should advance its prudential regulation and supervisory reforms. Efforts should focus on preserving capital buffers, enhancing supervisory powers and capacities, and strengthening crisis management.
“Advancing structural reforms will support sustainable and inclusive growth. The authorities’ efforts to raise labor force participation and reduce structural unemployment, ease access to finance, diversify exports, and strengthen governance will enhance economic resilience and uplift potential growth.”
Source : Armradio