The International Monetary Fund renewed on Tuesday its calls for the Armenian authorities to speed up key reforms as it provided them with a fresh $17 million loan tranche designed to boost macroeconomic stability in the country.
The IMF warned that growth in Armenia will be sluggish unless President Serzh Sarkisian’s administration takes “decisive” measures to improve competition and the broader business environment.
“Armenia faces a period of slower growth unless decisive actions are taken,” it said in a statement. “Sound macroeconomic policies since the [2009] crisis have helped sustain domestic and external stability in a highly uncertain context. However, going forward, projected growth rates will not be sufficient to generate sufficient jobs and stem emigration.”
“Therefore, more decisive implementation of reforms … is needed to reduce vulnerabilities and boost potential growth,” added the statement.
The fund stood by its earlier forecasts that economic growth in Armenia will slow down to 2.6 percent in 2014 and accelerate to 3.3 percent in 2015. But it went on to caution, “The short-term outlook is subject to a high degree of uncertainty, especially given regional geopolitical developments and tensions. An intensification of these would lead to further negative spillovers to Armenia’s economy.”
The IMF issued the warning while announcing the disbursement of the second installment of a three-year lending program for Yerevan launched in March. The $119 million Extended Fund Facility (EFF) is meant to finance Armenian budget deficits and replenish the country’s hard currency reserves, which shrunk by 25 percent in course of 2014 amid external downward pressures on the Armenian dram.
The dram has lost more than 15 percent of its value against the U.S. dollar since the beginning of November. The depreciation has been widely blamed on falling remittances from Armenian migrant workers in Russia. The Russian ruble has weakened even more drastically in recent months.
The IMF praised the Central Bank of Armenia (CBA) for limiting its dollar interventions in the local currency market and taking other measures to shore up the dram. It also hailed the CBA’s “commitments to limit foreign exchange sales in 2015” as well.
Both the CBA and the Armenian government blame the unfolding recession in Russia for Armenia’s worse-than-expected macroeconomic performance. Prime Minister Hovik Abrahamian emphasized the external factor as he toured the northern Tavush province on Tuesday.
“I would love to see our economy to develop faster,” Abrahamian told residents of a local village, Aygehovit. “But you all can see that the rapidly changing world -- Russia-West relations, sanctions against Russia -- is having a direct impact on our economy.”
Abrahamian made a similar point after holding a meeting with the CBA governor, Artur Javadian, Deputy Prime Minister Vache Gabrielian and a senior pro-government lawmaker in Yerevan later in the day. “My number one concern is the processes taking place in the world,” he said. “It is essential that the government achieves economic growth, stimulates the economy and attracts investments in 2015.”
According to the IMF, “ambitious reforms” are critical for achieving that. “The successful implementation of ‘open skies’ in [Armenian] civil aviation is a good example of how bold policy decisions can have positive results in a relatively short period of time,” argued the fund.
“Recent delays in implementation of reforms in the competition and regulatory areas, while relatively minor, should be reversed,” it said. “Business environment reforms should overcome long-standing concerns about uneven competition, unnecessary regulation, high costs, and skills shortages and mismatches.”