Republic of Armenia: Third Review under the Stand-by Arrangement and Request for Modifications of Performance Criterion and Monetary Policy Consultation Clause-Press Release; Staff Report

June2024 IMFCountryReportNo.24/165 REPUBLICOFARMENIA THIRDREVIEWUNDERTHESTAND-BYARRANGEMENTANDREQUESTFORMODIFICATIONSOFPERFORMANCECRITERIONANDMONETARYPOLICYCONSULTATIONCLAUSE—PRESSRELEASE;STAFFREPORT InthecontextoftheThirdReviewundertheStand-byArrangement,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressRelease. TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonalapseoftimebasis,followingdiscussionsthatendedonMarch21,2024,withtheofficialsoftheRepublicofArmeniaoneconomicdevelopmentsandpoliciesunderpinningtheIMFarrangementundertheStand-ByArrangement.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonMay22,2024. TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.orgPrice:$18.00perprintedcopy InternationalMonetaryFundWashington,D.C. ©2024InternationalMonetaryFund PR24/218 IMFExecutiveBoardCompletestheThirdReviewUndertheStand-ByArrangementwithArmenia FORIMMEDIATERELEASE TheIMFExecutiveBoardcompletedthethirdreviewundertheStand-ByArrangement(SBA)withArmenia,providingthecountrywithaccesstoSDR18.4million(aboutUS$24.5million). Onthebackofhighdomesticandexternaldemand,GDPgrowthremainedstrongbyhistoricalstandardsat8.7percentin2023andisexpectedtomoderatetoamoresustainablelevelofaround6percentin2024. TheSBA,whichtheArmenianauthoritiesaretreatingasprecautionary,aimstosupportthegovernment’spolicyandreformagendatopreserveeconomicandfinancialstabilityandsupportstrong,inclusive,andsustainablegrowth. Washington,DC–June12,2024:TheExecutiveBoardoftheInternationalMonetaryFund(IMF)completedthethirdreviewundertheStand-ByArrangement(SBA)withArmenia.ThecompletionofthereviewenablesaccessofSDR18.4million(aboutUS$24.5million),bringingtotalaccesstoSDR73.6million(aboutUS$97.7million).TheSBAwasapprovedbytheIMF’sBoardonDecember12,2022(seePressReleaseNo.22/429).TheArmenianauthoritiescontinuetotreatthearrangementasprecautionary.TheExecutiveBoard’sdecisiononthethirdreviewoftheSBAwastakenwithoutameeting.1 Armenia’sstronggrowthmomentumcontinuedin2023,withtheeconomygrowingby8.7percent,supportedbyrobustprivateconsumption,trade,andinvestment.Inflationdeclinedsignificantly,reaching-0.7percentinAprilyear-on-year,mainlyduetolowerglobalanddomesticpricesofkeyfooditems,Dramappreciation,andtightfinancialconditions.Thecurrentaccountdeficitremainedcontainedat2.0percentofGDPin2023,supportedbystrongtourism.The2023fiscaldeficitat2percentofGDPwaslowerthananticipatedduetospendingunder-execution.Thebankingsystemhasstrongcapitalandliquiditybuffers,anditsprofitabilitycontinuestoremainhigh. Growthisexpectedtomoderatebuttoremainrobustat6.0percentin2024,drivenbyconsumptionandpubliccapitalspending.Inflationisexpectedtopickupinthesecondhalfoftheyear.Riskstotheoutlookareelevated,stemmingfromgeopoliticalandregionaltensions,potentialslowdowninmajortradingpartners,lowertrade,andcapitaloutflows.Growthcouldalsosurpriseontheupsideintheeventofstronger-than-anticipatedexportreceipts,andfasterimplementationofstructuralreforms. 1TheExecutiveBoardtakesdecisionsunderitslapse-of-timeprocedurewhentheBoardagreesthataproposalcanbeconsideredwithoutconveningformaldiscussions. Theprogramisbroadlyontrack.Allquantitativeperformancecriteriaandindicativetargetsforend-December2023weremet.However,lowinflationbreachedthelowerouterMPCCband.Progressonstructuralbenchmarkscontinues,withallbuttwocompleted,somewithdelay. Theuncertainoutlookcallsforcontinuedprudentpoliciesandsteadfastimplementationofstructuralreforms: Fiscalpolicyshouldstrikeabalancebetweenpreservingmacro-fiscalstabilityandaccommodatingrisingspendingpressures.Carefulspendingprioritizationanddecisivetaxpolicyandrevenueadministrationeffortswillbeneededtocreatefiscalspace,includingforsocialintegration,securityspending,furtherinfrastructuredevelopment,andahealthcareoverhaul. TheCentralBankofArmenia(CBA)hassuccessfullyloweredinflation,butinflationislikelytoremainvolatile,andfuturepolicyratedecisionsshouldremaindependentontheevolutionofinflationandinflationexpectations.Theflexibleexchangerateshouldcontinuetoserveasakeyshockabsorber,withforeignexchangeinterventionslimitedtoaddressingdisorderlymarketconditionsandopportunisticallybuildingreservestomaintainstrongbuffers. Structuralreformsshouldfocusonstrengtheningrevenuemobilization,fiscalriskandpublicinvestmentmanagement,theCBA’ssupervisoryframework,theemploymentandsocialassistanceprograms,exportdiversification,enhancinggovernance,andreducingcorruptionvulnerabilities. Table1.Armenia:SelectedEconomicandFinancialIndicators,2021–29 202120222023202420252026202720282029 Prel.Proj. Nationalincomeandprices: RealGDP(percentchange)5.712.68.76.05.34.54.54.54.5 Finalconsumptionexpen