The Executive Board of the International Monetary Fund (IMF) has completed the second review of Armenia’s economic performance under a program supported by a Stand-By Arrangement (SBA) and approved a request for a waiver of nonobservance of end-September 2009 fiscal balance performance criterion, modification of the quantitative performance criteria for end-December 2009 to reflect the revised macroeconomic framework and rephasing of purchases to make the amounts scheduled to become available following the second and third review available upon completion of the second review.

These decisions enable the immediate release of SDR 37.72 million (about US$60 million), bringing the total disbursed to SDR 301.94 million (about US$479 million). The 28-month SBA was approved on March 6, 2009 (see Press Release No. 09/68), with access augmented on June 22, 2009 (see Press Release No. 09/228).

Following the Executive Board's discussion on Armenia, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:

“The global crisis has continued to have a serious impact on the Armenian economy. While output appears to be stabilizing, the fall in remittances and the collapse in the construction sector have caused a more severe economic contraction and lower fiscal revenue than anticipated in the first review. The authorities have fully implemented their economic program, which calls for the continuation of fiscal and monetary easing and a flexible exchange rate.

“In light of continuing weak domestic demand, the authorities will maintain fiscal easing this year, with external resources taking up the revenue slack. Expenditure will focus on undertaking anti-crisis measures, increasing capital spending, and protecting social spending. The authorities are committed to starting fiscal consolidation in 2010, with a view to ensuring medium-term debt sustainability. The program allows for additional spending should more donor financing become available to smooth the withdrawal of fiscal stimulus.

“An accommodative monetary policy stance remains appropriate given low inflation. The move to a more flexible exchange rate has served Armenia well, helping the economy avoid significant overvaluation and increasing the effectiveness of monetary policy. However, given the remaining weaknesses in the monetary transmission mechanism, targeted measures now being implemented to stimulate credit are crucial.

“The short-term outlook remains challenging. As external conditions improve, growth is expected to resume gradually in 2010, although risks remain, including a slower recovery of the global economy. Continued reforms, particularly in the areas of tax policy and tax reform administration, the financial sector, and the business environment will be necessary to boost the medium-term growth potential of the economy,” Mr. Kato said.