(Reuters) - GDP in Armenia is projected to contract 9.5 percent in 2009, the International Monetary Fund said on Wednesday, revising an earlier forecast of 5.0 percent.
The IMF on Monday approved an increase in lending to the former Soviet republic by $283 million to $823 million, citing a sharp contraction in economic activity, falling remittances, an increase in unemployment and difficult conditions in credit markets.
“We project GDP growth for 2009 to be minus 9.5 percent, but there is a lot of uncertainty and the actual growth could be better or worse depending on what happens to the world economy and in Russia particularly,” IMF resident representative Nienke Oomes told Reuters on Wednesday.
After a period of strong economic growth, landlocked Armenia has been hit hard by the global economic crisis and the impact of close economic ally Russia sliding into recession. In March, the Fund approved a $540 million standby loan arrangement over 28 months to support the country's 2009-2011 financing gap and a drop in foreign exchange reserves. It followed the central bank's decision to float the dram currency.
GDP contracted 15.7 percent in January-May 2009 in comparison with 9.8 percent growth in the same period last year, the National Statistics Service said this month. The central bank has forecast a contraction of 5.8 percent this year, citing falling chemical and metal prices on world markets.
“We project a budget deficit of minus 6.5 percent because there is a big drop in tax revenues,” Oomes said, adding that the IMF program allows the government to maintain expenditures at a level 'close to the 2009 budget'.
“We believe that during this time of crisis it is appropriate for the government to increase the deficit to stimulate the economy and to provide fiscal stimulus while protecting social spending for the poor,” Oomes said.