The International Monetary Fund has all but decided to allocate a fresh $250 million loan to Armenia, praising the Armenian government’s macroeconomic policies and “ambitious” reform agenda.
An IMF mission reported a “staff-level agreement” on the loan late on Tuesday at the end of a two-week visit to Yerevan which involved talks with Prime Minister Nikol Pashinian and other senior Armenian officials.
“The agreement is subject to approval by the IMF Executive Board, which is expected to consider it in May 2019,” the head of the mission, Hossein Samiei, said in a statement.
Samiei said that the “precautionary stand-by arrangement” would be disbursed in several installments over the next three years. It is designed to “support the new government’s reform plans and strengthen resilience against external shocks,” he said.
“The new government’s ambitious structural reform agenda appropriately focuses on fighting corruption, improving the business environment, and developing human capital and infrastructure,” added the IMF official. “In this regard, key measures include establishing an anti-corruption agency, strengthening corporate transparency and governance, and implementing active labor market policies.”
Pashinian reaffirmed his stated commitment to these reforms when he met with Samiei earlier on Tuesday. He also stressed the importance of IMF support for their implementation.
The IMF’s most recent lending program for Armenia, worth roughly $115 million, was launched in 2014 and completed in 2017. Samiei indicated the fund’s readiness to provide a fresh loan to the country during a March 2018 visit to Yerevan. He said he held “productive discussions” with then Prime Minister Karen Karapetian and members of his cabinet.
That visit came just weeks before the start of Pashinian-led mass protests that led to the resignation of Armenia’s former government. The new government, which took office in May, pledged to carry on with its predecessor’s IMF-backed efforts to improve tax collection and cut the state budget deficit.
In his latest statement, Samiei gave a largely positive assessment of the macroeconomic situation in Armenia. He cited “robust” economic growth recorded last year, the government’s rising tax revenues, a falling fiscal deficit, and low inflation.
“Looking ahead, growth is expected to moderate to about 4.5 percent in 2019, reflecting a weaker global environment and copper prices, and remain in the 4-5 percent range over the medium term,” he said.
Samiei at the same time called for a further improvement in tax administration, saying that is critical for offsetting short-term “revenue losses” which he said will inevitably result from major tax cuts planned by Pashinian’s government.
Income tax rates in Armenia currently range from 23 percent to 36 percent. The highest rate is set for individuals earning 2 million drams ($4,100) or more.
A government bill which the Armenian parliament is expected to debate soon would introduce a flat rate for all individual taxpayers. It would be initially set at 23 percent and gradually cut to 20 percent. Government officials say that this will discourage tax evasion and stimulate faster growth in the country.
Samiei cautioned that the tax cuts could have positive effects on the economy only in the medium term. “Therefore, it is crucial to implement the envisaged package of tax policy measures to fully offset these [tax revenue] losses, while being mindful of the reform’s possible impact on equity,” said the IMF official.