IMF: Visiting executive directors give praise, recommendations to Armenian government over crisis handling

A group of International Monetary Fund (IMF) executive directors have said Armenia is one of the countries most affected by the fallout of the global economic crisis. At the same time, they commended the anti-crisis policies carried out by the Armenian authorities.

“Armenia has been severely hit by the global crisis, with real GDP expected to decline by about 15 percent in 2009. Armenia has encountered difficulties connected with the reduction of remittances from abroad, falling foreign investments and, like in many other countries, because of falling tax revenues,” said Ambroise Fayolle, a member of the IMF executive directors’ board that was the key speaker at a press conference Monday at the conclusion of the group’s visit to Armenia.

The statement issued by the group said in part: “We commend the authorities for efficiently addressing these challenges. Fiscal policy continues to be expansionary, given that, with the help of the IMF and other donors, the government has been able to keep expenditures close to the original 2009 budget, while increasing spending on priority infrastructure projects.”

Still in June the IMF predicted that the fall of Armenia’s GDP in 2009 would not exceed 10 percent.

“We continue to hope that we were wrong in our latest projections and that the fall will be less than the projections that we presented. But we cannot say anything else at this moment,” said Fayolle.

The sharp impact of the global economic crisis led the IMF to approve in March of this year the increase of a loan to Armenia from originally envisaged $540 million to $823 million.

The IMF delegation came to Armenia from Georgia, with Uzbekistan and Turkmenistan next on its tour. The IMF executive directors’ board consists of 24 members that are appointed or elected by member countries or a group of member countries. During the visit to Armenia, six executive directors met with the country’s president, prime minister, Central Bank chairman and finance minister.

Fayolle said that they were not IMF staff employees and were not in Armenia to discuss IMF programs.

“Our goal is to see how in practice the relations between the IMF and Armenia progress, as well as discuss Armenia’s current situation and challenges,” said Fayolle, without elaborating.

The IMF executive directors positively evaluated the Armenian government’s anti-crisis program, however expressed concern over the budget deficit and foreign debt of Armenia. They said “once the economy recovers, the government will need to reduce the fiscal deficit to preserve medium-term fiscal and debt sustainability, while continuing to support needed public spending and investment.”

“Armenia was very fortunate to have a low level of foreign debt before the crisis. When the economy recovers, we and the government of Armenia should discuss the issue of a more constrained tax budget policy in order to ensure the manageability of the debt,” said Fayolle.

(Armenia’s $1.5 billion foreign debt as of 2008 (13 percent of the GDP) has doubled this year to more than $3 billion, which, according to economists, is dangerous in terms of economic security. Earlier, the IMF Armenia office predicted that this year Armenia’s level of debt could reach 38 percent of the country’s GDP and further reach 46 percent by 2011.

Although the IMF has also made an analysis of the economic impact of the opening of the Turkish-Armenian border, the visiting executive directors gave only general information on this.

“In general, the IMF has learned from the experience of other regions of the world that the opening of borders and regional integration contribute to the sustainability of countries’ economic growth,” said Fayolle.

In its economic analysis on this matter, however, the main critic of the government’s Turkey policy, Armenian Revolutionary Federation (Dashnaktsutyun), concludes that Armenia is not ready for the opening of the border until it solves a number of fundamental issues connected with economic policy and legislation in order to protect local producers and prevent major damage to the Armenian economy.