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

This paper discusses Republic of Armenia’s Third Review under the Stand-By Arrangement (SBA) and Request for Modifications of Performance Criterion and Monetary Policy Consultation Clause. On the back of high domestic and external demand, gross domestic product growth remained strong by historical standards at 8.7 percent in 2023 and is expected to moderate to a more sustainable level of around 6 percent in 2024. The SBA, which the Armenian authorities are treating as precautionary, aims to support the government’s policy and reform agenda to preserve economic and financial stability and support strong, inclusive, and sustainable growth. Fiscal policy should strike a balance between preserving macro-fiscal stability and accommodating rising spending pressures. Careful spending prioritization and decisive tax policy and revenue administration efforts will be needed to create fiscal space, including for social integration, security spending, further infrastructure development, and a healthcare overhaul. Structural reforms should focus on strengthening revenue mobilization, fiscal risk and public investment management, the Central Bank of Armenia’s supervisory framework, the employment and social assistance programs, export diversification, enhancing governance, and reducing corruption vulnerabilities.