Publication: Monitor Volume: 7 Issue: 31

As late as this January international financial organizations had threatened the Armenian government with reduced financing of development programs if the government did not meet its commitments to co-finance these programs. The Armenian minister of finance and economy had recently stated that funds assigned by the 2001 budget for co-financing would be used instead to pay last year’s debts. The World Bank added that it would release funds to the government only if Armenia met a series of conditions. These included privatized energy grids, better social programs, a favorable business environment and circumstances condusive to full privatization (Snark News Agency, January 26).

With significant recent government progress on the privatization of Armenia’s electricity distribution network, international lending is likely to resume (ARKA News Agency, February 5). The World Bank, pleased by the privatization steps, is to sign a memorandum soon which will provide a US$20 million tranche to Armenia in mid-April, another US$20 million tranche in July-August and a further US$10 million upon the final privatization of the electricity distribution network (ARKA News Agency, February 2). In addition, the IMF announced at the end of January that it would provide a US$90-million loan to Armenia over three years as part of its Poverty Reduction Program. The first tranche is to be released in April (Armenian TV Channel 1, January 29). The resumption of international financing is key to Armenia to help cover its sizeable current account and budget deficits. The Armenian parliament passed the 2001 budget at the end of 2000 with a deficit of 50 billion drams, approximately 4.5 percent of GDP (Russian agencies, January 8). Given that the budget implies strong 6.5 percent growth in GDP in 2001, and that 2000’s revenue figures were short of target, the actual deficit may be larger. Budget and current account deficits led to foreign debt at the end of January of US$863 million–approximately 44 percent of GDP. While the debt figure is still quite manageable, it has grown noticeably in the last few years. Armenia’s main foreign creditors are the World Bank, accounting for 47.6 percent of total foreign debt, and the IMF, accounting for 21.0 percent (Tapan, January 23).

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