Publication: Monitor Volume: 7 Issue: 116

In a sign of confidence in the Armenian economy, both the IMF and World Bank have recently granted loans to Armenia. The IMF transferred the first US$12 million tranche of its US$87 million Poverty Reduction Gross Facility (PRGF) in early June, while the World Bank announced on April 30 that it would offer Armenia a US$50 million Structural Adjustment Credit.

The IMF’s PRGF program will last three years, and the release of other tranches will be contingent on the fulfillment of the government’s state budget targets. Future tranches can be suspended if the IMF finds that the government is accumulating debt or that its budget expenditure exceeds set targets. The third tranche of Georgia’s IMF loan was delayed in May because of insufficient budget revenues, and Armenia could face similar problems. Although Armenian fiscal policy was tightened substantially in 1997 and 1998, over the past two years deficits began creeping up again. Last year, tax revenues were 11 percent short of the government’s 171 billion dram (US$288 million) target, and the budget accumulated substantial expenditure arrears. Moreover, Armenia fell behind in repaying its US$114 million debt to Russia, causing problems with Armenia’s energy supply.

In the case of the World Bank, the loan was offered despite the fact that Armenia failed to meet one of the main conditions set by the Bank: the privatization of its four electricity distribution companies. The World Bank insisted on the firms’ privatization in hopes that new owners would reduce high levels of embezzlement, which are estimated at US$40-50 million per year out of an annual turnover of US$180 million. The tender, which was originally announced in mid-1998, was held in April this year but failed after foreign investors neglected to submit bids. The lack of foreign interest was linked to repeated delays, last-minute changes in conditions, as well as to domestic opposition to the firms’ sale to outsiders. The Bank has stipulated that the firms must be sold by March 2002, and without the sale Armenia will not receive the final US$20 million tranche of its new loan. The Armenian government is now expected to hold a new tender this year, with a qualifying tender scheduled for late June and the final tender for September. Nonetheless, it remains unclear whether foreign interest will be renewed, particularly given the continued strength of domestic opposition to the move (Armenian agencies, April 30, May 7, 24, June 7; Russian agencies; May 31; Agence France Press, May 1; Reuters, May 10; Snark, April 30).