Technical Assistance to Armenia to Prepare for Accession to the World Trade Organisation and Implement Obligations Related to WTO Accession and Partnership and Co-operation Agreement Armenian-European Policy and Legal Advice Centre (AEPLAC)
Monitoring Armenia’s Economic Development: July 2001
Alexei Sekarev
AEPLAC
Armenian-European Policy and Legal Advice Centre. 5 Hanrapetutian Street, Block A (MIT building), 4 floor, Yerevan 10, Republic of Armenia Phone/Fax: ++374 1 564 268, 580 626, 581 736. AT&T: ++374 1 151 833. E-mail: piu@aeplac.am, Internet: www.aeplac.am The views expressed are those of individual experts and do not necessarily present the views of the European Commission or of the Tacis Programme
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MONITORING ARMENIA’S ECONOMIC DEVELOPMENT
updated 10.7.2001 1. Recent trends in the real sector (official data of the State Statistical Service) Value added composition by sector (as of 2000, in constant 1996 prices): industry 23.6%, agriculture 33.7%, construction 10.6%, transport and communication 6.1%, trade and catering 11.5%, others 14.5% GDP (real): 6.0% year-on-year growth in 2000 following a 3.3% growth in 1999; CBA reports GDP growth of 5% in 2000 as against 1999; for January – May 2001, a 6.3% y-o-y growth is reported Industry: 6.4% (CBA: 4.9%) year-on-year growth in 2000 (1999: +5.2%) and 4.1% y-o-y growth in January – May 2001 Gross agricultural production – 2.4% year-on-year decline in January – December 2000 (1999: +1.3%); 1.4% y-o-y growth in January – May 2001 Construction: up 28.4% yoy in 2000 (7.7% 1999); Foreign trade in Jan – Dec 2000: exports 300.5 mn USD, imports 884.7 mn USD (year-on-year growth of 29.7% and 9.1% respectively); in Jan – May 2001 exports 130 mn USD, imports 320 mn USD Officially registered unemployment 170 thousand persons (11.7% of the total labour force) as of 1.1.2001; continuing decrease of labour force, esp. qualified, through outflow abroad 2. Fiscal situation Fiscal deficit: 1999 5.2% GDP, 2000 6.2% GDP (consolidated); hidden deficit arising from the government’s outstanding debt on VAT reimbursements (20 bn Dram as of 1.1.2001; 16 bn as of 1.6.2001) makes additional 2 percentage points of GDP (2000); cash deficit as measured by financing reported by the IMF at 4% GDP The 2001 budget law (adopted 30.12.2000) stipulates central government revenues 193.4 bn Dram and expenditures 247.2 bn Dram. The target deficit is thus 53.8 bn Dram, or approx. 4.8% of the projected GDP; for further details see AEPLAC Legal Inventory at www.aeplac.am/pdf/LawInventory.PDF, Section on Budget Underperformance of revenues: tax collection to the central budget over Jan – Dec 2000 made 152.6 bn Dram or 11% less that the yearly target, despite pressure of tax authorities on economic agents toward year-end 2000 to carry out tax payments of future periods; tax revenue performance reported to have improved in Jan – Jun 2001: according to preliminary data, the revenue collection over this period added up to 78.1 bn Dram (yearly target: 173.6 bn) Tax arrears to budget constantly growing since 1996, total amount as of end-1999 48.2 bn Dram, end-2000 55.5 bn Dram; as of 1.5.2001 64.0 bn Dram 3. Monetary indicators CPI (end-of-period) remarkably low since 1998; the 1999 indicator stood at 102.0%; for 2000, the end-year CPI made 100.4%, year average 99.2%; CPI June 2001 to December 2000: 103.8% (2001 year target: 103.5%)
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Monetary aggregates: base money 72.4 bn Dram (as of end-December 2000) broad money (M3) 151.7 bn (as of end-December 2000, up 38.6% yoy as compared to 1999); Q1 2001: up 30.4% yoy Banking system: 31 commercial banks, of which 5 are subsidiaries of foreign banks; the only non-privatised Armsavingsbank set for privatisation according to the GoA Decree No 88 of Feb. 7, 2001 “On privatisation of Armsavingsbank by means of closed placement of additional shares” (official translation); main bidders EBRD, Russia’s Savings Bank, Bank of Beirut, two Armenian banks commercial banks’ credits to economy grew in 2000 21.3% on year-on-year basis to reach 109.3 bn Dram as of end-December 2000; over Q1 2001, the yoy growth made 13.3%; CBA refinancing rate 39% p.a. in 1998 and 1999; starting from Jan 2000, a REPO rate is used as an indicator of the refinancing rate, it stood at 26% p.a. at the end of 2000; since then the CBA has been consecutively reducing it to 23% p.a. (5.3.2001), 18% p.a. (4.6.2001) and 16% p.a. (2.7.2001); CBA Lombard rate reduced from 45% to 40% p.a. on 2.6.2001 Average nominal interest rates as of March 2001: 16.4% p.a. on commercial bank Dram and 12.6% p.a. US-Dollar deposits; 26.9% p.a. on Dram credits and 14.9% p.a. on credits in USDollar The yield on government T-Bills (3 months to one-year maturity) fluctuated between 24 and 25.1% in March 2001 (24-27% in December 2000) CBA international reserves import coverage: 4.2 months in 1999, 3.9 months 2000; 3.6 months in Q1 2001 Dram/USD nominal exchange rate at year average: 535 in 1999, 541 in 2000 and 551 in Q1 2001 4. Structural reform policies GoA economic policy program adopted 8.6.2000 priority tasks: development of the real sector and improvement of public administration system incl. “fight against corruption and clans” poverty reduction, i.a. through job creation and investment attraction improvement of legislation (competition, bankruptcy, taxation) conducive to business activities re-commissioning of industrial capacities, development of tourism and IT sectors GoA report on the implementation of the State privatisation program 1998–2000 approved by NA on May 30, 2001; Results of the three-year privatisation: Number of privatised large and medium enterprises: 251 (target: 601); Number of privatised SME within the program: 1000 (overall almost 7000); Privatisation receipts: 1998 – 48.6 bn; 1999 – 19.4 bn; 2000 – 2.9 bn Dram State privatisation program for 2001–03 passed the 1st reading in the NA; the tentative target is to privatise 932 large and medium enterprises over the 3 years; Privatisation of electric power distribution companies failed in May 2001 (see AEPLAC Legal Inventory at www.aeplac.am/pdf/LawInventory.PDF, Section on Energy) Very slow privatisation progress since fall 2000; major current privatisations: Armenian Mars closed JSC (electronics): submission of applications for purchase 100% shares extended until September 2001; two foreign statements of interest
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Araratcement JSC (reported charter capital 3.2 mn USD): 100% shares put on sale; bidders Ajikawo (U.K.), Holsim (Switzerland), Seament (Lebanon), Titan Cement (Greece) as well as the enterprise’s personnel; the decision on tender due in July 2001 Detski Mir department store (uncompleted construction): conditioned by lack of interest, the initial sales price reduced from 2 mn USD to 1.5 mn and then to 1 mn USD over May-June 2001; sales auction re-scheduled for mid-July further information available on the website of the Ministry of State Property Management www.privatization.am; Slow progress and/or backslides in areas of institution building (regulatory reform, ensuring property rights, market entry and exit), public administration reform (particularly in ensuring non-interference of state in economic activities) and especially enforcement of the adopted legislation; regular complaints of foreign investors for non-observance of laws by mid- and lowrank tax and customs officials GoA Interim Poverty Reduction Strategy Paper (I-PRSP), prepared in collaboration with the IMF and World Bank staffs (May 2001, available at www.imf.org/external/np/prsp/2001/arm/01/index.htm) measures to enhance economic growth prospects on the assumption that the key to poverty alleviation will be economic growth; measures to fight corruption and to reform the civil service; improved targeting of the allocation of family allowances and strengthened administrative capacity for monitoring and evaluation; pension reform; shifting of government expenditures toward the poor (particularly in the health and education sectors); and measures to strengthen labour market policies 5. Foreign assistance IMF: Enhanced Structural Adjustment Facility (ESAF) 1996-99, 109.35 mn SDR drawn; Poverty Reduction and Growth Facility (PRGF) of 69 mn SDR (about 87 mn USD) approved on 23.5.2001 (expiration date 22.5.2004); the first 10-mn SDR tranche transferred to CBA as of 31.5.2001 World Bank: as of 31.5.2001, there are 14 World Bank-financed operations underway in Armenia, among others: Structural Adjustment Credit (SAC 4) worth 50 mn USD approved by the WB Board of Directors on 22.5.2001; IDF Grant for the development of an anti-corruption strategy, approved 5.2.2001; Loan for road network development (40 mn USD), approved by WB Board of Directors 8.6.2000, agreement with GoA signed 7.7.2000 Loan for creation of a social investment fund (20 mn USD), approved by WB Board of Directors 11.5.2000, agreement with GoA signed 19.5.2000 Loan for judicial reform (11.4 mn USD over 2001–2004), approved by WB Board of Directors 14.9.2000, agreement with GoA signed in Washington on 14.12.2000 Total IBRD/IDA commitments to Armenia since 1992 amount to $656,75 million for 24 projects;
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The Bank's Country Assistance Strategy for Armenia envisages financing in the range of US$150 million to US$190 million over the three year period July 2001 to June 2004. EU: Exceptional financial assistance to Armenia’s adjustment and reform efforts (Decision 97/787/CE) amounting to 28 mn EUR in the form of a loan and 30 mn EUR in the form of a grant; the third successive annual tranche for 2001 (5.5 mn EUR) approved in early June 2001; Tacis Indicative programme for 2000-03 approved by the Tacis Committee of the European Commission 14.4.2000 focusing on (i) democracy and the rule of law, (ii) private sector and economic development, and (iii) development of infrastructure; the Action programme for 2002-03 will focus on (a) support for institutional, legal and public administration reform, particularly in the field of legislative approximation for the full implementation of the Partnership and Cooperation Agreement (PCA), and (b) support in addressing the social consequences of transition Bilateral assistance programs, most notably by Germany, France, Greece and USA; a full list is available under www.gov.am/en → International Assistance Database
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Armenia: key macroeconomic indicators, 1997 – 2001
Area: 29.8 thousand sq. km Population: 3803.7 thousand as of January 1, 2001
1997 GDP and real sector Nominal GDP GDP per capita – ex. rate – purchasing power parity GDP growth Industry: output growth Agriculture: output growth GDP index Industry output index GDP composition Industry Agriculture Construction Trade and services 2 Private sector Investment Gross fixed capital formation Net FDI inflow
bn Dram mn USD USD USD % over prev. year % over prev. year % over prev. year 1991 = 100 1991 = 100
1998 952 1885 498 2229 7.3 -2.5 13.1 53 50 21.6 30.8 8.4 39.6 60 12.0 16.2 221 1337 9.4 15 547 30.0 30.6 137 19.9 11.4 50 23.5 38 44.4 8.7 198.8 233.9 -35.1 -3.7 229 914 -685
1999 989 1849 485 2323 3.1 5.2 1.3 55 52 21.5 25.4 9.4 43.6 60 0.5 16.5 122 1298 11.2 18 530 21.8 35.2 168 21.1 -6.8 50 -2.1 39 36.2 0.7 226.5 278.3 -51.8 -5.2 247 835 -588
2000 1033 1909 503 . 6.0 6.4 -2.4 58 56 22.0 22.5 10.9 44.6 60 12.2 17.8 102 1283 11.7 21 001 12.0 39.1 na 12.9 na 56 36.2 25 26.1 -0.8 246.5 311.0 -64.5 -6.2 301 885 -584
2001* 1124 2044 538 . 6.5 7.2 2.7 62 60 . . . . . . . . . . . . . . . . . . 21 . . 193.4 247.2 -53.8 -4.8 . . .
799 1627 431 2064 3.3 0.9 -5.9 49 51 23.9 30.4 8.0 37.8 55 2.1 16.2 52 1372 10.8 11 870 37.8 24.2 116 21.1 5.7 na 29.2 51 54.8 14.0 155.8 193.8 -38.0 -4.7 234 906 -672
% of GDP 1 % of GDP 1 % of GDP 1 % of GDP 1 % of GDP
% over prev. year % of GDP 1 mn USD
Labour market and social standards thsd. persons Employment (year average) % of labour force Unemployment rate (official) Dram Average nominal wage 3
% over prev. year USD at ex. rate USD at PPP % over prev. year % over prev. year % of total
Real wage (year average) 3 Private consumption Households below poverty line Monetary indicators Broad money M2 (year-end) CBA refinancing rate (year-end) Average lending rate 4 Inflation (consumer prices) Budget (consolidated) 5 Revenue Expenditure Fiscal balance Foreign trade (goods) Exports f.o.b. Imports c.i.f. Balance on goods
% over prev. year % p.a. % p.a. %, year average
bn Dram bn Dram bn Dram % of GDP mn USD mn USD mn USD
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1997 Shares of main trade partners Exports to EU FSU Russia Imports from EU FSU Russia Balance of Payments Current account Net exports GNFS 6 Exports Imports Remittances & priv. transfers (net) Official transfers (net) Capital and financial account Capital transfers (net) FDI & portfolio investm. (net) Public sector (net) Disbursements Amortisations Other capital inflows (net) 7 Overall balance
1998
1999
2000
2001*
% of total % of total % of total % of total % of total % of total
28.5 40.7 27.1 19.8 33.5 24.2 -289 -622 330 -952 192 156 337 0 68 96 114 -18 174 49 -445 -27.1 243 2.9 491 1.7 640 39.1 14.2
34.6 36.5 18.1 28.7 25.5 21.2 -403 -640 360 -1000 147 113 406 10 205 34 105 -71 158 4 -515 -27.3 298 3.9 505 10.8 739 39.1 19.0
46.0 24.3 14.6 31.2 23.1 18.5 -307 -536 383 -919 159 94 311 13 124 84 102 -18 90 4 -401 -21.7 305 3.8 535 -5.1 841 45.6 14.3
36.0 24.5 15.0 34.2 19.0 14.9 -279 -521 443 -965 164 103 290 28 85 46 70 -24 130 11 -382 -19.9 314 3.6 540 -8.1 840 43.9 10.6
. . . . . . . -548 . . . . . . . . . . . . -392 -19.2 . . 550 . . . .
mn USD mn USD mn USD mn USD mn USD mn USD mn USD mn USD mn USD mn USD mn USD mn USD mn USD mn USD
External economic position and foreign debt mn USD Current account balance 8
% of GDP mn USD Gross international reserves import coverage (months) year average Exchange rate Dram/USD % over prev. year Real effective exchange rate 9 mn USD Govt. gross foreign debt % of GDP % of GNFS exports Foreign debt service (paid)
* projection; 1 GDP at current prices; 2 includes government; 3 official data based on enterprises’ reports as covered by the NSS; 4 lending rate of commercial banks for credits with a duration between 15 days and one year; 5 consolidated except for 2001 (planned central government budget); 6 goods and non-factor services; 7 includes errors and omissions; 8 excluding official transfers; 9 negative values indicate real appreciation of national currency Data sources: National Statistical Service (NSS) and Central Bank of Armenia, Armenia Economic Trends, EBRR Transition Report 2000, IMF Staff Country Report 01/78, World Bank Country Assistance Strategy (Rep.-No. 22111-AM of April 25, 2001); Armenia, Georgia, Kyrgyz Republic, Moldova, and Tajikistan: External and Fiscal Sustainability, Jointly written staff paper of the IMF and the World Bank, Feb. 7, 2001; Osteuropa-Institut München; ARKA News agency, and own calculations
Alexei Sekarev 10.7.2001
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