IMF Sends Comfort Letter Regarding Armenia to World Bank

YEREVAN (Noyan Tapan)–The International Monetary Fund sent a letter to the World Bank illustrating positive changes in Armenia’s macroeconomic indexes and at the same time expressing concern over the possible difficulties that may arise in ensuring tax revenues in 2002. On the basis of this letter–the World Bank will decide whether or not to allocate the second tranche of the SAC-4 to Armenia.

Armenia’s permanent IMF representatives have not yet come to an agreement regarding tax administration. An agreement is necessary to ensure the level of revenues projected in the 2002 budget. Tax revenues of the 2002 state budget are expected to make at least 15 percent of Armenia’s GDP. The second tranche was to be disbursed in December 2001. However–because the IMF had doubts concerning the ensuring of tax collections in 2001 and especially in 2002–they postponed the allocation of the tranche.

According to Garbis Iradyan–the IMF Resident Representative–the IMF provided two suggestions to the government to increase tax revenues. The first is to impose a VAT tax for all imported goods at the border. Currently the VAT tax is imposed on only 40 percent of imported goods.

The second measure suggested by the IMF foresees the establishment of a special department in the Ministry of State Revenues–which will check and control the activities of the 300 most wealthy citizens–who according to some estimates provide 70-80 percent of all tax revenues.

"We cannot be sure that next year’s revenues will be collected as long as Armenia lacks stable and reliable tax administration–which will show equal attitude to all tax-payers," stressed Iradyan.

The IMF–in its turn–will allocate the second tranche of the "Poverty Reduction and Economic Growth" credit worth about $13 million in January 2002. The allocation of this tranche depends on the fiscal results of 2001–particularly of December 2001.

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