Capital Outflows From Armenia Continue

YEREVAN (Noyan Tapan)–Garbis Iradian–the IMF Resident Representative in Armenia–noted that the overall macroeconomic situation in 2001 was satisfactory based on the preliminary indicators.

Real economic growth was the highest since the early 1990s–inflation remained subdued–and the external current account deficit narrowed significantly as a result of the continued growth in exports. In the fiscal area–however–there was a shortfall in 2001 in tax collections.

The estimate of the government expenditure arrears as of end-December 2001 is still not available and it is too early to make a definite judgment of the overall fiscal performance.

The IMF team will be in Yerevan during February 1-14–2002 to finish negotiations for the completion of the first and second reviews under the PRGF (Poverty Reduction and Growth Facility) arrangement. Completion of the discussions at that time would depend on the agreement between the IMF and the Armenian authorities to implement several measures in the fiscal areas. If an agreement is reached–the IMF Executive Board will review the program on April 12–2002–and after their approval–the second and the third tranches could be disbursed–each in the amount of 10 million SDRs (or about $12.7 million).

Regarding the continued low level of inflation–Iradian indicated that the economy was protected from inflation partly because of the severe polarization of the Armenian economy (or the high inequality of income distribution). Part of the high income generated as a result of the strong economic activity was probably transferred outside the country. The GINI coefficient–showed that the measures income inequality–is still one of the highest in Armenia as compared to other developing and transition countries.

Iradian is against imposing controls on capital flows. Improvement in the business environment–building confidence in the domestic banking system–and continued political stability are important factors necessary for reducing capital outflows.

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