Armenia Gets $25 Million World Bank Loan to Cover Budget Shortfall

YEREVAN (RFE/RL)–The World Bank announced on Wednesday the disbursement of a $25 million loan to Armenia that will finance a part of its state budget deficit projected to reach 149 billion drams ($410 million) this year.

Bank officials said the low-interest loan, called the Development Policy Operation (DPO), will help the Armenian government boost social spending and improve access to pre-school education and health services in poor communities.

World Bank loans were a key source of deficit funding for the Armenian authorities until the early 2000s. The authorities had largely balanced budgets in the following years only to again resort to large-scale external borrowing following the outbreak of the global financial crisis in late 2008.

Armenia received a $60 million budgetary loan from the Washington-based development bank in July 2009, at the height of the recession. No such funds were disbursed last year, which saw a renewed growth in state revenues.

The government posted a budget deficit equivalent to less than 2 percent Gross Domestic Product in January-November 2010. It has forecast a deficit-to-GDP ratio of almost 4 percent for 2011.

Jean-Michel Happi, head of the World Bank office in Yerevan, said the authorities have pledged to cut it to around 3 percent by the end of 2012. He also told journalists that the bank will likely approve another budgetary credit, worth roughly $20 million, for Armenia later this year.

In a separate statement, the bank’s Washington headquarters indicated that the latest loan was conditional on “key reforms” aimed at improving the country’s business climate and reforming the tax administration.

“Sustained reforms in tax, customs, and economic competition, coupled with the introduction of a modern regime for the mining sector that is socially and environmentally responsible, are needed to sustain the recovery and generate jobs,” Asad Alam, the World Bank director for the South Caucasus countries, was quoted as saying.

“But it is still important for the country to maintain the coverage of the social safety nets, while at the same time increasing their efficiency,” added Alam.

The 2011 state budget calls for a 7 percent rise in public expenditures projected to total just over 1 trillion drams ($2.75 billion). The spending target is based on the assumption that the Armenian economy will grow by 4.6 percent this year. It was on course to expand by more than 2.6 percent in 2010.


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One Comment;

  1. Truepat said:

    Sounds like Armenia has fallen into the trap of other 3rd world countries who are selling their souls to the will of the World Bank and IMF. What can one expect when it keeps selling off its resources and utilities to other nations – with nothing to export and billions in debt, how does one expect Armenia to grow into the intellectual nation that it might have the potential for if run with less corruption and more of a broader outlook? Furthermore, these so called reforms that Washington are demanding have proven time and time again to be reforms that satisfy America and the Wests agenda for Armenia, which as you all know are “cooperation with Azerbaijan and Turkey”. Might I add that I find it interesting that we are asked to reform the mining sector (albeit a fantastic idea) – but does reform mean selling 35% off to China? Armenia needs to see beyond its immediate greed and start seriously considering some long term reforms that will truly benefit Armenia itself – the forging of a nation with passion and discipline – perhaps we can learn from Hugo Chavez.