On Friday, the IMF approved a 28-month Stand-By-Arrangement to provide $540 million in financial aid to Armenia, of which approximately $237 million will be made available immediately and the remainder made available in “nine installments subject to quarterly reviews.” The financial aid provided will be used “to support the country’s program to adjust to the deteriorated global outlook, [to] restore confidence in the currency and financial system, and [to] protect the poor.”
Armenia’s economy has been severely impacted by the financial crisis and has experienced large external shocks. The Arrangement is intended to “achieve the necessary external adjustment, restore confidence in the domestic currency and the banking sector, and protect the poor.” The Arrangement requires the Armenian government to take following key measures:
- implement a flexible exchange rate regime;
- stabilize and strengthen the financial sector framework; and
- revise “fiscal priorities to maintain macroeconomic stability, while protecting social outlays and public investment, in light of the expected revenue shortfall.”
Mr. Murillo Portugal, Deputy Managing Director and Acting Chair, stated that “[s]ound policies are essential to maintain macroeconomic stability [in Armenia].” He also noted that “[t]he recent return to a flexible exchange rate will help cushion the impact of the global downturn and eventual further regional deterioration” and that “[a]n appropriately tight monetary policy is necessary to contain the inflationary pressures stemming from the depreciation and support demand for dram-denominated assets.”
The IMF has projected Armenia’s “gross external financing requirements” for this year to be approximately $1.6 billion. The Arrangement is intended to cover a significant share of Armenia’s 2009-2011 financing gap, but additional financing will be needed from other donors and international partners, including the World Bank.