WASHINGTON (Combined Sources)–The International Monetary Fund has reworked details of a loan agreement with Armenia to speed aid to the country as it battles a deeper-than-expected downturn, the Wall Street Journal Reported on Monday.
The changes allow for Armenia to immediately receive an additional $60 million from its $822.7 million loan facility. The country, among the hardest hit by the financial crisis in Central Europe, already has drawn more than $400 million from the facility since it was approved in March.
The decision was announced by Takatoshi Kato, the IMF’s deputy managing director and acting chair, following a meeting of the IMF Executive Board on Armenia.
“The global crisis has continued to have a serious impact on the Armenian economy,” Kato said. “The fall in remittances and the collapse in the construction sector have caused a more severe economic contraction and lower fiscal revenue than anticipated.”
Armenia is among the central European countries that have come to rely on an influx of remittances, particularly those from Russia, to sustain its economy in recent years.
The IMF is expecting Armenia’s economic output could contract by as much as 15.6% this year.
The Armenian state budget for 2009, drawn up before the onset of the crisis, called for 945 billion drams ($2.45 billion) in expenditures. The government has struggled to meet this target, raising the possibility of a first budget sequestration since 1999. It has used a large part of more than $1.1 billion in anti-crisis loans obtained from foreign sources this year to finance the widening budget deficit.
According to Kato, Armenia’s authorities will continue to cut the country’s budget expenditures for the year, while using international loans to make up for the remaining shortfall in revenue.
Armenia’s Finance Minister late last month confirmed that the government is likely to once again reconsider its budgetary expenditures projected for this year in view of a 15% shortfall in tax revenues resulting from the ongoing recession.
Government expenditure, Kato said, “will focus on undertaking anti-crisis measures, increasing capital spending, and protecting social spending.”
“The short-term outlook remains challenging,” Kato said, noting, however, that the IMF program for Armenia “allows for additional spending should more donor financing become available to smooth the withdrawal of fiscal stimulus.”
“Growth is expected to resume gradually in 2010, although risks remain,” he added, stressing that the government will need to continue reforms “in the areas of tax policy and tax reform administration, the financial sector, and the business environment” to “boost the medium-term growth potential of the economy.”