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Knarik Ayvazyan and Ms. Teresa Daban Sanchez
Using a structural vector auto-regression (SVAR) model, this paper examines the size, geographical sources, and transmission channels of global and regional shocks to the Armenian economy. Results show that Armenian economic activity is strongly influenced by global demand shocks and changes in oil prices, yet relatively immune to financial volatility. Transmission takes place through the Russian and EU economies, remittances, and external borrowing. The role of exports and tourism is low. Russia is key in transforming the potentially negative impact of an increase in oil prices into a positive event, through stronger remittances and exports. Services and construction, which depend significantly on remittances and external borrowing, are the most affected by global and regional shocks.
International Monetary Fund. Middle East and Central Asia Dept.

INTRODUCTION RECENT ECONOMIC DEVELOPMENTS OUTLOOK AND RISKS PROGRAM POLICIES A. Fiscal Policy B. Monetary and Exchange Rate Policies C. Financial Sector Policy D. Structural Reforms E. Program Modalities STAFF APPRAISAL BOXES 1. Gas Price Agreement 2. Tax Revenues 3. Armenian Development Strategy 2013–25 TABLES 1. Selected Economic and Financial Indicators, 2009–16 2. Balance of Payments, 2009–17 3. Monetary Accounts, 2009–14 4. Financial Soundness Indicators for the Banking Sector, 2019–13 5. Central Government

International Monetary Fund. Middle East and Central Asia Dept.

growing, leading to low reserve coverage. In Armenia, on the contrary, the current account deficit is expected to decline: remittances have remained resilient, and the new gas price agreement with Russia includes lower gas prices at the border. Greater exchange rate flexibility would help buffer shocks, stem pressures on reserves, and protect export competitiveness ( Figure 3.8 ). Figure 3.8 Real Exchange Rate versus Current Account Balance (2012–13) Sources: National authorities; and IMF staff calculations. Overall, fiscal surpluses in the region’s oil

International Monetary Fund. Middle East and Central Asia Dept.

. Inflation is expected to reach 4 percent by end-2014, notwithstanding the gradual pick-up of activity. While the new gas agreement is likely to provide price stability, inflation is likely to remain volatile, given the large food component in the CPI basket (48 percent) and strong links between food and international commodity prices. The authorities view their strategy of regional integration and their planned increase in public investment as key elements supporting growth, both in 2014 and in the medium-term. Box 1. Gas Price Agreement In December 2013, the

Knarik Ayvazyan and Ms. Teresa Daban Sanchez

integration of Armenian banks, and the still low level of external portfolio investment. A change in international oil prices is not expected to have a direct impact on Armenia economy either, given Armenia’s relative high level of gasification and the use of medium-term gas price agreements with Russia. However, our paper shows that these developments would affect Armenia indirectly via trading partners. For instance, the recent decline in commodity prices (especially oil prices), which is translating into lower growth for Russia, is affecting negatively Armenia, via

International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses Armenia’s Request for Arrangement Under the Extended Fund Facility (EFF). Performance under the 2010–2013 program, which was supported by arrangements under the EFF and Extended Credit Facility (ECF), was sound, with growth restored, large fiscal and external imbalances reduced, and buffers rebuilt. However, challenges remain, particularly in further reducing vulnerabilities and strengthening medium-term growth dynamics. Fiscal policy will support the growth recovery in 2014 by providing a modest stimulus, before moving to a gradual consolidation stance in 2015–2017. The IMF Staff supports the authorities’ request for an IMF-supported program.
International Monetary Fund. Middle East and Central Asia Dept.

enhanced maintenance. In light of past losses and debt-equity transactions, we are closely monitoring the operations and finances of the utility sector and met the end-June PC on the non-absorption losses or liabilities or making of payments on behalf of utilities or other companies. Also, while the gas price agreement signed in December 2013 with the Russian Federation offers stable and competitive prices for the next five years, we consider that the Armenian economy and consumers should become more energy efficient to reduce vulnerabilities, cope with shocks, and be

International Monetary Fund
This paper assesses Pakistan’s Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF) and Request for Waiver of Performance Criterion. Developments in the first months of 2002 indicate further progress toward the program’s macroeconomic objectives. Progress on the structural front was broadly in line with the program, in particular in the area of tax administration, fiscal transparency, and privatization. All but one of the performance criteria for end-March 2002 were met. The authorities request a waiver for the nonobservance of the performance criterion on Central Board of Revenue (CBR) revenue.
International Monetary Fund

gas price agreement with Petroleum Pakistan Limited (PPL) and as the first step in bringing the PPL wellhead price gradually closer to the market price, increased it by more than 50 percent. Concurrently, we increased consumer gas prices by an average of 8.5 percent, in line with our commitment to bring gas prices to reflect costs and gradually eliminate cross-subsidization among different categories of consumers. Table 2. Pakistan: Structural Performance Criteria and Benchmarks for the First Two Years Under the PRGF Arrangement Measures

International Monetary Fund. Middle East and Central Asia Dept.
This 2014 Article IV Consultation highlights that after a steady recovery during 2010–12 from the deep 2009 recession, Armenia’s growth softened in 2013 and has remained subdued in 2014. The softening of economic activity has been broad based, as growth of exports and remittances slowed, and government spending was lower than budgeted. Construction, which had declined since the 2009 crisis, was relatively flat. Growth is projected at 2.6 percent in 2014 and is expected to increase only gradually in 2015 and over the medium term in light of expectations of slow growth in key trading partners. The authorities’ policies remain geared toward maintaining macroeconomic stability and fostering sustainable and inclusive growth.