EDB negotiates alterations and amendments to the terms and conditions of the third tranche of the EFSD financial credit to Armenia

16 February 2017

Moscow, 16 February 2017. Experts from Eurasian Development Bank (EDB), which is the Resources Manager of the Eurasian Fund for Stabilisation and Development (EFSD, Fund), headed by Alisher Mirzoyev, Project Team Director, visited Yerevan from 6 to 9 February 2017 to negotiate alterations and amendments to the terms and conditions of the third tranche of the EFSD financial credit (US $100 million). The delegation met with Vache Gabrielyan, Vice Prime Minister of Armenia, and representatives of the involved ministries and authorities, the Central Bank and international financial institutions.

The consultations focused on strengthening the Reform Matrix by optimising certain measures planned as conditions for the third tranche, proceeding from the progress achieved during fulfilment of the first and second tranches, and on devising new terms and conditions based on the revised priorities of the Armenian government. The recommendations of the Fund's Council issued after it had considered extending the second tranche to Armenia in December 2016 were also taken into account. In particular, the Council noted a significant increase in the country’s budget deficit in 2015-2016 and recommended that the government should pursue an economic policy ensuring fiscal and debt stability.

The increase in Armenia's budget deficit over the recent two years was caused, primarily, by the accelerated fulfilment of investment projects backed with preferential foreign loans, which had been significantly delayed in preceding years, and a slowdown in budget revenues due to shrunk economic activity. In 2015 and 2016, budget deficit reached 4.8% and 5.6% of GDP respectively, compared to 1.9% in 2014. Preliminary estimates suggest that this should result in that Armenia's public debt as at 1 January 2017 will reach 51.6% of GDP, compared to 44.2% a year earlier.

The Armenian government fully agrees with the Council's recommendation that fiscal and debt stability needs to be ensured and takes all measures conducive to achieving this goal. Armenia’s mid-term public debt management strategy for 2017-2019 envisions that the debt burden will be lessened by prioritising investment expenses and decreasing budget deficit, while debt management efficiency will be improved and debt structure will be optimised by increasing the share of domestic loans. The sides agreed that in the near future Armenia will notify the Fund's Resources Manager about the expected budget deficit and/or public debt threshold as at 1 October 2017, which should be determined based on the budget deficit figure approved for 2017.

The sides also discussed the timeframe for making integral territorial centres for social services operational. Twenty such centres are expected to start functioning as at the date of appraisal of the third tranche. The number of the centres to be commissioned was decreased from 38 to 20 due to changes in the requirements for the suitability of respective buildings transferred to the Ministry of Labour and Social Issues for this purpose, which made it necessary to construct new buildings. The other reason was the need to prioritise budget capital expenditure in the medium term in order to reduce budget deficit and the debt burden.

In addition, the sides discussed a number of other indicators proposed by Armenia to be included in the terms and conditions of the third tranche. The third tranche will be aimed, in the first place, at improving the country's investment attractiveness. To enhance economic activity (the increase in GDP as at end-2016 is expected to approximate 0.5%) and ensure stable growth in the medium term, the Armenian government plans to amend certain laws this year in order to stimulate foreign investments. In particular, it is suggested to enhance investors' rights and protection of their interests, and to make clear the rights and obligations of participants in free economic zones. In addition, the government will continue with reforms to liberalise the power sector, improve the regulative framework to simplify the doing of business, and enhance the population and small-sized businesses' access to loans.

After the final list of additional indicators for the third tranche is prepared and approved, the revised Reform Matrix will be submitted for consideration to the Fund's Council. 

Additional Information:

Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation and the Republic of Tajikistan.

Read more at: https://eabr.org/

The Eurasian Fund for Stabilisation and Development (EFSD) amounting to US $8.513 billion was formed on 9 June 2009 by the governments of the six countries. The objectives of the EFSD are to assist its member countries in overcoming the consequences of the global financial crisis, ensure their economic and financial stability, and foster integration processes in the region. The EFSD member countries signed the Fund Management Agreement with EDB giving it the role of the EFSD Resources Manager.

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