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Armenia

Author(s):
International Monetary Fund
Published Date:
November 1999
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Table 1.Armenia: Selected Economic Indicators
19961997199819981999
First HalfFirst Half
GDP (billions of dram)660799952466495
Real GDP growth (percent change)1/5.83.17.26.74.9
GDP in millions of US dollars1,5971,6281,885930918
Inflation (in percent)
Period average18.714.08.718.8-2.4
End-period 2/5.821.9-1.3-1.34.2
Exchange rates (drams/US dollar)
Period average413491505498539
End period435495522522532
Fiscal Sector (in percent of GDP)
Consolidated budget
Revenue and Grants17.719.820.818.718.5
Of which: Tax Revenue12.916.417.115.615.5
Expenditure26.325.725.019.521.4
Of which: Current Expenditure19.621.519.216.615.7
Cash Deficit 3/-9.3-5.8-4.7-2.4-3.3
Monetary Sector
Net Domestic Assets of the CBA 4/5/15.6-45.04.25.13.2
Reserve Money (end of period growth rate, in percent) 5/40.522.56.5-7.2-18.9
Broad Money (end of period growth rate, in percent) 5/35.129.236.09.2-3.8
Broad Money Velocity13.812.810.412.010.8
Dram Broad Money (end of period growth rate, in percent) 5/34.18.723.30.8-13.7
Dram Broad Money Velocity 6/17.419.317.319.520.1
External Sector
Current account balance 7/
millions of US dollars-408-456-515-197-180
in percent of GDP-25.6-28.0-27.3-21.2-19.6
Total external debt
millions of US dollars613806828757825
in percent of GDP38.549.543.981.444.9
External debt service (In percent of exports of G&NFS)
On amounts due20.314.613.413.213.6
On amounts paid22.715.046,111.913.6
Gross official international reserves (millions of US $)171243298252265
In months of imports of goods & non-factor services2.33.13.63.33.8
Sources: Armenian authorities and Fund staff estimates.

With respect to the same period in the previous year

Inflation during the last 12 months.

Deficit as measured by financing.

Change in percent of reserve money at the beginning of the period

Half year figures are changes during the six month period.

In final quarter of the period, using GDP of the corresponding quarter, seasonally adjusted.

Excludes official transfers.

Sources: Armenian authorities and Fund staff estimates.

With respect to the same period in the previous year

Inflation during the last 12 months.

Deficit as measured by financing.

Change in percent of reserve money at the beginning of the period

Half year figures are changes during the six month period.

In final quarter of the period, using GDP of the corresponding quarter, seasonally adjusted.

Excludes official transfers.

I. An Overview of Recent Economic Developments

A. Introduction

1. Economic developments in Armenia in 1998 and the first half of 1999 can best be described by looking separately at two periods: January through mid-August 1998, and the period after that, following the onset of the Russian crisis. Prior to August 1998, real GDP growth was strong, inflation had declined to moderate levels, the current account deficit was declining, and the exchange rate was stable. The Russian crisis, however, hit Armenia hard. Exports, workers’ remittances and transfers fell sharply. This led to declining demand for output in industry, transportation, and services. In addition, Armenia suffered a decline in portfolio and direct foreign investment. The impact of the Russian crisis was compounded by a drought in late 1998, and by rising political uncertainty in the run up to the May 1999 parliamentary elections. Only a strong performance in the construction sector, driven largely by government investment projects, supported continued strong real GDP growth in late 1998 and the first few months of 1999.

2. The government responded to the crisis with policies designed to try to maintain the pre-crisis level of aggregate demand, while avoiding large fluctuations in the exchange and interest rates. Monetary policy was relaxed at the end of 1998, and official intervention in the foreign exchange and securities markets intensified. As the crisis deepened in the first half of 1999, there were shortfalls in both tax collections and external financing. In addition, domestic financing became more expensive, as interest rates on treasury bills continued to increase. This led to the emergence of expenditure arrears, including for wages, pensions and family allowances. By mid-1999, it had become clear that this approach was unsustainable, and corrective policies were needed.

B. Output Growth, Prices, Wages and Employment

3. Following the cease-fire in the conflict over Nagorno-Karabakh, real GDP began to recover in 1994, growing on average about 6 percent per year in 1994-96 (Table 2). Initially growth was driven by trade, but by 1996 it had become more balanced, with strong growth in construction, transport and communications, and services, as well as wholesale and retail trade. Only industry and agriculture continued to grow more slowly than overall GDP. In 1997, due to declining agricultural production caused by adverse weather conditions, GDP growth slowed to just over 3 percent.

4. In 1998 growth accelerated, to 7.2 percent, although Armenia was adversely affected by two major exogenous shocks in the latter half of the year. The first was the Russian crisis; the impact on some sectors was immediately evident, particularly industry. After moderate growth (about 3½ percent on average, Table 3) in the first half of 1998, value added in industry fell almost 4 percent in the third quarter and more than 10 percent in the fourth quarter. The second shock was a drought, which reduced the winter wheat harvest in early 1999. As a result of these shocks, real GDP in the first half of 1999 only grew by 4.9 percent compared to a year earlier (Figure 1), with half of that growth due to very strong performance in construction.

Figure 1:Real GDP Growth Indicators

Sources: Armenian authorities and Fund Staff estimates

5. The sectoral composition of output changed significantly. From 1994 through 1998, agriculture and industry declined sharply as a share of GDP, while trade and services roughly doubled their share (Table 4 and Figure 2). Nonetheless, agriculture continues to comprise the largest share of GDP, while services exceeded industry for the first time in 1998. The first half of 1999 saw industry and agriculture decline further relative to GDP, while trade and services grew modestly and construction grew sharply (Tables 5 and 6).

Figure 2:GDP Composition (in percent)

Sources: Armenian authorities and Fund Staff estimates

6. Armenia has experienced a dramatic decline in inflation since 1994. Period average consumer price inflation fell steadily from over 5000 percent in 1994 to near 200 percent in 1995 and to less than 9 percent in 1998 (Table 7 and Figure 3). Reflecting seasonal pressures (particularly rising food prices), some adjustments in regulated prices (Tables 8 and 9), and the impact of exchange rate depreciation, between October 1998 and January 1999. Consumer prices rose at an average monthly rate of more than 2 percent, before declining 3 percent from February through July 1999, in part due to the impact of an appreciation of the exchange rate.

Figure 3:Inflation Indicators

Sources: Armenian authorities and Fund Staff estimates

7. After a sharp drop in 1994, real dram wages in state owned corporations increased substantially in the last 5 years,1 including by 24 percent in 1998 (Table 10). The first half of 1999 witnessed further rapid growth, with average real wages up almost 30 percent from a year earlier. While wages vary dramatically across sectors, the sectoral spread of wages has declined over time (Table 11). For example, in 1994 wages in finance were 5 times the average for the state sector; by early 1999, while finance continued to offer the highest wages of any sector, they were only 3 times the average wage.

8. Employment levels in Armenia have gradually declined, with total employment in 1998 almost 10 percent below 1994 (Table 12). The unemployment rate grew from 6.6 percent in 1994 to 9.3 percent in 1998.2 Employment levels in the state sector declined by 45 percent between 1994 and 1998, while private sector employment grew more than 30 percent (Tables 13-14). As a result, the share of the private sector in total employment had increased from 47 percent in 1994 to 67 percent in 1998.

C. Public Finances and Social Safety Net

Overview and Background

9. The fiscal sector in Armenia consists of the republican government, local governments, and the State Fund for Social Insurance (SFSI). Local governments and the SFSI are required by law to run balanced cash budgets, so the fiscal deficit (on a cash basis) is the same for the republican budget,3 the state (republican plus local) budget and the consolidated (state plus SFSI) budget.

10. The fiscal deficit declined steadily from 11 percent in 1995 to about 6 percent of GDP in 1997 (Figure 4 and Tables 15-18). Most of this adjustment has come from expenditures. Increases in consolidated government tax revenues equivalent to about 3½ percent of GDP—reflecting measures which increased tax rates and broadened tax bases, improvements in tax administration, and netting out operations4—were offset by declining nontax revenues and grants. As a result, total revenues and grants in 1997 were roughly unchanged from their level in 1995, at just under 20 percent of GDP.5 On the expenditure side, current expenditures were broadly unchanged, while capital expenditures declined by more than 3 percent of GDP. Throughout this period, the deficit has been financed primarily by external sources, with domestic financing averaging less than 1 percent of GDP. Net external financing, while more significant, declined from 10½ percent of GDP in 1995 to about 6½ percent of GDP in 1996-1997.

Figure 4:Armenia - Fiscal Situation of the Consolidated Government

Sources: Armenian authorities

Fiscal Operations in 1998 Prior to the Russian Crisis

11. The fiscal deficit continued its downward trend in the first three quarters of 1998. Tax revenues of the consolidated government increased by almost 2 percent of GDP relative to a year earlier, reflecting both the full year effect of measures introduced during 1997 and new measures introduced with the 1998 budget.6 Nontax revenues rose, reflecting high profit transfers from the Central Bank of Armenia (CBA) and receipts from leasing state property. Grants, however, declined sharply, reflecting in part the decision of the government to redirect some budgetary support in 1998 to the purchase of electricity and water meters in 1999. Nonetheless, total revenues and grants increased by almost 3 percent of GDP in the first three quarters of 1998, compared to a year earlier. Expenditures relative to GDP were down modestly. Contrary to the pattern from 1995 through 1997, the reduction in expenditures in the first three quarters of 1998 was due to declining current expenditures, as both capital expenditures and net lending increased somewhat relative to GDP.

12. External financing covered about two-thirds of the deficit in the first three quarters of 1998 (or about 2 percent of GDP), and the rest was financed primarily from privatization receipts. The budget made allowance for use of up to 1½ percent of GDP in privatization proceeds in 1998, with the balance set aside in a special privatization account with the interest capitalized as a reserve against outstanding official guarantees on domestic borrowing by public enterprises.

Fiscal Operations Following the Russian Crisis

13. The cash deficit surged to 11 percent of GDP in the fourth quarter of 1998, reflecting declining revenues and rapidly increasing expenditures. Fourth quarter tax revenues, which are typically much stronger than the rest of the year, were up only modestly from the third quarter.7 Thus, while in the first three quarters of 1998 tax revenues were about 2 percentage points of GDP above 1997, in the fourth quarter tax revenues were almost 2½ percent of GDP below a year earlier, with most of the disappointing performance due to rising tax arrears and low collections on VAT and excise taxes (primarily due to falling imports). Cash expenditures, meanwhile, increased by almost 10 percent of GDP between the third and fourth quarters. Nevertheless, for the year as a whole the cash deficit declined to around 4½ percent of GDP.

14. External financing covered about a third of the deficit (3¾ percent of GDP) in the last quarter of 1998. Such financing would have been about one percent of GDP higher except for an unbudgeted payment to the EU, as part of the restructuring of overdue obligations. To cover this payment, the budget law was amended to allow greater use of privatization proceeds. Banking system credits financed the rest of the deficit.

15. The first half of 1999 saw a decline in the deficit relative to the fourth quarter of 1998. Nonetheless, the deficit remained well above the level of the first half of 1998 (3.3 percent of GDP, compared to about 2 percent in 1998). To strengthen revenue performance, the 1999 budget introduced a number of tax measures designed to increase revenues,8 and a High Level Committee on tax arrears stepped up efforts to resolve the cases of the largest tax debtors. The impact of these measures on tax revenues was just enough to offset the impact of the Russian crisis on revenues and, as a result, the share of taxes in GDP in the first half of 1999 was unchanged relative to the first half of 1998.

16. To avoid a repeat of the large 1998 fourth quarter deficit, current cash expenditures were sharply compressed. More than offsetting this, however, capital expenditures and net lending were up sharply. The resulting cash deficit was financed in roughly equal parts by net external financing and privatization proceeds, with banking system financing declining as the CBA tightened monetary policy (see section D below).9 The sharp compression in cash payments for expenditures masked the accumulation of substantial expenditure arrears, including for wages, social safety net payments, health and education. Thus, on an accrual basis, the deficit was about 5.5 percent of GDP.

17. Social safety net expenditures rose from 4.4 percent of GDP in 1996 to 5 percent of GDP in 1998. Through 1997, the social safety net in Armenia consisted primarily of pensions (about 70 percent of total social safety net expenditures), and child and cash compensations (about 30 percent of such expenditures).10 In 1998 a family benefit was adopted, replacing both the child allowances and general support via cash compensation. Further improvement in the targeting of social benefits took place in January 1999, when a means-tested family allowance system was introduced.11 Under the new system, dram 1.75 billion per month has been transferred to some 230,000 families, for an average monthly support per family of about dram 7,600 or US$14.

D. Monetary and Exchange Rate Developments

18. Following reserve money growth of 700 percent in 1994, monetary policy was tightened significantly, and by 1997 the rate of growth of reserve money had been reduced to 29 percent (Table 21 and Figure 5). Broad money growth paralleled the movements in reserve money (Table 22), as the money multiplier was essentially unchanged from 1995 through 1997. The management of reserve money was complicated by volatile capital inflows from abroad. The situation was particularly difficult in the second half of 1997, when Armenia experienced large inflows of official capital, as well as private capital attracted by high treasury bill yields. To prevent a sharp appreciation, the CBA bought large volumes of foreign exchange, but could not completely sterilize these flows by reducing net domestic assets. As a result, reserve money growth accelerated and inflation picked up.

Figure 5:Armenia: Key Monetary Trends

Sources: CBA and Fund Staff estimates

Developments in 1998 Prior to the Russian Crisis

19. Between end-1997 and September 1998, reserve money was broadly unchanged, despite a modest decline in net international reserves. The CBA offset an increase in net credit to the government (NCG) by contracting net credit to banks, largely through active use of the repurchase window. There was sizable CBA intervention in the foreign exchange market only in the first quarter of 1998, in advance of the presidential election.

20. Despite the strict control of reserve money, a rising money multiplier led to a 28 percent increase in broad money during this nine month period. This increased money supply was met by a rising money demand, and as a result lending and deposit rates as well as treasury bill rates declined (Tables 23 and 24). Combined with a broadly unchanged nominal exchange rate, this growth in money demand put downward pressure on prices, with 12-month inflation at end-September 1998 of minus 2.1 percent.

Developments Following the Onset of the Russian Crisis

21. The impact of the Russian crisis on financial markets was felt quickly, as it shook investor confidence in dram-denominated assets. Interest rates on treasury bills, which had averaged 39 percent in July, rose sharply, in part due to declining non-resident demand, reaching almost 60 percent by end-1998 (Figure 6). Dram lending rates also rose rapidly, while dollar lending rates were roughly unchanged.

Figure 6:Armenia: Treasury Bills Market

Sources: Armenian authorities and Fund Staff estimates

1/ The tbill rate is the weighted average annual rate for different maturities

2/ The real rate is defined as the nominal rate deflated by the 12 month change in the CPI

22. The impact was also felt in the exchange market. The dram began to depreciate against the U.S. dollar in September 1998, losing over 1 percent of its value despite CBA sales of foreign exchange. In the fourth quarter, the CBA was confronted with two pressures. The first was a desire to prevent further depreciation, and the second was the need to provide bridge financing—in advance of an anticipated disbursement from the World Bank—to cover a rapidly growing fiscal deficit. In the event, the CBA extended credit to the government, and tried to sterilize the impact of this credit through the sale of foreign exchange (Figure 7)12 and reverse repurchase agreements. As a result, reserve money declined from August through November. When the reverse repurchase agreements matured in December, net credit to banks surged, leading to a monthly reserve money growth of more than 12 percent. Despite large sales of foreign exchange (November sales were equivalent to 14 percent of reserve money), the CBA could not prevent further depreciation, as the exchange rate depreciated 2.8 percent in the last quarter of 1998 and by 7 percent in January 1999. At this juncture, monthly inflation had already started growing.

Figure 7:Monthly Central Bank Intervention in the Foreign Exchange Market 1/

Sources: CBA and Fund Staff estimates

1/ A positive number indicates net sales of foreign currency

23. The first quarter of 1999 saw a continuation of the CBA’s efforts to resist depreciation. Net foreign assets declined, while net domestic assets of the CBA were broadly unchanged, leading to a 15 percent decline in reserve money. The sharp contraction in reserve money stopped the depreciation of the exchange rate, and contributed to an increase in the average real treasury bill rate to around 70 percent by end-February.13 The decline in reserve money did not translate into an equivalent decline in broad money, however, as the money multiplier continued to increase14 due to banks’ failure to meet their required reserves.

24. The second quarter saw the return of the dual pressures on the CBA: a perceived need to protect the exchange rate while providing direct credits to the budget in anticipation of another sizable inflow of external financing to the budget. To sterilize these credits, in April the CBA reduced its net foreign assets by the equivalent of 16 percent of end-March reserve money, and as a result reserve money remained unchanged in April and the nominal exchange rate did not move. However, when it became clear that the World Bank credit might not be received in June, the CBA began reducing NCG while rebuilding its international reserves. By end-June, NCG was below the level at end-March,15 while the CBA had recovered 60 percent of the reserves lost in April. As official reserves were being accumulated, the exchange rate depreciated further in May and June.

25. As a result of these monetary policy swings, reserve money at end-June 1999 was more than 4 percent below end-March, and roughly 20 percent below end-December 1998. Despite the growing money multiplier, dram broad money at end-June was almost 14 percent below end-1998. Notwithstanding the tight monetary policy, the cumulative depreciation of the exchange rate (about 9 percent in the year ending June 1999) finally began to be reflected in the CPI, with the 12 month rate of inflation turning positive at end-June (2.1 percent) for the first time since August 1998.

E. Balance of Payments

26. Armenia’s current account deficit, which was 31 percent of GDP in 1995, declined to 26-28 percent of GDP in 1996-97 (Table 25). Exports declined from around 23 percent of GDP in 1995 and 1996 to about 20 percent of GDP in 1997, partly reflecting lower jewelry exports. Imports, at 59 percent of GDP in 1997, were roughly the same relative to GDP as in 1995, supported by a substantial increase in private transfers and workers’ remittances that helped offset declining official transfers. Services, which had recorded a small deficit in 1995 and 1996, were modestly in surplus in 1997.

27. Armenia has been shifting its trade away from CIS countries (Table 28). While over 60 percent of Armenia’s exports went to CIS countries in 1995, by 1997 this share had declined to just over 40 percent. Similarly, in 1995 roughly half of Armenia’s imports came from CIS countries; in 1997 this figure was around one-third.16 The commodity composition of exports also changed, with declines in the share of mineral and chemical products, and increases in the share of food, drinks and tobacco, and non-precious metals (Table 27). There were no clear trends in the composition of imports over this period.

28. Capital flows strengthened from 1995 to 1997, reflecting a decline in amortization obligations and increasing foreign direct investment (FDI). Financing from international financial institutions declined, but this was more than offset by a substantial growth in bilateral financing. The net result was a steady increase in gross official reserves, from 1.7 months of imports of goods and non-factor services at end-1995 to 3.1 months at end-1997.

Developments in 1998 Prior to the Russian Crisis

29. During the first nine months of 1998, Armenia’s trade and current accounts were improving. Exports were up 14 percent, imports down 2 percent, and the trade deficit had declined by about 3 percent of GDP. Private transfers were modestly higher than a year earlier, but not enough to offset declining official transfers. As a result, the current account deficit, in dollar terms, was broadly unchanged with respect to the same period in 1997. In contrast, the capital account showed substantial improvement, despite further declines in financing from international financial institutions,17 reflecting a rephasing of disbursements from Russia and sizable FDI associated with privatization.18 Overall, gross official reserves grew further, to 3.3 months of imports of goods and non-factor services at end-September.

External Developments After the Onset of the Russian Crisis

30. The Russian crisis strongly affected Armenia’s 1998 fourth quarter balance of payments. Exports dropped by one-third relative to a year earlier, while imports were broadly unchanged, resulting in a sharp increase in the trade deficit. In addition, private transfers and non-interest factor services were about half the level of a year earlier and, as a result, the current account deficit increased by over 50 percent from the fourth quarter of 1997. More than offsetting this deteriorating current account, all categories of capital flows increased relative to a year earlier, in large part as a result of a concerted international effort to catalyze additional financing and transfers to assist Armenia in dealing with the impact of the Russian crisis. Gross official reserves increased to 3.6 months of imports by end-1998, despite the high level of CBA intervention in the foreign exchange market.

31. In the first half of 1999 exports recovered somewhat, reflecting in part recovering diamond exports. Imports, on the other hand, declined sharply—down 10 percent from the same period a year earlier—largely due to the depreciation of the exchange rate. Other factor services and private transfers combined were down by more than one-fourth, partly offsetting the declining imports, but the current account deficit nonetheless fell by about US$15 million. Despite this improvement in the current account (before transfers), and an increase in official transfers, declining bilateral and multilateral financing contributed to an overall negative balance of payments. As a result, gross official reserves fell more than 10 percent in dollar terms (from US$298 million to US$265 million). Since imports fell about the same amount, gross official reserves remained unchanged as a share of imports.

F. External Debt Developments 19

32. Since independence, Armenia’s external debt has increased rapidly. While the country started with little or no external debt (after signing the “zero option” agreement with Russia),20 By end-1997 the debt stock had reached US$800 million, or about 50 percent of GDP (Table 26).

33. In 1998, Armenia stepped up efforts to slow the growth of debt and improve its terms. A nonconcessional debt to the European Union of ECU 51 million was restructured on more favorable terms,21 a new loan from Russia for the energy sector was negotiated, the CBA withdrew a guarantee on a US$7 million nonconcessional loan, and the external debt of the telecommunications company was converted into equity. As a result, the stock of external debt (while increasing by US$20 million) declined to 43 percent of GDP. The stock of debt was broadly unchanged in the first half of 1999.

34. While Armenia’s debt has been rising, so has the share of debt on concessional terms. From about 26 percent in 1995, concessional debt increased to more than 60 percent of the total by end-June 1999. As a result, the net present value of Armenia’s outstanding external debt grew more slowly than its nominal debt, reaching 29 percent of GDP at end-1998.

G. Exchange and Trade System22

35. Armenia has maintained a very liberal exchange system. Access to foreign exchange is unrestricted, and the dominant market for foreign exchange is the interbank market. Armenia also maintains a liberal policy on foreign direct investment, which is set out in the 1994 Law on Foreign Investments. Corporate profits or proceeds from the sale of assets may be repatriated without restriction. Certain foreign investors enjoy tax benefits, although progress has been made toward uniform tax treatment of all enterprises.

36. Armenia has also pursued a liberal trade policy. The import regime is simple and relatively open, with a low tariff structure. There are no quantitative restrictions on imports or exports. Negotiations on Armenia’s accession to the WTO, which have been ongoing for several years, have now entered the final stage.

37. Since January 1995, Armenia has had two tariff rates—0 and 10 percent. Zero rated products include staple foods, fuel, essential pharmaceuticals, basic clothing, raw materials used in the production of exports, sugar, medical equipment, oil products and humanitarian aid. The latest revisions to the tariff schedule took place in January 1999, with the tariff being reduced from 10 to 0 percent for a few agricultural products, textiles and vehicles, and increased from 0 to 10 percent for a variety of raw materials and manufactured products. The net impact on the average tariff from this reform was minimal.

38. Nontariff restrictions are limited to the importation of goods that pose health, security or environmental hazards, such as weapons, nuclear materials and illegal drugs. Import license requirements are limited to medicines (subject to approval by the Ministry of Health), and agricultural chemicals (administered by the Ministry of Agriculture).23 Export licenses are required for textiles destined for the European Union (in accordance with an agreement with the EU), nuclear and nuclear-related products, technology with direct military applications, medicines, selected live animals and plants. There are no export subsidies.

H. Structural Reforms

39. Armenia has made significant progress in structural reforms. The Russian crisis and the uncertainty that it caused in early 1999 slowed these reforms, but the pace of reform has since started to recover.

Privatization

40. Enterprise privatization in Armenia began in 1994, and is guided by a Privatization Law. As of end-1997, about 60 percent (around 6,000) of all small enterprises, and about 60 percent (1,250) of all medium and large enterprises, had been privatized (Table 29). This is in contrast to the experience in many BRO countries, where progress on small-scale privatization has typically outpaced medium- and large-scale privatization. Most privatization receipts from the sale of enterprises to foreigners have been reserved in a Special Privatization Account (SPA) held with the CBA. The government is in the process of developing a medium-term plan for the use of the principle in this account.

41. In 1998, the pace of privatization slowed, reflecting both the fact that the medium-and large-scale privatization process had moved to some of the country’s largest companies, and the impact of the Russian crisis on investors’ interest. Despite this, more than 600 small enterprises and 200 medium and large enterprises were sold in 1998, bringing the total number of enterprises sold to 65 and 74 percent, respectively, of the pre-1992 stock of such firms. Key developments included the privatization or liquidation of remaining state-owned flour mills and bakeries, the privatization of the telecommunications company, the sale of two hotels to foreign investors, and the signing of a lease with an option to buy for the Yerevan Brandy Factory.

42. In the first quarter of 1999, the pace of privatization slowed further, as less than 100 enterprises (76 small enterprises and 16 medium- and large-scale enterprises) were sold. The government unsuccessfully attempted to sell a number of other enterprises. Privatization accelerated toward the end of the second quarter of 1999: the sale of the brandy factory was finalized; the government sold its remaining shares in a large commercial bank, and a major chemical plant, a precious stone company and a hotel were sold to foreign investors.

Banking and Payments System Reform24

43. Armenia’s banking system consists of the CBA and 31 commercial banks, including 3 foreign-owned banks. While Armenia’s commercial banks were characterized by large volumes of non-performing loans prior to 1996, significant progress has been made in improving the quality of their loan portfolio since then (Table 30 - 31; see also Chapter III). The strong economy allowed banks to raise earnings and accumulate capital, which in turn allowed them to write-off all pre-1996 non-performing loans at the end of 1997. Since end-1997, despite some accumulation of new non-performing loans, particularly after the onset of the Russian crisis, the level of non-performing loans has not exceeded 11 percent of total loans.

44. The level of both off-site and on-site supervision has increased. Following the introduction of a new chart of accounts in January 1998, all banks adhere to International Accounting (IAS) Standards. The CBA strengthened the prudential regulations in April 1999, raising the minimum general and core capital-adequacy ratios, respectively, to 12 and 8 percent, changing the risk weighting on some items, and reducing the maximum open foreign currency exposure from 40 percent to 30 percent.

45. There were a few cases of CBA forbearance of prudential requirements in 1998 and early 1999. Non-compliance has been facilitated by the low level of penalties and the relatively liberal policy of the CBA with regard to negotiating agreements for improved performance with banks not meeting prudential standards.25 In mid-1999, the CBA decided to increase penalties for failure to adhere to reserve requirements, to impose penalties automatically in the future for violation of prudential regulations, and to refrain from negotiating with banks in violation of prudential standards.

46. Most payments in Armenia are settled through CBANET, an electronic payments system based on the SWIFT format and covering the entire country. The CBA and major commercial banks also maintain access to international markets through the SWIFT system.

Energy Sector Financial Rehabilitation

47. Reforming the energy sector, and strengthening its financial position, has proven to be difficult. In September 1998, the government issued a decree including steps to be taken for the financial rehabilitation of the energy sector. The decree set forth a timetable, and assigned responsibility, for measures to reduce technical and commercial losses (including theft), improve energy generation efficiency, raise collections rates, and strengthen the management, accountability and reporting of the financial situation of the consolidated energy sector. As part of the reforms, on January 1, 1999, electricity tariffs were raised on average by 12 percent.26 In addition, the 1999 budget included ceilings on the electricity consumption of budgetary organizations, and electricity companies were instructed to cut off supplies to budgetary organizations exceeding these ceilings. Agreement has also been reached to sell part of the gas pipeline network in exchange for gas deliveries.

48. While there has been progress in reducing technical and commercial losses, collections have not increased as hoped (Table 32), and the authorities have continued to rely on noncash transactions to settle their outstanding liabilities. Cash collections actually declined sharply, from 77 percent of billings in 1998 to 67 percent of billings in the first half of 1999. While this poor performance was due in part to the fact that the budgetary appropriation for electricity consumption by budgetary organizations proved to be unrealistically low, there was also a slowdown in collections from households and commercial consumers in the first part of 1999. As a result of poor collections, the sector’s debts grew by almost dram 8 billion in the first half of 1999, reaching close to dram 110 billion (about 11 percent of GDP, or more than 100 percent of annual energy sector revenues).

49. In mid-1999, the authorities took a number of significant steps to improve collections. As most major debtors to the sector were budgetary or budget-dependant organizations—including the irrigation and drinking water sectors, district heating companies and a state owned chemical company—the government amended the 1999 budget to provide for full payment of the year’s electricity bills by these organizations. At the same time, to minimize the need for future reliance on the budget to cover the electricity consumption of these organizations, the government introduced a system for monitoring their cash flows; assigned responsibilities for the management, financial monitoring, and design and implementation of financial plans for these organizations; and issued a decree requiring state-owned energy companies to disconnect non-paying customers within 15 days of their bills becoming overdue, with penalties for non-complying managers of energy companies. The government also conducted an audit of the energy sector’s debts, and restructured those debts where possible.

50. Finally, the government has initiated the privatization of the energy distribution network. Tenders have been announced for the sale of parts of the electricity distribution system, with the aim of privatizing the electricity distribution system in 2000.

Civil Service Reform

51. Armenia has begun the process of gathering the necessary information to reform the civil service. During 1999, the government conducted a survey of civil service employees, by grade and ministry, as well as a comparator pay survey and pilot surveys in the health and education sectors. In addition, it has prepared a draft Civil Service Law, in cooperation with the World Bank, which is expected to be presented to parliament during 1999.

52. As part of the process of civil service reform, the government is seeking to reduce employment levels to make it possible to increase average compensation. During 1998, employment in budgetary organizations was reduced almost 9 percent, with a further reduction of about 5 percent in the first half of 1999.

II. Tax System Reform in Armenia

A. Introduction and Background

53. Despite a series of tax reforms following independence, Armenia found itself at end-1996 with a tax system which (i) was excessively reliant on direct taxes with rates that were too high, whether judged on their impact on economic growth incentives or in comparison to international standards; and (ii) produced too little revenue, which contributed to large fiscal deficits. Starting in 1997, Armenia started a second round of tax reforms, designed to address these fundamental problems. This chapter reviews the reforms implemented in the period 1997-1999, assesses their contribution to alleviating these problems, and discusses the unfinished agenda of reforms.

54. Armenia had initiated a first stage of tax system reforms in 1992, after the breakup of the Soviet Union. In this first reform stage, Armenia introduced a value added tax (VAT), a system of excise taxes, a reformed enterprise profit tax (EPT), and a personal income tax (PIT). Later, in mid-1995, land and property taxes were added. Despite these early reforms, Armenia’s tax system continued to suffer from systemic weaknesses in administration and the tax system continued to rely on a too narrow a tax base, which necessitated high tax rates. Armenia’s tax revenues prior to 1997 were significantly weaker than those of most other CIS countries; only Georgia, Tajikistan and the Kyrgyz Republic had lower tax revenues in relation to GDP than Armenia (Table 33).

55. The first stage of reform efforts failed to significantly increase revenue from indirect taxes, and by end-1996 direct taxes still accounted for almost half of total tax revenue (Table 34). VAT and excise revenues were particularly modest because (i) both taxes continued to be applied on the origin principle for imports from CIS countries;27 and (ii) collection procedures for taxes on domestically produced goods remained weak. In addition, direct taxes were adversely affected by the sharp decline in industrial production that followed the break-up of the Soviet Union, and the economic impact of the Nagorno-Karabagh conflict. Together with corporate tax laws poorly designed for a high-inflation environment, and non-transparent administrative procedures, these conditions further narrowed the effective tax base, and contributed to undermining compliance.

B. Tax System Reform, 1997-1999

56. Faced with high fiscal deficits and public complaints about unfair tax laws and enforcement, Armenia’s authorities initiated a second phase of tax system reform in mid-1997. Over the next two years, the authorities introduced a variety of tax legislation and administrative reforms. Their goals were to strengthen revenue performance by widening the tax base and enhancing administration, improve the system’s fairness and transparency, and redistribute the tax burden from direct to indirect taxes in order to foster growth.

Reform of Tax Policy

57. In 1997, the authorities adopted a two-tier reform strategy. First, they introduced measures to increase revenue from all taxes except the PIT and EPT. Second, they utilized part of the resulting revenue gain to streamline direct taxes and reduce the high marginal tax rates.

58. In the first part of the reform strategy, the most important step was to widen the tax base, in part by capturing an increasing share of the shadow economy. New excises were introduced on alcohol, tobacco products, petrol, diesel and cars, and the destination principle was applied on most imports. These measures contributed to an increase in revenues from indirect taxes by 4 ¾ percent of GDP. At the same time, revisions to the system of stamp duties, which introduced new duties and changed fees and their indexing mechanism, raised revenue further by almost 1 percentage point of GDP. To capture untaxed activities of the shadow economy, the authorities introduced a system of presumptive taxes for segments of the economy whose operations and profitability are difficult to monitor. These included retail shops, small kiosks, restaurants and other food services, and some transportation services. While these reforms were being implemented, a new simplified set of customs duties was adopted, with two rates: zero percent for most imported raw materials, and 10 percent for most manufactured and semi-manufactured goods.

59. The 1997 measures were followed by relatively minor amendments to the laws on VAT and excise (eliminating the excise on cars) in mid-1998, as well as more significant amendments to the law on presumptive taxes which raised revenues by about ½ percent of GDP on an annual basis. There was a considerable broadening of the presumptive tax base to include new professional activities, and an increase in presumptive tax rates.

60. The strong revenue impact of the above measures enabled the authorities to take the risky but important step of implementing the second part of their reform strategy: the reform of direct taxes with the goal of reducing the tax burden on business and individuals, thereby enhancing the fairness of the system and providing incentives for growth. Beginning in 1998, new EPT and PIT laws became effective. The former reduced the tax rate from 30 percent, to 15 percent for the first 7 million drams of taxable profit and to 25 percent from the remaining taxable profit. The new law also allowed for the deduction of necessary and proven expenditures (including social security contributions, insurance payments, interest payments on loans, and production related expenses), a favorable treatment of depreciation allowances (1 to 20 year depreciation periods), and the carry-forward of losses for an unlimited period. The new PIT law set tax rates of 15 percent, 25 percent, and 30 percent depending on the level of income. A tax-exempt income threshold of dram 8,000 per month was also established; this was raised to dram 17,000 per month in 1999 (the estimated cost of the minimum food basket as of January 1, 1999). However, despite these far-reaching reforms, the impact on tax revenue was limited, with revenue from direct taxes falling only from about 6 percent of GDP in 1996 and 1997 to 5¾ percent of GDP in 1998.

61. The onset of the Russian crisis in August 1998 added new urgency to the need to enhance revenue collections in Armenia. As industrial production and imports declined in the wake of the crisis, revenue performance was disappointing in late 1998 and the first half of 1999. Combined with problems in the treasury bill market, related to the impact of the crisis on investor confidence, this led to problems in the execution of the budget and the accumulation of payment arrears. To address this problem, and further enhance revenues, the authorities significantly raised excise taxes on cigarettes, as well as the hazardous goods tax on gasoline.28 In a further tax reform initiative in late 1998 and the first half of 1999, changes were also made to the environmental taxes and fees. New taxes and fees were introduced, and the level of existing taxes and fees were raised to reflect more appropriately the societal costs of pollution and resource exploitation. Wherever feasible, indexation mechanisms for nominal fees were introduced to protect tax revenue from inflationary erosion.

Administrative reforms

62. The main goal of the administrative reform efforts has been to improve collection efficiency by enhancing the skills and compensation of tax and customs officials, strengthening and integrating automated data storage and analysis facilities, increasing the effectiveness of audits, and improving relations between taxpayers and tax authorities in an effort to increase voluntary compliance. The Law on Taxes, enacted in April 1997, defined the rights and responsibilities of taxpayers, regulated their relations with tax authorities, introduced more realistic penalties and fines, and established new appeals procedures. The law was supplemented by a strategic action plan for the Tax Inspectorate, whose main elements included the establishment of guidelines for increased performance control of regional offices; increased emphasis on voluntary compliance, with stricter sanctions for those who knowingly engage in non-compliant activity; better provision of services to taxpayers; and the introduction of improved auditing procedures, with a particular focus on large taxpayers.

63. To improve the focus of administrative resources, the authorities introduced a minimum turnover threshold for VAT taxpayers, which is now dram 3 million. Taxpayer identification numbers were introduced, and automated information systems were installed in the Customs Department and Tax Inspectorate. To improve transparency in retail sales, the use of cash registers was required by government decree.

64. Important organizational changes include (i) the establishment in 1998 of the High Level Committee on Tax Arrears (HLC), chaired by the Primer Minister. The HLC was to address and resolve expeditously the most complicated and largest cases of tax arrears, which typically involved poorly performing large state-owned enterprises. By end-June 1999 75 cases had been processed and resolved. However, the success of this committee in terms of revenue has been limited; and (ii) the establishment in mid-1999 of a Ministry of Revenues, which combined the Tax Inspectorate and the Customs Department. The aim of this reform is to more closely coordinate operations and share information. Furthermore, to improve collections in the Customs Department, the authorities in mid-1999 selected an international private company to conduct pre-shipment inspections.29

C. The Impact of Reforms

65. The reform efforts in 1997 and 1998 led to a noticeable improvement in tax revenue performance, both in absolute terms and compared to other BRO countries. Armenia’s overall tax revenues rose from about 13 percent of GDP in 1996 to 17 percent of GDP in 1998. While in 1996 Armenia’s tax revenues were lower than all but three BRO countries, and almost 6 ½ percent below the average of BRO countries, by 1998 Armenia’s tax revenues placed it in the middle of 12 BRO countries (excluding Belarus, Turkmenistan and Uzbekistan, which had not yet seriously begun the reform process), about 2 percent below the average of BRO countries.

66. This achievement is particularly significant, as it coincided with a reduction of the corporate and personal income tax rates, thereby contributing to the goal of enhancing incentives for economic growth. Combined, the broader tax base, lower tax rates and improved and more transparent tax administration have also improved the perceived equity of the system.

D. Remaining Items on the Reform Agenda

67. Armenia has made substantial progress in tax reform in recent years, moving toward its dual goals of increasing revenues, and enhancing the environment for economic growth. In addition, the broadening of tax bases and reduction of tax rates, although not complete, has already contributed to a perception of a fairer tax system. Now Armenia needs to tackle the remaining issues on tax reform and increasingly turn its attention to improving tax administration, in particular tax enforcement and taxpayer relations

68. To complete the reform of the tax base and tax rates, the Armenian authorities will need to address several issues including reform of the tax base and tax rates, the applicability of the VAT to the agricultural sector, the reduction and eventual elimination of remaining tax exemptions and holidays, and the abolishment of low yielding taxes.

69. Regarding efforts to further improve the tax and customs administrations, the recent establishment of the Ministry of Revenue should facilitate the much needed integration of the information and monitoring systems of the Tax Inspectorate, the Customs Department, and the collection arm of the State Fund for Social Insurance.

70. Regarding efforts to further improve the relations between the tax authorities and taxpayers, two recent experiences have shown how reform progress can suffer under pressures to produce revenue by relatively ad hoc means. In early 1999, the authorities experimented with a system of negotiated tax payments as a way to collect from taxpayers who have proven to be the most difficult to monitor. This experiment produced little revenue, and the government quickly abandoned the practice. Similarly, in an attempt to achieve revenue targets, in mid-1999 tax inspectors reportedly pressed for prepayments of tax liabilities from some taxpayers. These episodes demonstrate the fragility in the progress to date in improving both tax administration and the relations between the tax authorities and taxpayers.

71. The adoption of a rules-based system of voluntary filings and tax payments, supported by customer-oriented tax services should be accelerated so as to replace tight and at times seemingly arbitrary controls by inspectors. The appropriate penalties for non-filing, tax evasion, and tax avoidance need to be provided primarily by effective automated controls, and well targeted but tough rule-guided audit and enforcement actions. In this context, it would be important to develop a detailed code-of-conduct for tax inspectors and customs officials.

72. Finally, one important administrative constraint for the collection of tax arrears has been shortcomings in the institutional framework, and a lack of resources, for the efficient initiation and execution of bankruptcy and confiscation proceedings. Because of a lack of trained executors and judges, the sale of confiscated property and the handling of bankruptcy cases has been difficult. To encourage voluntary compliance with tax laws, with credible penalties for non-compliance, it will be important to improve the administrative and judicial capacity to handle cases of bankruptcy and liquidation.

III. Armenia: Banking Sector Vulnerability Assessment

A. Introduction

73. Armenia’s banking sector in 1999 consists of thirty-one commercial banks, down from seventy-two banks in 1994. There are three foreign-owned banks, one of which is Armenia’s largest bank in terms of capital. The banking system has expanded significantly over the last four and a half years, but the system remains relatively small; in mid-1999 total bank assets amounted to US$290 million, or about 15 percent of GDP. Claims on the economy relative to GDP, representing about half of total assets, were about the same level as in Georgia and among the lowest in the BRO countries. As the Armenian economy develops, it will be very important to ensure that the banking system is sound and able to provide the services required by a growing market economy. This chapter provides a preliminary assessment of the vulnerability of the Armenian banking system to various types of risks and its ability to cope with the consequences in case such risks materialize.30

B. Framework for Vulnerability Assessment

74. The financial vulnerability of a banking system is a function of two general factors: its exposure to risks of various kinds, and its ability to absorb losses in the event those risks materialize. In general, banks face a number of risks, including those related to (i) macroeconomic instability; (ii) foreign exchange exposure; (iii) commercial default; (iv) excessive exposure individual borrowers or sectors; and (v) maturity mismatch between a bank’s assets and its liabilities. A bank’s ability to absorb losses related to these risks depends on the bank’s profitability, its capital/asset ratio, the extent of its provisioning against possible bad debts, and its liquidity. The banking supervisory authority—in this case the CBA—has at its disposal, and must efficiently use, instruments with which to affect both the banking system’s exposure to risks and the ability of the system to absorb potential losses. In what follows, the vulnerability of the Armenian banking system (but not of individual Armenian banks) is assessed, with regard to the factors indicated above. In addition, this chapter highlights areas where the CBA has already taken action to reduce the vulnerability of the system as well as those areas where additional actions may be required.

C. Risks Facing the Armenian Banking System

75. After the difficult initial years of transition up to 1994, the Armenian financial system has benefited from four and a half years of economic recovery, declining inflation and a relatively stable exchange rate (Figure 8). Even while confronting the Russian crisis, which has led to severe economic problems for many of the BRO countries, Armenia’s GDP growth remained strong, inflation low, and the exchange rate fairly stable. As a result, Armenian banks have confronted a comparatively moderate risk related to the overall macroeconomic environment. However, this relatively limited risk must be qualified, as real interest rates on both dram and dollar lending operations have remained at extremely high levels (Figure 9). High real interest rates represent risks to banks, as they may foster adverse selection, with only the most speculative potential borrowers willing to pay such rates. Any decline in general economic activity may be disproportionately felt by these high-risk borrowers, leading to their financial distress and eventual default.

Figure 8:Armenia: Selected Macroeconomic Indicators

Sources: National authorities and Fund staff estimates.

Figure 9:Armenia: Nominal Interest Rates on Lending 1/

Sources: National authorities and Fund staff estimates.

1/ 3-month moving average.

76. Despite this recent macroeconomic stability, banking intermediation in Armenia has increasingly been denominated in foreign currency,31 and banks have been allowed to maintain large aggregate foreign open positions (Figure 10).32 This has rendered Armenian banks particularly vulnerable to risks associated with large foreign exchange exposure. In an attempt to limit this risk, the CBA decided to limit, effective April 1, 1999, banks’ foreign open position to 30 percent of total capital, down from 40 percent. The foreign open position is expected to be reduced as the authorities intend to lower the limit to 25 percent in January 2000.

Figure 10:Armenia: Overall Banking System Foreign Currency Risk

Sources: National authorities and Fund staff estimates.

77. The indirect exposure of the banking system to foreign currency risk is also a source of concern. Banks in Armenia rely heavily on foreign borrowing to lend domestically in foreign currency, and most of the foreign currency borrowers are themselves exposed to foreign currency risk. In the event of an external shock, leading to a sharp depreciation in the exchange rate, these borrowers may become financially distressed and default on their loans. As a result, the level of non-performing loans held by banks would rise and bank’s balance sheets would deteriorate. Moreover, even where the borrower has no other foreign exchange risk in his business, depreciation would drive up the cost of servicing the foreign currency denominated bank loans, increasing the risk of default. While the long record of stability in the exchange rate of the dram provides some comfort that economic policy will continue to be consistent with a relatively stable exchange rate, and thereby reduces the risk related to potential exchange rate volatility, it does not eliminate it.

78. The strong economic performance of recent years has also contributed to reduce microeconomic risks. Notwithstanding the temporary deterioration in the quality of banks’ portfolios in the first quarter of 1999, the level of non-performing loans is historically low. As of June 1999, around 88 percent of total loans were classified as standard loans, 7 percent were classified as substandard and 5 percent were doubtful loans (Figure 11). It should be noted, however, that the recorded low level of non-performing loans may understate the true level of risk, as the current classification is based solely on the number of delinquent days and the nature of the collateral. In order to improve the quality of loan monitoring, the CBA will soon introduce an improved loan classification system, whereby the classification and required provisioning will also rely on the banking supervisory authority’s subjective assessment of the financial position of the borrower and its capacity to repay the loan.

Figure 11:Armenia: Banking System Loan Portfolio

Sources: National authorities and Fund staff estimates.

79. The risks associated with commercial default would arise from a possibly overly optimistic assessment of the capacity to repay of private sector enterprises. Over the last two years, credit to the economy has risen by 40 percent annually (30 percent in real terms) owing to an increase in lending to a growing private sector (Figure 12). While such growth could be considered a positive factor, there is the risk that banks have assessed the creditworthiness of these companies on the basis of their performance during the recent period. On the other hand, the declining share of loans to state owned enterprises (SOEs)33 should help mitigate the default risk facing the banking system.

Figure 12:Armenia: Banking System Balance Sheet Indicators

Sources: National authorities and Fund staff estimates.

80. In order to limit the risk of an insufficiently diversified portfolio of loans, the CBA maintains a limit on a bank’s lending to a single borrower of no more than 20 percent of capital. In recent times, however, this important prudential requirement has been breached by wide margins, as some banks have extended loans to SOEs, especially those in the energy sector, which were several times greater than the bank’s capital. Stricter enforcement of the single borrower’ limit should foster further diversification of the loan portforlio.

81. Maturity differences between loans and deposits remain small in Armenia. Most lending activities by Armenian banks have relatively short maturities, with the average maturity of loans currently around 5 months (Figure 13). Therefore, the risk coming from a maturity mismatch between lending and deposit activities is insignificant. However, with a likely increase in the average maturities for loans that could be expected with further macroeconomic stabilization, the maturity mismatch for banks could grow significantly. Thus, the decision by the CBA to raise on April 1, 1999 the minimum ratio of liquid assets to demand liabilities from 40 percent to 60 percent is a sound precautionary step toward a better management of liquidity risk.

Figure 13:Armenia: Overall Banking System Liquidity

Sources: National authorities and Fund staff estimates.

D. Ability of the Armenian Banking System to Absorb Losses

82. The strong economic performance of recent years has helped banks to greatly improve their capacity to absorb losses. Despite a reduction in banking intermediation margins and the recent adverse impact of the Russian crisis on economic activity, the profitability of the banking system remains high. Banking intermediation margins have declined continuously over the last four years, as lending rates have fallen faster than deposit rates, but they still remain high, at about 20 percent (Figure 14). A major factor behind the decline has been increased competition, especially from a leading international bank.

Figure 14:Armenia: Overall Banking Profitability and Market Assessment

Sources: National authorities and Fund staff estimates.

1/ Defined as the difference between a weighted average rate on lending and a weighted average rate on deposits.

2/ Defined as the difference between the 3 month dollar deposit rate in Armenia and the 3 month Libor dollar deposit rate

83. On the strength of high earnings, banks were able in 1996 and 1997 to write-off all pre-1996 non-performing loans, while raising their level of capital (Figure 15). With the completion of this write-off process, banks improved their profitability in 1998. Total banking system earnings in 1998 amounted to US$10 million, with an average return to equity of 24 percent and a return to assets of 3 percent. Following the onset of the Russian crisis, new provisioning led to overall losses in the first quarter of 1999. Recent data indicates, however, that the level of profitability in the second quarter is back to the level prevailing in 1998.34

Figure 15:Armenia: Overall Banking System Capital

Sources: National authorities and Fund staff estimates.

84. The growth of total banks’ capital over the past few years has been impressive, increasing from dram 3.5 billion at the beginning of 1995 to about dram 28 billion in mid-1999 (about US$53 million). As of end-July 1999, the 12-month growth rate of capital was about 50 percent. Such growth is expected to continue, with further planned increases in the total required minimum capital from US$0.8 million currently to US$2.0 million by 2003. As a result of the increase in capital, and the high proportion of treasury bills in their portfolios, capital adequacy ratios for the banking system are significantly above the minimum required. Total capital to risk weighted assets for the system stands at 27 percent, about 15 percentage points above the new floor of 12 percent, while the core capital to risk weighted assets ratio, at 25 percent, is more than three times the floor of 8 percent.35

85. The capital adequacy ratios may, however, be somewhat overstated, reflecting some under provisioning for bad loans. As of end-May 1999, the level of provisioning against classified substandard and doubtful loans was equivalent to about 25 percent of the total value of such loans. This level of provisioning may be too low because (i) the risk weight attached to government guaranteed loans is zero, and (ii) the mechanical nature of loan classification procedures may underestimate the true level of substandard loans.

86. In addition, the level of liquidity in the banking system, usually a good leading indicator of banking distress as well as a measure of the system’s short-term ability to absorb losses, has declined modestly in the last year. The ratio of highly liquid assets to total assets declined to 35 percent in July 1999 from 37 percent a year ago; likewise, the ratio of highly liquid assets to deposit liabilities decreased by two percentage points, but remains quite high at 88 percent.

87. The decline in liquidity was connected to the inadequacy of the penalty rate for deficiencies on required reserves. In Armenia, banks’ demand for liquidity is often met through Lombard operations, although on occasion banks achieve this by breaching the legal reserve requirement. In 1998, banks’ excess reserves held at the CBA averaged about dram 2 billion (about 20 percent of banks’ deposits). In the first half of 1999, however, on average banks’ required reserves held with the CBA were approximately 10 percent below the required level. While some banks may have genuinely lacked the liquidity to meet their required reserves, there was a built-in incentive to invest the reserves in other assets and pay a penalty on any shortfall, as the penalty rate was set in line with the CBA refinance rate, which was consistently below the treasury bill rate. To prevent this in the future, the CBA has raised the penalty for shortfalls in required reserves, beginning in August 1999, to well above the treasury bill rate. Following this change, banks have reconstituted their level of reserves at the Central Bank to the required level.

E. Market Assessment and Future Prospects

88. Market confidence in the Armenian banking system improved fairly steadily over the period 1996 to 1999, as indicated by a decline in the risk premium. The risk premium, as proxied by the spread between three-month deposits rates offered by Armenian banks on dollar deposits and Libor deposit rates for similar maturities, is estimated at end-June 1999 at around 18 percent, down from 30 percent three years ago and roughly the same as before the onset of the Russian crisis.36 Recent trends in the currency/deposit ratio—an alternative indicator of market assessment—gives a similar result, as it has declined from 1.5 at end-March 1996 to 0.9 at end-June 1999.

89. The market assessment reflected in the risk premium and the currency/deposit ratio is consistent with the above vulnerability assessment, which indicates that the level of risk facing the banking system is declining. The strong macroeconomic performance in recent years has reduced the exposure to risks related to macroeconomic instability. While there is still considerable exposure to foreign exchange risk, it has been somewhat tamed by the stability of the exchange rate in recent years. Exposure to microeconomic risks has also declined in the last few years.

90. Equally important, indications are that the ability of the banking system to absorb losses is robust and rising. Profitability has remained high, and has contributed to strong capital adequacy ratios. While liquidity has declined somewhat, it is still adequate. And, while loan loss provisioning may currently be insufficient, the CBA is taking steps to improve provisioning. Indeed, the CBA is proceeding in a number of areas to reduce risk and increase the strength of the banking system.

91. While the overall picture is encouraging, neither the CBA nor the Armenian banks can afford to be complacent. Banks will have to adjust to an increasingly competitive environment in the coming years. Also, with the likely further development of capital markets in the context of an open capital account regime, new and diverse risks are likely to emerge for banks. This will require the CBA to continuously upgrade its supervisory capacity, strengthen prudential requirements, and forcefully penalize non-complying banks. Only with continued vigilance can the CBA ensure continuing improvements in the health of the banking system in Armenia.

Armenia: Summary of Tax System (as of September 1st, 1999)(All values in drams)
faxNature of TaxDeductions and ExemptionsRates
1. Taxes on consumption and production
1.1VALUE-ADDED TAXVAT shall be charged on any supply of goods and services or import of goods and services as well as on own-consumption of a taxable person. The tax base is price plus excise taxes on domestic goods and customs value plus excise taxes for imported goods.

Input tax credit: Credit is allowed for VAT accrued on raw materials, fuel and services involved in production and sales as well as on capital assets. This credit is allowed on immediate basis if the value of the asset is no more than 10 million drams or over a six-month period in equal installments if the value of the asset is over 10 million drams.

In principle, goods from other countries are taxed and exports are zero-rated (destination basis).

The annual threshold for VAT is equal to AMD 3 mln.
Exemptions: sales of stamps; housing rental by individuals; urban electrical transport; rent of leased enterprises organized on the basis of state enterprises; circulation of currency and securities; services for which state duties are charged; goods and services imported as humanitarian aid and for charitable purposes; agricultural products supplied by the producer; scientific services, children s schoolbooks; government sale of confiscated goods, medical services.20 percent standard rate.

Zero-rated: exports, nonresident diplomatic purchases.
1.2EXCISESAll excise rates are ad valorem. Domestic production as well as imports are quoted on a tax exclusive bases. The tax is payable by producers or importers of excisable goods.

A minimum excise tax is set for some imported goods: the tax amount per liter of goods under code number 2203 shall not be less than dram equivalent of $0.35; per liter of alcohol under the code numbers 2204, 2205, and 2206 - dram equivalent of $1.5; per liter of alcohol under the code number 2207 - $1.2; per liter of alcohol under the code number 2208 -S3.75.

Specific taxes apply for cigarettes and gasoline.
Exemptions: Sale of goods for export; Goods imported by officials of foreign embassies, and consulates for official use; goods imported by, diplomatic personnel, administrative/technical staff of diplomatic representative offices, consul, consulate personnel and members of their families for personal use; Goods imported by individuals, if less than the taxed quantity, as defined by customs legislation; Goods on transit through Armenia; Goods imported to Armenia within the framework of humanitarian assistance, and relief programs; Goods imported to Armenia temporarily, to be kept under the Custom House control, as in accordance with the legislation; Goods imported to Armenia, which were previously temporarily exported.fish caviar … 200

beer … 50

wine … 50

alcohol … 125

cigarette products … 100

petroleum… 35

diesel fuel … 10

clothes from natural leather… 25

natural fur & items made of it

jewelry … 15

crystal and porcelain items… 25
1.3SPECIFIC (PRESUMPTIVE) TAXES ON CIGARETTES AND PETROLEUMA specific tax for cigarettes (including VAT. excise and customs duties for imports, and VAT and excise for domestic production) and for gasoline (including excise and VAT) is effective.The rate for filtered cigarettes is (per 1,000 items) US$ 15 for imported and USS12 and AMD 1,100 for domestic filtered and filter less, respectively

The rate for gasoline is US $ 120 per ton.
1.4ENVIRONMENTAL [‘AXESSpecific taxes and ad valorom taxes are imposed on economic activities and materials which either expliot or pollule natural resources.Rates vary depending on activity and substance. A hazardous material tax is imposed on many oil based and other products. For gasoline this tax amounts to 44 percent of import value.
2. Taxes on income and wealth
2.1ENTERPRISE PROFIT TAXResident legal entities are taxable on their taxable profits from all sources world-wide. Foreign legal entities operating through representations in Armenia arc taxable on the taxable profits derived by the representations in Armenia as well as on income independently received from Armenian sources.

The taxable profit is positive difference between gross income of taxpayer and deduclions, envisaged by the Law.
Deductions: income related expenses - particularly the following shall be considered as expenses: material expenses; labor reimbursement; pension, unemployment, social security payments; depreciation of fixed assets; insurance payments; taxes, duties, other obligatory payments which are not subject to compensation (or netting): interest on loans, or other borrowings; fee for guarantees, letters of guarantee, LCs, and other-banking services: advertisement expenses; representative expenses; business trip expenses; court expenses; reimbursement against incurred losses; fines and penalties, unless envisaged otherwise in this Law; expenses on staff recruitment; auditing, legal, other information and administrative expenses; factoring, trust expenses; negative balance of foreign exchange revaluation; expenses within the previous three years found to be shown in a lesser amount costs of production, depreciation of fixed assets; the amount of any losses that are the result of selling or exchanging property.

Unlimited loss carry forward is allowed.

If the share of a foreign investor in the equity capital of a resident (except banks) is at least dram 500 million after January 1, 1998. then the amount of the tax of the resident is reduced by 100 or 50 percent for the next up to ten year depending on the time the investment is made.
15 percent, if the annual taxable profit is less than AMD 7 mln, and AMD 1.05 mln plus 25 percent of the amount exceeding AMD 7 mln.
2.2PERSONAL INCOME TAXResident are liable for income tax on their world-wide income. Non-residents are taxable on the income derived from a limited number of Armenian sources.

The following monetary (in drams officially in circulation in the Republic of Armenia, as well as in foreign currency) and in-kind income received by individuals shall be subject to taxation: income derived from implementation of labor and civil and legal agreements; author’s royalties; income derived from business activities; income derived from leasing of property; income derived from share capital participation, securities and deposit payments, as well as other income. In-kind (non-monetary) income shall be taxed in compliance with market prices.

Tax on Armenian-source income is normally withheld at source. Income from an overseas source is assessed on a annual basis.
Nontaxable income: state benefits paid according to legislation of RA except allowances for temporary work disability and for care of a sick family member, unemployment benefits, pregnancy and maternity allowances are also classified as not-taxable income; compensation paid for injuries and health problems or death occurred during performance of work obligation as described in legislation of RA; compensation paid according to legislation of RA for job loss; all types of pensions paid according to pension legislation of RA as well as additional pensions paid for voluntary pension insurance; compensation paid only once to families of disabled or killed serviceman according to legislation of RA; death allowances paid only once; payment to physical entities for donated blood, breast milk, etc.

Deductions: equity interest (from share, stock); dividends; compensation paid within the norms specified in the legislation of RA except payment for unused vacations in case of quitting work; property and cash inherited from or gifted by physical persons; contribution (relief) to physical persons in cash and kinds from NGOs including benevolent, religious and non-profit organization as well as from trade unions that have state registry according to legislation of RA and are registered at State Tax Inspectorate of RA; amounts of relief paid according to decisions of the government of RA, regional and local governments as well as paid by foreign countries and intergovernmental international organizations; amounts that are described by law as grants; winnings, bonuses not exceeding ten thousand dram each from lottery and other prize games organized according to conditions and rules specified in legislation of RA; value of prizes (in cash and kind) not exceeding ten thousand drams received at competitions and contests; amount of proceeds from selling personal property by physical persons with the exception of selling the property not for entrepreneurial purposes; the amount of positive nominal value and purchasing price of privatization certificates bought by physical entities and invested according to procedure as described in law; scholarship and stipends to graduate students, students of higher educational establishments, vocational and technical schools.
The rates as of April 1, 1999 are the following

Annual taxable income less than dram 204,000 - 0 percent;

Annual taxable income form 204,000 to 324,000 15 percent of the amount above dram 204,000;

Annual taxable income form 324,000 to 524,000 dram 18,000 plus 25 percent of the amount above dram 324,000;

Annual taxable income above 524,000 dram 68,000 plus 30 percent of the amount above dram 524,000.
2.3MANDATORY SOCIAL SECURITY CONTRIBUTIONSWithholding is required for monthly contributions to pensions, unemployment, social security and medical funds.For employers - 28 percent of paid wage, but not less than 2,500 dram and not more than 20,000 dram per employee.

For employees - 3 percent of wage.
2.4LAND TAXFor agricultural land, the tax is based on net income, determined by the land cadasteral valuation. For other land, the tax is based on the land cadasteral value.Exemptions: Budget institutions and organizations; state reserves, national parks, botanic gardens, and lands historic-cultural importance, farmers and collective economies formed during land reform and privatization for the two years following the month of land property right; state land of general use, educational-industrial and experimental plots attached to colleges and schools.

A 50 percent exemption applies to certain lands used for scientific, educational, and agricultural and forest cultivation programs; and citizens exempt from income tax (currently there is no such exemption).
Land of agricultural use: 15 percent

Non-agricultural land:

Land of industrial importance, transportation, communication, broadcasting, television, defense, gas lines, water funds: within settled area - 1 percent, and outside of settled area - 0.5 percent.

land for forest stocks 1 percent

Other land 1 percent
2.5PROPERTY TAXThe tax is paid for buildings and transportation means.

The tax base for buildings is the value as assessed according to the law, and the tax base for transportation means is the engine power (horse power, HP, or kilowatt)
Exemptions:

a) the property of budget organizations and institutions;

b) communication roads (including motor ways), communication and power transmission lines, as well as property used for the purpose of their direct operation.

c) water reservoirs.

Deductions: for vehicles manufactured more than 3 years before, the tax amount is reduced by 10 percent for each year above 3, but not more than 50 percent of the total tax amount.
Residential buildings: 0-0.8 percent according to scale; other buildings: 0.6 percent

Air transport: AMD 200 per HP, or AMD 272 per 1 kilowatt of the engine; water transport: AMD 150 per HP, or AMD 204 per 1 kilowatt; wheeled or caterpillar vehicle: AMD 30 per HP, or AMD 40.8 per 1 kilowatt.

Trucks and buses: AMD 100 per HP if engine capacity is less than 200 HP, and AMD 200 per HP if engine capacity is over 200 HP

Passenger vehicles: AMD 200 per HP, if the capacity less than 120 HP, AMD 400 per HP if the capacity is 120-250 HP, and AMD 500 per HP if the engine capacity is over 250 HP.
3. TAXES ON INTERNATIONAL TRADE
3.CUSTOMS DUTIESCustoms duties are levied on all physical and legal entities importing in and exporting from Armenia.Exemptions from customs duties are as follows: transit of goods through the territory of Armenia, temporary imports of goods on the territory of Armenia.

A deduction for individuals applies for goods worth no more than US$500 and weighing not more than 50 kg.

The individuals who arrive in the Republic of Armenia with the intention of permanent living, may import into the Republic of Armenia their belongings without payment of customs duties.

The citizens of the Republic of Armenia may import into the customs territory of the Republic of Armenia their inheritance property (received abroad) without payment of customs duties after submission to the customs bodies of the Republic of Armenia the corresponding documents of inheritance.
Exports are zero-rated.

Imports of almost all finished products (consumption goods) is taxed at 10 percent, and all other goods (including raw materials, machinery, equipment, pharmaceuticals) are generally 0 rated.
4. PRESUMPTIVE (SPECIFIC) TAXES FOR SOME BUSINESSES
4.PRESUMPTIVE PAYMENTSThe law has established presumptive taxes replacing VAT and/or profit (income) tax for the following activities:

a) trading activity conducted in shops, and booths with total area at least 30 square meters;

b) the activity on arranging trading place:

c) transportation activities;

d) haircutting services;

e) the activities of photo laboratories; 0 the activities of gas stations;

g) retail sale of petrol and diesel;

h) parking places

i) commercial fishing

j) exchange offices;

k) foreign exchange dealers;

l) casinos;

m) computer games;

n) video-recorders, and films.
Rates vary according to the activities and basic parameters.
Table 2.Armenia: Real Gross Domestic Product Growth, 1994-99
199419951996199719981998 1/1999 1/
Q1Q2Q1Q2
(At 1996 prices, millions of dram)
Gross domestic product584,261624,575661,209683,168732,08092,662146,49796,925153,969
Industry149,335153,217154,903156,916152,83627,92542,88026,78046,010
Agriculture216,893225,569230,069219,716247,45417,38644,94317,87243,729
Construction41,26638,87348,67750,57756,1403,62810,0415,90213,887
Transport and communication 2/31,36234,37340,26043,96447,4816,2815,1286,4124,964
Wholesale and retail trade32,61256,41962,95566,10370,13513,5528,86815,27310,491
Other92,64890,37987,88190,66596,37212,88821,32313,24121,720
Taxes20,14625,74636,46555,22861,66211,00413,31411,44413,168
(In percent change over same period previous year)
Gross domestic product5.46.95.93.37.26.46.94.65.1
Industry9.62.61.11.3-2.64.32.5-4.17.3
Agriculture3.14.02.0-4.512.6-4.1-0.42.8-2.7
Construction5.4-5.825.23.911.0-21.034.962.738.3
Transport and communication 2/-4.29.617.19.28.010.511.82.1-3.2
Wholesale and retail trade60.273.012.55.06.12.118.912.718.3
Other services 3/-2.2-2.214.63.26.38.516.52.71.9
Taxes-2.2-72.214.651.511.662.68.64.0-1.1
Source: Ministry of Statistics.

Seasonally unadjusted.

Includes passenger transport only during 1994-95

Includes the government sector

Source: Ministry of Statistics.

Seasonally unadjusted.

Includes passenger transport only during 1994-95

Includes the government sector

Table 3.Armenia Quarterly Real GDP 1997-99
199719981999
Q1Q2Q3Q4YearQ1Q2Q3Q4YearQ1Q2
(in 1996 average price, millions of Drams)
GDP87,089137,019226,533232,528683,16892.662146,497242,911250,009732,08096,925153,969
Industry26,77341,83542,55845,750156,91627,92542,88040,93441,097152,83626,78046,010
Agriculture18,12145,12693,53962,931219,71617,38644,943115,02170,105247,45417,87243,729
Construction4,5927,44214,34024,20250,5773,62810,04113,96328,50856,1405,90213,887
Transport’ communication5,6844,58713,81819,87643,9646,2815,12814,26921,80347,4816,4124,964
Trade’ services13,2737,45716,55428,81866,10313,5528,86816,75830,95770,13515,27310,491
Otheresectors11,88118,31031,50928,96690,66512,88821,32326,60735,55596,37213,24121,720
Taxes6,76612,26214,21621,98555,22811,00413,31415,35921,98461,66211,44413,168
(percent change)
GDP3.02.13.44.13 36.46.97.27.57.24.65.1
Industry-2.5-2.66.33.01.34.32.5-3.8-10.2-2.6-4.17.3
Agriculture0,7-2.5-6.9-3 6-4.5-4.1-0.423.011.412.62.8-2.7
Construction29.4-11.719.6-2.13.9-21.034.9-2.617.811.062.738.3
Transport/communication3.14.8-1.321.49.210.511.83.39.78.02.1-3.2
Trade/services3.24.06.85.05.02.118.91.27.46.112.718.3
Otheresectors7.56.95.9-3.33.28.516.5-15.622.76.32.71.9
Taxes9.855.195.045.551.562.68.68.00.011.64.0-1.1
Source: Ministry’ of Statistics
Source: Ministry’ of Statistics
Table 4.Armenia: Gross Domestic Product, 1994-99
199419951996199719981998 1/1999 1/
Q1Q2Q1Q2
(In current prices, millions ofdram)
Gross domestic product187,064522,285660,311798,555951,901117,681180,103122,651140,801
Industry54,495126,731156,9510192,056207,45238,23357,98637,87646,010
Agriculture81,304202,135217,594244,287295,62819,94360,77617,52843,729
Construction12,50844,51263,12464,24280,9364,83313,5788,50813,887
Transport and communication 2/7,83822,64631,02343,33048,5286,4126,9357,1364,964
Trade8,42349,78163,26272,99282,40116,41311,99217,01810,491
Other services 3/22,49676,480128,328181,648236,95731,84728,83534,58521,720
(Share in total; in percent)
Gross domestic product100.0100.0100.0100.0100.0100.0100.0100.0100.0
Industry29.124.323.824.121.832.549.330.939.1
Agriculture43.538.733.030.631.116.951.614.337.2
Construction6.78.59.68.08.54.111.56.911.8
Transport and communication 2/4.24.34.75.45.15.45.95.84.2
Trade4.59.59.69.18.713.910.213.98.9
Other services 3/12.014.619422.724.927.124.528.218.5
Source: Ministry of Statistics.

Seasonally unadjusted. Q2 data are derived from figures in constant 1996 prices and average CPI inflation.

Includes passenger transport only in 1994-95.

Includes government.

Source: Ministry of Statistics.

Seasonally unadjusted. Q2 data are derived from figures in constant 1996 prices and average CPI inflation.

Includes passenger transport only in 1994-95.

Includes government.

Table 5.Armenia: Production of Selected Agricultural Products, 1994-99(In thousand tons, unless stated otherwise)
199419951996199719981998 Q11999 Q1
HectaresOutputHectaresOutputHectaresOutputOutputOutput
Grains238.1262.7183,869.0328.4199,119.0258.3198,744.0325.731.332.3
Of which Wheat:152.9153.892,840.0201.4113,554.0178.7124,307.0239.129.830.0
Potatoes417.2427.732,645.0423.232,875.0359.832,736.0440.020.622.9
Vegetables424.3450.921,037.0444.521,721.0369.019,290.0395.245.846.9
Fruit127.5146.134,139.0158.224,941.0108.821,604.0126.715.29.0
Grapes212.4154.921,850.0158.517,758.0107.715,725.0106.0
Beef and poultry79.082.482.686.039.035.1
Milk415.2428.3431.3435.3457.5210.5229.5
Eggs (millions)191.3197.6192.2190.8219.4106.5153.5
Wool1.71.51.41.31.30.50.3
Tobacco0.50.219.00.035.00.0117.00.2
Source: Ministry of Statistics.
Source: Ministry of Statistics.
Table 6.Armenia: Production of Selected Industrial Commodities, 1994-99
1994199519961997199819981999
Q1Q2Q1Q2
Electric energy (in millions of kWh)5,6735,5766,2296,0305,6841,8131,1711,6181,359
Cable (in millions of kilometers)1852094817051,1891679799
Metal cutting equipment (number)739449459487355731013352
Car tires (in thousands)12093730175
Cement, (in thousands)12222828229331466905598
Construction materials (in thousands of cubic meters)58486327521
Carpets (in thousands of square meters)37292314142428
Wine (in thousands of litres)2,27193948033714926295449
Cognac (in thousands of litres’)513325231392253901092016
(Percent change over same period previous year)
Electric energy (in millions of kWh)-212-3-671-1116
Cable (in millions of kilometers)131304769523-88
Metal cutting equipment (number)-3926-271039-55-49
Car tires (in thousands)-23-20-100
Cement (in thousands)8724472848-179
Construction materials (in thousands of cubic meters)-85-508-20
Carpets (in thousands of square meters)-22-21-401-817-9134
Wine (in thousands of litres)-55-29-30-56-48-7010868
Cognac (in thousands of litres)-46-1770-36480-78-86
Sources: Ministry of Statistics and Ministry of Energy.
Sources: Ministry of Statistics and Ministry of Energy.
Table 7.Armenia: Consumer Prices, 1994-99
CPI Jan-94=100Percent change over previous monthPercent change over 12-monthsCumulative during the yearAverage inflation during the year endingQuarterly inflation
Percent change over previous quarterPercent change over same quarter previous year
1994January100.082514,943.582.5
February118.518.512,484,5116.3
March171.244,515,491.3212.514,309.7351.714,309.7
April289.469.023,064.6428.1
May448.555.028,806.3718.6
June489.49.124,396.3793.121,450.6214.925,475.6
July480.6-1.821,498.6777.0
August498.33.717,877.0809.5
September529.76.316,588.6866.819,840.922.918,361.6
October589.011.311,840.6976.0
November676.31472,446.51,134.2
December1,087.460.81,884.51,884.55,273.456.02,627.2
1995January1,129.83.91,029.83.9
February1,138.30.8860.44.7
March1,112.01.2572.75.9777.545.3777.5
April1,233.87.1326.313.5
May1,330.07.8196.522.3
June1,338.00.6173.421.0352.814.1217.9
July1,276.4-4.6165.617.4
August1.249.6-2.1150.814.9
September1,248.40.1135.714.8255.0-3.3150.2
October1,298.34.0120.219.4
November1,333.42.797.222.6
December1,434.77.631.931.9176.77.772.8
1996January1,486.33.631.63.6
February1,536.93.435.07.1
March1,539.90.233.77.333.412.231.4
April1,533.8-0.424.36.9
May1,534.40.015.47.0
June1,514.5-1.313.25.624.90.417.5
July1,464.5-3.314.72.1
August1,468.90.317.52.4
September1,452.7-1.116.41.322.04.116.2
October1,453.00.011.91.3
November1,487.92.411.63.7
December1,517.62.05.85.818.71.79.6
1997January1,564.73.15.33.1
February1,589.71.63.44.7
March1,602.40.84.15.64.20.74.2
April1,628.11.66.17.3
May1.681.83.39.610.8
June1,747.43.915.415.17.36.310.4
July1,740.4-0.418.814.7
August1,723.0-1.017.313.5
September1,781.03.422.617.411.33.719.6
October1,783.40.122.717.5
November1,813.71.721.919.5
December1,848.11.921.821.814.03.822.1
1998January1,923.94.123.04.1
February1,991.23.525.37.7
March1,997.20.324.68.124.38.124.3
April1,961.3-1.820.56.1
May1,924.0-1.914.44.1
June1,864.4-3.16.70.918.82.813.7
July1,784.2-4.32.5-3.5
August1,746.0-2.11.35.5
September1,743.6-0.1-2.1-5.712.5-8.30.5
October1,743.70.0-2.2-5.7
November1,774.81.8-2.1-4.0
December1,825.02.8-1.3-1.38.71.1-1.9
1999January1,894.54.0-1.34.0
February1.896.50.0-4.74.0
March1,886.3-0.6-5.51.43.96.3-3.9
April1,893.90.4-3.43.8
May1,902.60.5-1.14.3
June1,902.50.02.14.3-2.40.3-0.9
July1,843.93.13.31.0
August1,826.9-0.94.70.1
Source Ministry of Statistics
Source Ministry of Statistics
Table 8.Armenia Selected Energy Prices, 1994-99 1/(In drams per unit)
199419951996199719981999
UnitJan. 1Apr. 1Jul. 1Oct. 1Jan. 1Apr. 1Jul. 1Oct. 1Jan. 1Apr. 1Jul. 1Oct. 1Jan. 1Apr. 1Jul. 1Oct. 1Jan. 1Apr. 1Jul. 1Oct. 1Jan. 1Apr. 1Jul. 1
Electricity
RetailKilowatt hour0.21.01.01.310.010.010.012.012.014.014.014.016.317.116.919.020.120.120.120.125.025.025.0
Natural gas
Retailcubic meter28.030.030.032.034 037.232.051.051.051.051.051.051.051.0
Petroleum products
Gasoline (A-76). retailliter80.5160.9194.8163.6195.6141.8159.3147.3139.3123.0147.7148.7147.7145.7161.7174.3166.3160.0172.0174.0180.0180.0181.0
Diesel fuelliter110.3108.3126.7106.7106.9110.7112.3105.0117.7125.3130.7137.7142.01S4.0157.7153.0148.0127.0127.0125.0125.0
Retailkg330.0400.0401.0460.0587.0405.0408.0371.0375.0328.0326.0320.0498.0393.5350.2358.7346.7337.0339.6339.0343.0344.0342.0
Sources: Ministry of Energy and Ministry of Satisfies.

Prices include VAT and excise tines, if applicable.

Sources: Ministry of Energy and Ministry of Satisfies.

Prices include VAT and excise tines, if applicable.

Table 9.Armenia: Regulated Prices for Main Commodities and Services, 1994-99 1/(In drams)
ItemUnit19941995199619971998199919991999
Dec.Dec.Dec.Dec.Dec.Mar.MayJun.
Transport (bus)1 trip5.025.047.547.551.051.051.049.0
Electricity 2/1 kWh10.012.014.020.420.425.025.025.0
Telephonemonthly10.4101.0101.0600.0600 0918.3911.6923.4
Rentmonthly/sq. meter0.58010.421.021.821.821.821.8
Water1 cubic meter0.714.714.728.846.046.046.046.0
Sewagemonthly4.24.28.510.010.010.010.0
Garbagemonthly12060.060.060.0100.0100.0100.0100.0
Source: Ministry of Statistics.

Data for Yerevan only.

Tariff for households.

Source: Ministry of Statistics.

Data for Yerevan only.

Tariff for households.

Table 10.Armenia: Labor Market Indicators, 1994-99 1/
1994199519961997199819981999
Q1Q2Q1Q2
Population (in millions)3.83.83.83.83.83.83.8
Employment (in thousands)1,487.61,476.41,435.61,370.61,352.51,312.71,335 0
Of Which,
Industry355.2302.9255.0228.9225.4
Agriculture and forestry504.3551.9586.0566.6558.6
Transport and communication54.953 448.049.148.8
Construction96.876.068.059.759.3
Trade and public catering63.7100.0110.2115.6113.7
Other services412.7392.2368.4350.7346.7
Official number of unemployed persons (in thousands) 2/91.8131.7159.3174.4133.8133.3144.7
Official unemployment rate (in percent) 3/666.79.310.89.311.29.8
Official number of persons on forced leave (in thousands
Official number of vacancies (in thousands) 2/0.51.10.50.10.70.61.0
Minimum monthly wage in drams185.1487.9756.71,000.01,000.01,000.01,000.05,000.05,000.0
Real minimum monthly wage in drams 4/154.6115.9152.2176.8162.7152.9157.3796.0792.8
Average monthly wage in drams2,023.86,418.79,428.611,689.415,547.313,054.014,978.716,564.718.181.7
Real average monthly wage 4/107.0130.0162.0175.1217.0170.4201.4225.3246.3
Average monthly dollar wage6.415.822.823.830.826.129.830 833.7
Employment in agricultural households (in thousands)461.7534.7572.0555.3556.4532.9533.0
Source Ministry of Statistics.

Data cover only the public sector, including budgetary organizations and slate-owned enterprises. Wage data are annual average.

At the end of period.

Using the average annual officially registered number of unemployed.

Annual average, Jan 1995 = 100 Figures were calculated by the staff through deflating nominal wage with CPI

Source Ministry of Statistics.

Data cover only the public sector, including budgetary organizations and slate-owned enterprises. Wage data are annual average.

At the end of period.

Using the average annual officially registered number of unemployed.

Annual average, Jan 1995 = 100 Figures were calculated by the staff through deflating nominal wage with CPI

Table 11.Armenia: Average Monthly Wages in the State Sector, 1994-99 1/
1994199519961997199819981999
Q1Q2Q1Q2
(in drams)
State Sector Average2,0246,4199,42911,68915,54713,05414,97916,56518,182
Material sphere2,6569,09012,94816,53922,90919,08422,49024,49925,285
Non-material sphere1,2423,5646,3308,23810,7189,19610,14811,62313,693
Of which
Budgetary sphere1,0153,3425,6067,2709,9868,2279,47310,20612,561
By branch:
Industry3,4868,14913,50516,37221,74818,22321,46822,52322,587
Agriculture1,1946,1708,8748,25710,7188,82311,56710,17415,033
Forestry1,3784,1305,6627,1588,3116,8877,1298,1798,899
Transport5,55410,23316,72425,85230,56923,36826,97030,88730,968
Communications3,40211,36817,17815,89330,93729,05432,05036,00938,058
Construction1,82413,36514,80521,42129,67224,56232,54436,37837,278
Trade1,6784,9956,4078,79810,0428,2669,4209,79912,598
Information and computer service1,3195,1029,19510,18915,78811,23312,54215,48919,469
Other material branches1,0513,7757,46611,77114,79012,41014,6B316,32618,127
Communal services1,4285,9529,69010,62516,60513,85716,22916,52218,884
Health1,0393,8185,5516,9298,9997,7738,1119,96411,010
General admin & management1,3133,18011,51215,33520,72416,47119,15023,40229,138
Education, culture and art8582,9154,3366,5047,7107,1677,2918,3079,949
Science1,7995,5828,8559,92413,04310,63412,10513,38316,368
Finance and insurance10,10924,34424,97025,61142,13831,39919,15050,94254,577
Sources: Ministry of Statistics; and Fund staff estimates.

Budgetary and non-budgetary state sectors only. Average wages of all sectors are simple average of monthly serves provided by the authorities Sectoral wages are adjusted based on the ratio between average wages from the monthly series and annual wages provided by the authorities.

Sources: Ministry of Statistics; and Fund staff estimates.

Budgetary and non-budgetary state sectors only. Average wages of all sectors are simple average of monthly serves provided by the authorities Sectoral wages are adjusted based on the ratio between average wages from the monthly series and annual wages provided by the authorities.

Table 12.Armenia: Labor Force, Employment, and Unemployment, 1994-99
1994199519961997199819981999
Q1Q1
(In thousands)
Potential labor force 1/2,0652,0842,108
Total employed1,4881,4761,4361,3711,3511,3131,335
Registered unemployed106106148166139166145
Actual labor force 2/1,5941,5821,5841,5381,4921,4791,480
Employment by sector1,4881,4761,4361,3711,3531,3131,335
Statesector 3/794736647515441
Privatesector 4/694741789856912
Material sphere1,0771,0711,0561,0311,017
Industry355303255229225
Construction9776686059
Agriculture502550584564556
Forestry22323
Transport and communications3027244949
Wholesale & retailtrade, and catering64100110116114
Other material sphere2714131111
Nonmaterial sphere411405380340334
Education, culture, art181180174161159
Science2523151616
Health, physical culture, and social welfare8486828179
Housing and personal services5852514747
General administration3029293029
Other nonmaterial sphere33353055
(In percent)
Memorandum items:
Employed in state sector 5/53.449.845.037.632.6
Employed in private sector 6/46.650.255.062.467.4
Unemployment rate 7/6.66.79.310.89.311.29.8
Unemployment rate 8/5.35.17.0
Source: MinistryStatistics.

Working-age population (16 years to 60 years of age) excluding students. The MOS is planning to undertake surveys similar to BLS in U.S.A. to calculate the actual labor force as those actively seeking work.

Defined as total employed plus those registered as unemployed.

State and state-owned enterprises.

Non-state sector; includes farms and cooperative sector.

Total employed in state sector as percent of total employment.

Total employed in private sector as percent of total employment.

Registered unemployed as percent of actual labor force.

Registered unemployed as percent of potential labor force.

Source: MinistryStatistics.

Working-age population (16 years to 60 years of age) excluding students. The MOS is planning to undertake surveys similar to BLS in U.S.A. to calculate the actual labor force as those actively seeking work.

Defined as total employed plus those registered as unemployed.

State and state-owned enterprises.

Non-state sector; includes farms and cooperative sector.

Total employed in state sector as percent of total employment.

Total employed in private sector as percent of total employment.

Registered unemployed as percent of actual labor force.

Registered unemployed as percent of potential labor force.

Table 13.Armenia: Employment in the Public Sector, 1994-99(Thousands of persons)
1994199519961997199819981999
Q1Q1
Total1,487.61,476.41,435.61,370.61,350.91,312.71,335.0
Industry355.2302.9255.0228.9225.4
Agriculture502.1549.6583.5566.6558.6
Transportation and communications54.953.448.049.148.8
Construction96.876.068.059.759.3
Trade and public catering63.7100.0110.2115.6113.7
Information and computer services1.41.41.31.00.9
Housing and communal services57.952.250.647.446.5
Health care, physical training, social security83.685.581.780.779.3
Public education147.4147.5142.1134.3131.8
Culture and art34.032.731.727.026.8
Science and scientific support27.022.814.716.016.2
Financing and insurance7.98.56.44.74.6
Administrative agencies30.429.328.629.528.7
Other sectors25.314.613.810.110.3
Source: Ministry of Statistics.
Source: Ministry of Statistics.
Table 14.Armenia: Budgetary Sector Employment, 1994-99(At end of period; in thousands of employees)
1994199519961997199819981999
Q1Q2Q3Q4Q1Q2
Total407.0380.0344.0204.2186.5185.7186.0187.9186.5176.9176.7
Of which:
Education, culture, art181.0173.0148.0152.9140.1138.4137.5139.0138.8134.7132.5
Science23.015.016.78.17.47.67.98.37.87.28.0
Health, physical culture, social welfare81.070.055.07.77.37.37.17.17.27.47.4
General administration30.018.018.027.725.425.526.426.425.921.322.5
Other (including military92.0104.0109.07.86.36.97.17.16.86.36.3
Source: Ministry of Statistics.
Source: Ministry of Statistics.
Table 15.Armenia: Consolidated Government Fiscal Operations, 1994-99(In million of drams)
19941995199619971998 1/1999
Q1

Prel.
Q2

Prel.
Total revenue and grants51,756103,834116,606158,426197,67443,51448,218
Total revenue29,61084,803106,935146,808188,61741,65246,689
Tax revenue24,43166,45785,051130,714162,33734,17342,320
Value-added tax5,07617,01921,52039,32359,84411,95916,238
Excises8362,38811,32318,67919,3974,1833,585
Enterprise profits tax10,71223,86816,76116,07012,2943,7075,003
Personal income tax2,2756,8268,79514,71215,2463,1843,890
Land tax4051,7211,9402,6761,393206254
Customs duties7892,7075,87510,59710,6251,7812,027
Payroll taxes2,83610,68014,71722,05025,6995,3144,995
Other taxes1,5029003,0224,95512,1142,0283,483
Collection of taxes due in the past60-2,1140000
Presumptive income tax1394906233,9151,1902,470
Property tax2106081,0291,811622373
Nontax and capital revenue5,17918,34621,88416,09426,2807,4784,369
Grants22,14719,0319,67111,6189,0581,8621,528
Total expenditure82,578150,684173,351205,382238,36446,98859,144
Current expenditure64,134112,725129,740172,086183,10035,24442,601
Wages3,44313,52818,98324,77429,6326,0447,237
Subsidies24,0324,9168154,4511,059315424
Interest3,64216,11217,27321,70217,8084,7064,922
domestic interest2,15611,77412,12915,82810,6773,0973,079
external interest1,4864,3395,1445,8747,1311,6091,843
Transfers7,48431,08432,00943,21452,46013,86312,189
Pensions and social safety net5,69027,28928,84034,89847,34211,55210,308
Payment of contingent liabilities1,0462,4525000000
Other transfers7481,3442,6708,3165,1162,3111,881
Goods and services25,53347,08560,66077,94582,14210,31617,829
Health and education3,93112,8669,72511,95419,4163,0603,619
Other21,60234,21950,93565,99162,7267,25614,210
Capital expenditure and net lending18,44437,95842,75733,29655,26411,74416,543
Capital expenditure18,66035,38326,79427,94046,4248,07513,666
Foreign financed8,73427,73519,18323,26121,0363,8076,570
Domestic financed9,9267,6487,6124,67925,3884,2687,096
Net lending5312,57515,9625,3568,8403,6692,877
Overall deficit (cash) (-) 2/-30,822-46,800-61,578-46,956-40,690-3,474-10,927
Statistical discrepancy11,900-11,302-65870-4,332-2,575873
Actual/identified financing18,92258,10261,64346,08745,0226,04910,054
Domestic financing6,6853,02418,540-4,72920,4512,8554,904
Banking system5,6492,77614,535-9,0525,700-3,995758
Central Bank of Armenia6,5712,3169,037-10,912-150-713-923
Rest of banking system-9224605,4981,8605,850-3,282.1,681
Nonbank1,0362484,0054,32314,7516,8504,146
Privatization receipts84482124521,2773,360- 6,296
Treasury bills9522011,7734,278-6,0093,598-1,980
Promissory notes02,020-517-108-170
External financing12,23855,07843,10350,81624,5713,1945,150
Sources: Ministry of Finance and Economy; and Central Bank of Armenia.

Excludes netting out operations of dram 3.8 billion conducted in early 1998.

Sources: Ministry of Finance and Economy; and Central Bank of Armenia.

Excludes netting out operations of dram 3.8 billion conducted in early 1998.

Table 16.Armenia: Consolidated Government Fiscal Operations, 1994-99(In percent of GDP; unless otherwise indicated)
19941995199619971998 1/1999
Q1

Prel.
Q2

Prel.
Total revenue and grants27.619.917.719.820.817.719.3
Total revenue15.816.216.218.419.817.018.7
Tax revenue13.012.712.916.417.113.917.0
Value-added tax2.73.33.34.96.34.96.5
Excises0.40.51.72.32.01.71.4
Enterprise profits tax5.74.62.52.01.31.52.0
Personal income tax1.21.31.31.81.61.31.6
Land tax0.20.30.30.30.10.10.1
Customs duties0.40.50.91.31.10.70.8
Payroll taxes1.52.02.22.82.72.22.0
Other taxes0.80.20.50.61.30.81.4
Collection of taxes due in the past0.00.0-0.30.10.00.00.0
Presumptive income tax0.00.00.10.10.40.51.0
Property tax0.00.00.10.10.20.30.1
Nontax and capital revenue2.83.53.32.02.83.01.8
Grants11.83.61.51.51.00.80.6
Total expenditure44.128.926.325.725.019.123.7
Current expenditure34.221.619.621.519.214.317.1
Wages1.82.62.93.13.12.52.9
Subsidies12.80.90.10.60.10.10.2
Interest1.93.12.62.71.91.92.0
domestic interest1.22.31.82.01.11.31.2
external interest0.80.80.80.70.70.70.7
Transfers4.06.04.85.45.55.64.9
Pensions and social safety net3.05.24.44.45.04.74.1
Payment of contingent liabilities0.60.50.10.00.00.00.0
Other transfers0.40.30.41.00.50.90.8
Goods and services13.69.09.29.88.64.27.2
Health and education2.12.51.51.52.01.21.5
Other11.56.67.78.36.63.05.7
Capital expenditure and net lending9.87.36.54.25.84.86.6
Capital expenditure10.06.84.13.54.93.35.5
Foreign financed4.75.32.92.92.21.52.6
Domestic financed5.31.51.20.62.71.72.8
Net lending0.30.52.40.70.91.51.2
Change in arrears0.00.0-0.70.00.00.00.0
Overall deficit (cash) (-) 71-16.4-9.0-9.3-5.9-4.3-1.4-4.4
Statistical discrepancy6.3-2.20.00.1-0.5-1.00.4
Actual/identified financing10.111.19.35.84.72.54.0
Domestic financing3.60.62.8-0.62.11.22.0
Banking system3.00.52.2-1.10.6-1.60.3
Central Bank of Armenia3.50.41.4-1.40.0-0.3-0.4
Rest of banking system-0.50.10.80.20.6-1.30.7
Nonbank0.00.00.60.51.52.81.7
Privatization receipts0.00.00.00.02.21.42.5
Treasury bills0.00.00.30.5-0.61.5-0.8
Promissory notes0.00.00.30.0-0.10.00.0
External financing6.510.56.56.42.61.32.1
Memorandum item:
Nominal GDP (million drams)187,452522,284660,311798,555951,901245,732249,201
Sources: Ministry of Finance and Economy; and Central Bank of Armenia.

Excludes netting out operations of dram 3.8 billion conducted in early 1998.

Sources: Ministry of Finance and Economy; and Central Bank of Armenia.

Excludes netting out operations of dram 3.8 billion conducted in early 1998.

Table 17.Armenia: State Budget, 1994-99(In millions of dram)
199419951996199719981999
Q1

Prel.
Q2

Prel.
Total revenue and grants48,92192,80599,580134,755171,97638,19243,216
Total revenue26,77473,77489,909123,137162,91836,33141,688
Tax revenue21,59555,77770,334108,664136,63828,85937,325
Value-added tax5,07617,01921,52039,32359,84411,95916,238
Excises8362,38811,32318,67919,3974,1833,585
Enterprise profits tax10,71223,86816,76116,07012,2943,7075,003
Personal income tax2,2756,8268,79514,71215,2463,1843,890
Land tax4051,7211,9402,6761,393206254
Customs duties7892,7075,87510,59710,6251,7812,027
Other taxes1,5029003,0224,95512,1142,0283,483
Of which: Stamp duties8782,7672,89211,3611,7883,234
Presumptive income tax1394906233,9151,1902,470
Property tax2106081,0291,811622373
Nontax revenue5,17917,99719,57514,47326,2807,4714,362
Grants22,14719,0319,67111,6189,0581,8621,528
Total expenditure80,472139,125156,298181,718212,90741,80654,190
Current expenditure62,028101,167112,686148,421157,64330,06337,647
Wages3,44313,52818,98324,77429,6326,0447,237
Subsidies24,0324,9168154,4511,059315424
Interest3,64216,11217,27321,70217,8084,7064,922
domestic interest2,15611,77412,12915,82810,6773,0973,079
external interest1,4864,3395,1445,8747,1311,6091,843
Transfers5,48717,34915,28620,92427,4948,6257,435
Child allowances2,3828,1835,9078,13814,7544,6283,599
Pension contributions8023,6084,9234,0204,1459171,070
Union contributions531782811,630000
Payment of contingent liabilities1,0462,4525000000
Other transfers6942,4783,6746,6865,1162,3111,881
Transfer to Pension Fund51045004503,479770885
Goods and Services25,42449,26160,33076,57181,65110,37317,628
Capital expenditure and net lending18,44437,95842,75733,29655,26411,74416,543
Capital expenditure18,66035,38326,79427,94046,4248,07513,666
Foreign financed8,73427,73519,18323,26121,0363,8076,570
Domestic financed9,9267,6487,6124,67925,3884,2687,096
Net lending5312,57515,9625,3568,8403,6692,877
Overall deficit (cash) (-)-31,551-57,594-61,550-46,963-40,932-3,614-10,817
Unrecorded expenditures / statistical discrepanc11,900-99872-4,332-2,575716
Actual/identified financing19,65157,57161,64946,09245,2646,18910,101
Domestic financing7,4142,49318,546-4,72420,6932,9954,951
Banking system6,3782,24514,541-9,0475,942-3,855-805
Central Bank of Armenia7,1471,8539,066-11,006-65-438-950
Rest of banking system-7693925,4751,9596,007-3,4171,755
Nonbank1,0362484,0054,32314,7516,8504,146
Of which: Privatization receipts84482124521,2772,6595,071
Treasury bills9522011,7734,278-6,0093,598-1,980
Promissory notes/other002,020-517-108-170
External financing12,23855,07843,10350,81624,5713,1945,150
Sources: Armenian authorities; and Fund staff estimates.
Sources: Armenian authorities; and Fund staff estimates.
Table 18.Armenia: State Budget, 1994-99(In percent of GDP; unless otherwise indicated)
199419951996199719981999
Q1

Prel.
Q2

Prel.
Total revenue and grants26.217.815.116.918.115.517.3
Total revenue14.314.113.615.417.114.816.7
Tax revenue11.510.710.713.614.411.715.0
Value-added tax2.73.33.34.96.34.96.5
Excises0.40.51.72.32.01.71.4
Enterprise profits tax5.74.62.52.01.31.52.0
Personal income tax1.21.31.31.81.61.31.6
Land Tax0.20.30.30.30.10.10.1
Customs duties0.40.50.91.31.10.70.8
Other taxes0.80.20.50.61.30.81.4
Of which: Stamp duties0.00.20.40.41.20.71.3
Presumptive income tax0.00.00.10.10.40.51.0
Property tax0.00.00.10.10.20.30.1
Nontax revenue2.83.43.01.82.83.01.8
Grants11.83.61.51.51.00.80.6
Total expenditure43.026.623.722.822.417.021.7
Current expenditure33.219.417.118.616.612.215.1
Wages1.82.62.93.13.12.52.9
Subsidies12.80.90.10.60.10.10.2
Interest1.93.12.62.71.91.92.0
domestic interest1.22.31.82.01.11.31.2
external interest0.80.80.80.70.70.70.7
Transfers2.93.32.32.62.93.53.0
Child allowances1.31.60.91.01.51.91.4
Pension contributions0.40.70.70.50.40.40.4
Union contributions0.00.00.00.20.00.00.0
Payment of contingent liabilities0.60.50.10.00.00.00.0
Other transfers0.40.50.60.80.50.90.8
Transfer to Pension Fund0.30.10.00.10.40.30.4
Severance pay0.00.00.00.00.00.0
Goods and services13.69.49.19.68.64.27.1
Health1.21.20.71.11.41.01.1
Education0.91.20.80.40.70.20.4
Other11.57.07.78.16.53.05.6
Capital expenditure and net lending9.97.36.54.25.84.86.6
Foreign financed4.75.32.92.92.21.52.6
Domestic financed5.31.51.20.62.71.72.8
Net lending0.30.52.40.70.91.51.2
Overall deficit (cash) (-)-16.9-11.0-9.3-5.9-4.3-1.5-4.3
Statistical descrepacny6.40.00.00.1-0.5-1.00.3
Actual/identified financing10.511.09,35.84.82.54.1
Domestic financing4.00.52.8-0.62.21.22.0
Banking system3.40.42.2-1.10.6-1.60.3
Central Bank of Armenia3.80.41.4-1.40.0-0.2-0.4
Rest of banking system-0.40.10.80.20.6-1.40.7
Nonbank0.60.00.60.51.52.8-1.7
External financing6.510.56.56.42.61.42.5
Memorandum item:
GDP (in millions of Dram)187,049522,284660,311798,555951,901245,732249,201
Sources: Armenian authorities; and Fund staff estimates.
Sources: Armenian authorities; and Fund staff estimates.
Table 19.Armenia: Distribution of Current Expenditures in the Consolidated Government Budget, 1994-99(In percent of total current expenditures)
199419951996199719981999
Q1

Prel.
Q2

Prel.
Wages5.412.014.614.416.217.117.0
Subsidies37.54.40.62.60.60.91.0
Interest5.714.313.312.69.713.411.6
Domestic interest3.410.49.39.25.88.87.2
External interest2.33.84.03.43.94.64.3
Transfers11 727.624.725.125.439.328.6
Pensions and soc safety net8.924.222.220.322.632.824.2
Payment of Contingent Liabilities1.62.20.40.00.00.00.0
Other Transfers1.21.22.14.82.86.64.4
Goods and Services39.841.846.845.348.129.341.9
Health and Education6.111.47.56.910.68.78.5
Other33.730.439.338.337.520.633.4
Memorandum item:
Current Expenditures in percent of total expenditures77.774.874.883.876.875.072.0
Source: Ministry of Finance and Economy.
Source: Ministry of Finance and Economy.
Table 20.Armenia: Composition of Tax Revenues in Consolidated Government Budget, 1994-99(In percent of total taxes)
199419951996199719981999
Q1

Prel.
Q2

Prel
Tax revenue
Value-added tax20.825.625.330.136.935.038.4
Excises3.43.613.314.311.912.28.5
Enterprise profits tax43.835.919.712.37.610.811.8
Personal income tax9.310.310.311.39.49.39.2
Land tax1.72.62.32.00.90.60.6
Customs duties3.24.16.98.16.55.24.8
Payroll taxes11.616.117.316.915.815.611.8
Other taxes6.11.43.63.87.55.98.2
Presumptive income tax0.20.60.52.43.55.8
Property tax0.30.70.81.11.80.9
Memorandum item:
Tax revenue in percent of total revenue (including grants)47.264.072.982.582.178.587.8
Source: Ministry of Finance and Economy.
Source: Ministry of Finance and Economy.
Table 21.Armenia: Accounts of the Central Bank, 1994-99(End of period, millions of dram)
199419951996199719981999
Q4Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2
Stocks
Net foreign assets (convertible currencies)3,33214,63915,11012,8305,13021,94816,50215,68842,18149,80146,28343,58647,95050,98241,92539,123
Net domestic assets11,50414,72412,42216,57431,66419,30822,67125,2916,698749-1,1153,3452,5302,8573,6364,566
General government7,88510,2018,46411,93925,92019,23823,51127,7427,9338,3264055,7156,5138,2327,5196,596
Republican government8,46310,3168,51312,02326,08819,38223,60327,8008,1548,3765045,8496,5908,3117,8736,923
Local government0000000000000000
Pension and employment fund-578-115-49-84-168-144-92-58-221-50-99-134-77-79-354-327
Banks3,6293,7813,8444,1416,1963,3463,4712,2871,3692,3751,111155-2482,7382401,638
Other items, net-10742114494-452-3,276-4,311-4,738-2,604-9,952-2,631-2,525-3,735-8,113-4,123-3,668
Reserve money14,83629,36327,53229,40436,79441,25639,17340,97948,87950,55045,16846,93150,48053,83945,56143,689
Currency outside Central Band of Armenia11,05425,74322,79925,51932,76037,14433,78735,53338,09742,21537,63835,66039,65645,34534,69036,280
Required reserves1,5102,3922,6252,9783,7963,5592,9152,9865,7238,0617,16910,40210,1267,91210,0876,634
Correspondent accounts2,2726931,670725913592,2912,1704,663
Other accounts0535438182147194180290396274361869698582784775
Flows (with respect to end of previous period)
Net foreign assets (convertible currencies)3,17511,306472-2,280-7,70016,818-5,446-81426,4937,620-3,518-2,6974,3643,032-9,057-2,802
Net domestic assets10,0723,221-2,3034,15215,090-12,3563,3632,620-18,593-5,949-1,8644,460-815327779930
General government6,5722,316-1,7373,47513,981-6,6824,2734,231-19,809393-7,9215,3107981,719-713-923
Republican government6,5722,316-1,8033,51014,065-6,7064,2214,197-19,646222-7,8725,3457411,721-438-950
Local government0000000000000000
Pension and employment fund-57646366-35-84245234-163171-49-3557-2-27527
Banks3,208152632972,055-2,850125-1,184-9181,006-1,264-956-4032,986-2,4981,398
Other items, net292753-629380-946-2,824-1,035-4272,134-7,3487,321106-1,210-4,3783,990455
Reserve money13,24614,527-1,8311,8727,3904,462-2,0831,8067,9001,671-5,3821,7633,5493,359-8,278-1,872
Currency outside Central Band of Armenia9,81714,689-2,9442,7207,2414,384-3,3571,7462,5644,118-4,577-1,9783,9965,689-10,6551,590
Required reserves1,451882233353818-237-644712,7372,338-8923,233-276-2,2142,175-3,453
Correspondent accounts1,978-1,579977-945-6342681,932-1212,493-4,663000000
Other accounts161-97-256-3547-14110106-12287508-171-116202-9
Sources: Central Bank of Armenia; and Fund staff estimates.
Sources: Central Bank of Armenia; and Fund staff estimates.
Table 22.Armenia: Monetary Survey, 1994-99(End of period, millions of dram)
199419951996199719981999
Q4Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2
Stocks
Net foreign assets (convertible currencies)6,43514,82315,94013,7212,4887,7691,842-3,69324,72829,94526,17421,95224,76317,56211,1825,592
Net domestic assets17,42125,42921,11927,41249,93546,60253,70662,85942,93040,30344,94254,75264,89977,95276,70987,059
Consolidated government6,9018,8195,87411,61629,53623,35426,83131,52113,83614,3026,75412,65916,13619,98415,98920,617
Republican government8,4239,8836,81112,38930,09323,78927,53132,06314,87415,0977,55813,24116,62920,78716,96721,198
Local government-785-857-732-530-250-222-494-384-680-577-705-448^16-347-382-303
Pension and employment fluid-737-207-205-243-307-213-206-158-358-218-99-134-77-456-596-278
Economy20,74037,94739,69431,34030,19737,18140,76047,03244,28648,48652,54754,44862,80678,98976,26182,640
Enterprises20,09533,85635,71327,50325,78932,04034,80839,72436,73037,56036,11336,66135,98945,82840,55144,276
Rest of economy6454,0913,9813,8374,4085,1415,9527,3087,55610,92616,43417,78726,81733,16135,71038,364
Other items, net-10,220-21,337-24,449-15,544-9,798-13,933-13,885-15,694-15,192-22,485-14,359-12,355-14,043-21,021-15,541-16,198
Broad money23,85640,25237,05941,13352,42354,37155,54859,16667,65870,24871,11676,70489,66295,51487,89192,651
Currency in circulation10,06324,60121,07523,89030,27634,78431,13632,54834,63737,59634,67232,27536,45741,37031,60333,801
Dram deposits3,8717,4327,4378,10110,7198,1588,56510,34312,0979,08513,05914,79616,81816,16914,21617,002
Foreign exchange deposits9,9228,2198,5479,14211,42811,42915,84716,27520,92423,56723,38529,63336,38737,97542,07241,848
Flows (with respect to end of previous period)
Net foreign assets (convertible currencies)4,9068,3881,117-2,219-11,2335,281-5,927-5,53528,4215,217-3,771-4,2222,811-7,201-6,380-5,590
Net domestic assets15,9088,008-4,3106,29322,523-3,3337,1049,153-19,929-2,6274,6399,81010,14713,053-1,24310,350
Consolidated government5,6491,918-2,9455,74217,920-6,1823,4774,690-17,685466-7,5485,9053,4773,848-3,9954,628
Republican government7,1781,460-3,0725,57817,704-6,3043,7424,532-17,189223-7,5395,6833,3884,158-3,8204,231
Local government-800-7212520228028-272110-296103-1282573269-3579
Pension and employment fund-7295302-38-6494748-200140119-3557-379-140318
Economy20,31617,2071,747-8,354-1,1436,9843,5796,272-2,7464,2004,0611,9018,35816,183-2,7286,379
;Enterprises19,69613,7611,857-8,210-1,7146,2512,7684,916-2,994830-1,447548-6729,839-5,2773,725
Rest of economy6203,446-110-1445717338111,3562483,3705,5081,3539,0306,3442,5492,654
Other items, net-10,057-11,117-3,1128,9055,746-4,13548-1,809502-7,2938,1262,004-1,688-6,9785,480-657
Broad money20,81416,396-3,1934,07411,2901,9481,1773,6188,4922,5908685,58812,9585,852-7,6234,760
Currency in circulation9,04514,538-3,5262,8156,3864,508-3,6481,4122,0892,959-2,924-2,3974,1824,913-9,7672,198
Dram deposits3,2043,56156642,618-2,5614071,7781,754-3,0123,9741,7372,022-649-1,9532,786
Foreign exchange deposits8,565-1,7033285952,28614,4184284,6492,643-1826,2486,7541,5884,097-224
Memorandum items:
Money multiplier1.61.41.31.41.41.31.41.41.41.41.61.61.81.81.92.1
Velocity19.214.615.714.513.713.812.913.111.912.813.111.810.610.411.210.8
Sources: Central Bank of Armenia; and Fund staff estimates.
Sources: Central Bank of Armenia; and Fund staff estimates.
Table 23.Armenia: Commercial Banks’ Interest Rates for Loans and Deposits in Drams and U.S. Dollars 1996-99(Annualized interest rates)
1996199719981999
Mar.Jun.Sept.Dec.Mar.Jun.Sept.Dec.Mar.Jun.Sep.Dec.Mar.Jun.
Dram
One-month
Deposit64.022.715.221.050.922.432.022.223.722.126.527.227.431.2
Loan147.7122.1104.193.973.862.776.685.466.369.882.581.269.577.7
Three-month
Deposit79.542.829.023.638.726.139.940.28.341.526.827.122.935.8
Loan164.397.393.482.684.084.374.063.066.148.450.957.856.656.7
Six-month
Deposit47.037.437.122.812.022.728.842.337.837.422.024.623.133.5
Loan99.766.448.663.553.457.768.162.965.755.056.856.153.541.1
U.S. Dollars
One-month
Deposit53.230.527.632.932.632.227.324.720.718.620.123.120.714.3
Loan77.053.6117.154.467.863.290.167.559.665.356.564.746.255.9
Three-month
Deposit46.139.740.537.233.724.531.528.026.524.025.423.326.426.7
Loan113.799395.965.466.451.875.363.365.265.517.850.751.755.0
Six-month
Deposit31.345.032.629.317.132.422.129.520.128.225.025.124.924.9
Loan63.353.157.569.450.948.850.958.055.143.343.943.240.036.5
Source: Central Bank of Armenia.
Source: Central Bank of Armenia.
Table 24.Armenia: Treasury Bills, 1995-99
19951996199719981999
Government securitiesSep.Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.Mar.Jun.
(In million of drams)
Treasury bills outstanding
28 days100160348.4690700284152222125.4572.5100725242
91 days1501508741,1922,3601,3001,2003006784178001441,0112,2941,800
182 days3578841,8059405241,5007601,1241,1007119391,658914
273 days7503641,2001,0506751,0004122001891,199
364 days5001,1006005811,000600
Total allocated at face value2501604981,9212,7764,4493,1422,8104,1003,2132,8693,9001,3662,8754,1414,755
Outstanding at face value2502108252,6425,48210,2189,87511,56916,63919,93220,33722,41721,75420,61819,81420,319
(In percent)
Treasury bill average interest rate
28 days38.537.137.636.729.443.050.142.928.653.737.350.541.2
91 days37.038.138.239.357.471.954.844.745.959.434.248.158.759.953.9
182 days39.839.356.575.548.346.548.961.235.642.962.159.655.3
273 days81.257.446.249.361.934.340.558.368.058.3
364 days60.943.748.563.935.268.7
Weighted average interest rate37.637.137.838.036.856.174.154.145.547.561.534.942.357.860.156.5
Real weighted average interest rate37.838.036.856.174.154.145.547.561.534.942.357.860.156.5
Sources: Central Bank of Armenia and Fund staff estimates.
Sources: Central Bank of Armenia and Fund staff estimates.
Table 25.Armenia: Quarterly Balance of Payments and External Financing, 1995-99(In millions of U.S. dollars unless otherwise indicated)
19951996199719981999
Q1Q2Q3Q4YearQ1
Current account (excluding official transfers)-399-408-456-105-91-133-187-515-85
Trade balance-403-469-559-125-130-135-188-577-108
Exports2712902345861575322951
Imports-674-760-793-182-190-193-241-806-160
Services (net)-14-636016-10-9-25
Non-factor services-54-51-63-13-12-16-23-63-6
Credit2978972836343213131
Debit-83-129-159-41-48-49-55-194-37
Interest (net)-13-7-14-202-3-3-2
Other factor services545211316283176314
Private transfers186768202313106518
Capital flows-25-3628811926741994
Amortization-50-54-24-4-7-4-7-22-4
Foreign direct investment251852852630802218
Balance on current account and capital flows-424-444-428-24-72-107-113-316-81
Change in gross official reserves (- inc)-76-61-83-158-9-35-5222
Financing requirement500505511396411614836860
IFIs15615111929910541036
IMF (net)46492323002952-2
World Bank91927664923415
EBRD19819140151
IFAD011022262
Official transfers1971841562229363612321
United States142136121212930159515
European Union32212811613211
Others232770-11875
Other financing (disbursements)8120108110743620
1Bilateral86243110743620
of which:
Russia8142700311140
Turkmenistan0340000000
United States0141511040150
EU00000032320
Commercial05865000000
Other capital (incl errors and omissions)8854129-2325637013533
Changes in non-IMF reserve liabilities0500-300-30
Changes in overdue obligations (- decrease)50-9-6020-55-530
Debt service relief005000000
Memorandum items:
Current account balance (in percent of GDP)-31.0-25.6-28.0-22.2-19.8-28.2-38.7-27.3-18.7
Gross official reserves (convertible)110.0170.6242.6259.6252.4262.9297.9297.9276.1
(In months of imports of goods and nonfactor services)1.72.33.13.53.23.33.03.64.2
Net international reserves (convertible)39.846.7106.098.592.7102.0108.5108.589.2
Exports of GNFS (in percent of GDP)23.323.120.318.221.219.317.719.118.0
Imports of GNFS (in percent of GDP)58.855.858.547.352.151.361.353.043.0
External debt 1/381.8613.2806.3765.3766.6781.3827.8827.8826.2
Of which: Public and publicly guaranteed381.8571.5720.7756.8758.1772.8812.3812.3810.7
External debt/GDP (in percent) 1/29.738.549.540.541.941.442.843.945.2
Of which: Public and publicly guaranteed29.735.944.340.041.440.942.043.144.4
Debt service obligations62.874.648.29.215.58.315.348.310.5
(In percent of exports of G&NFS)21.020.314.610.715.99.117.913.412.7
Sources: Data provided by the Armenian authorities, multilateral and bilateral donors, and Fund staff estimates and projections.

Includes private non-guaranteed debt.

Sources: Data provided by the Armenian authorities, multilateral and bilateral donors, and Fund staff estimates and projections.

Includes private non-guaranteed debt.

Table 26.Armenia: Summary External Debt Data, 1995-99
19951996199719981999
Q1
(In millions of U.S. dollars; unless otherwise indicated)
Total external debt outstanding381.8613.2806.3827.8826.2
In percent of GDP29.738.549.543.945.2
Multilateral214.7353.4462.1563.3565.6
Bilateral167.1198.1228.1228.0224.0
Commercial0.061.7116.236.536.5
Of which:
Public and publicly-guaranteed381.8571.5720.7812.3810.7
Concessional 1/98.4249.9362.8480.6486.9
Debt service payments due 2/62.874.648.248.310.5
Multilateral4.17.312.618.26.4
Bilateral58.766.313.720.24.1
Commercial0.01.021.99.90.0
Amortization payments due50.254.024.224.76.2
Multilateral0.00.04.08.13.8
Bilateral50.253.25.89.82.5
Commercial0.00.814.46.80.0
Interest payments due12.720.624.023.64.3
Multilateral4.17.38.610.02.6
Bilateral8.513.17.910.41.6
Commercial0.00.27.53.10.0
(In percent of exports of goods and nonfactor services)
Debt service payments due21.020.314.613.412.7
Multilateral1.42.03.85.17.8
Bilateral19.618.04 15.65.0
Commercial0.00.36.62.70.0
Sources: Armenian authorities and Fund staff estimates.

Loans with a grant element of at least 35 percent.

On total external debt.

Sources: Armenian authorities and Fund staff estimates.

Loans with a grant element of at least 35 percent.

On total external debt.

Table 27.Armenia: Commodity Composition of Trade, 1995-99(In percent of total)
19951996199719981999 1/
Total exports100.0100.0100.0100.0100.0
Food, drinks and tobacco5.14.512.18.35.2
Mineral and chemical products20.211.313.518.621.0
Textiles, leather, and footware9.24.65.97.17.6
Jewelry33.048.323.724.137.5
Non-precious metals11.416.324.818.317.1
Machinery, means of transport and tools18.213.616.821.77.5
Other products2.91.43.22.04.2
Total imports100.0100.0100.0100.0100.0
Food, drinks and tobacco33.534.130.832.624.8
Mineral and chemical products42.229.935.733.936.7
Textiles, leather, and footware1.33.25.14.35.0
Jewelry9.315.25.35.011.0
Non-precious metals2.41.22.82.23.2
Machinery, means of transport and tools9.112.114.814.012.3
Other products2.34.45.68.06.9
Source: Ministry of Statistics.

First half only.

Source: Ministry of Statistics.

First half only.

Table 28.Armenia: Direction of Trade, 1995-99
19951996199719981999
Q1Q2Q3Q4Q1
(In millions of U.S. dollars)
Total Exports270.9290.3232.556.859.654.549.651.7
CIS169.6128.194.728.323.516.212.514.3
Georgia2.76.910.72.92.11.72.85.5
Russia90.896.162.912.114.47.75.85.3
Turkmenistan68.717.513.811.15.34.91.41.3
Other CIS7.47.67.32.21.71.82.52.2
Non-CIS101.3162.2137.828.536.138.237.137.4
Belgium30.844.747.012.213.410.813.516.7
Germany10.13.79.31.42.24.01.61.7
Iran, Islamic Republic of35.043.942.66.97.08.29.210.0
United States of America0.64.47.13.02.32.33.93.1
Other non-CIS24.865.531.95.111.112.88.95.9
Total Imports (CIF)673.9855.8892.3203.9211.7214.1272.6181.6
CIS334.0277.7299.160.340.639.090.348.6
Georgia61.851.238.27.36.46.36.85.3
Russia135.1125.5215.949.831.929.180.740.8
Turkmenistan129.386.427.70.00.20.20.10.3
Other CIS7.714.617.43.22.03.52.82.2
Non-CIS339.9578.1593.2143.6171.2175.1182.3133.0
Belgium15.649.549.711.215.313.314.918.4
Germany11.317.426.24.89.58.910.85.7
Iran, Islamic Republic of89.8149.888.713.714.416.719.213.7
United States of America114.4103.6116.121.527.127.320.421.7
Other non-CIS108.8257.8312.592.4104.9108.9117.173.4
(In percent of total exports)
Total Exports100.0100.0100.0100.0100.0100.0100.0100.0
CIS62.644.140.749.839.429.825.327.6
Georgia1.02.44.65.13.63.25.710.7
Russia33.533.127.121.324.114.211.710.2
Turkmenistan25.46.05.919.58.99.12.82.4
Other CIS2.72.63.13.92.83.45.14.2
Non-CIS37.455.959.350.260.670.274.772.4
Belgium11.415.420.221.422.519.927.132.4
Germany3.71.34.02.53.87.43.33.2
Iran, Islamic Republic of12.915.118.312.111.815.118.619.4
United States of America0.21.53.15.33.94.37.85.9
Other non-CIS9.122.613.78.918.623.617.911.5
(In percent of total imports)
Total Imports (CIF)100.0100.0100.0100.0100.0100.0100.0100.0
CIS49.632.533.529.619.218.233.126.8
Georgia9.26.04.33.63.02.92.52.9
Russia20.014.724.224.415.113.629.622.4
Turkmenistan19.210.13.10.00.10.10.00.2
Other CIS1.11.71.91.60.91.61.01.2
Non-CIS50.467.566.570.480.881.866.973.2
Belgium2.35.85.65.57.26.25.510.2
Germany1.72.02.92.44.54.24.03.1
Iran, Islamic Republic of13.317.59.96.76.87.87.07.6
United States of America17.012.113.010.512.812.87.512.0
Other non-CIS16.130.135.045.349.550.942.940.4
Sources: Ministry of Statistics; and Fund staff estimates.
Sources: Ministry of Statistics; and Fund staff estimates.
Table 29.Armenia: Incorporatized and Partially Privatized Enterprises, 1994-99
199419951996199719981999
Q1Q2
Number of state-owned enterprises existing prior to 1992
Of which: Small10,197
Medium and large2,000
Total12,197
Number of incorporatized and partially privatized enterprises (in each year)
Of which: Small2571,5742,1322,0586037675
Medium and large2406133962101617
Total2571,8142,7452,4548139292
Number of incorporatized and partially privatized enterprises (cumulative)
Of which: Small2571,8313,9636,0216,6246,7006,775
Medium and large2408531,2501,4601,4761,993
Total2572,0714,8167,2718,0848,1768,268
Share of incorporatized and partially privatized enterprises in total (in percent)
Of which: Small2.114.922.559.065.065.766.4
Medium and large2.515.420.962.573.073.874.7
Total12.030.759.666.367.067.8
Source: Armenian authorities.
Source: Armenian authorities.
Table 30.Armenia: Banking System Indicators, 1997-99
199719981999
Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.Mar.June
Total Capital to Risk Weighted Assets Ratio 1/29.428.528.727.033.631.929.529.829.627,1
Core Capital to Risk Weighted Assets Ratio21.221.027.425.230.529.127.327.227.025.5
Highly Liquid Assets to Total Capital Ratio 1/33.441.852.745.838.739.940.737.834.234.7
Highly Liquid Assets to Demand Liabilities Ratio86.796.2110.094.888.788.290.783.487.684.4
Total Non-performing Loan to Total Loan Ratio2/24.724.420.111.39.18.87.79.39.4
Source: Armenian authorities.

Revised indicators based on a new classification recently provided by the CBA.

May differ from the CBA’s recently revised indicators of non-performing loans.

Source: Armenian authorities.

Revised indicators based on a new classification recently provided by the CBA.

May differ from the CBA’s recently revised indicators of non-performing loans.

Table 31.Armenia: Banking Sector Loans, 1996-99(In millions of Dram)
199619971998 1/1999 1/
Mar.Jun.Sept.Dec.Mar.Jun.Sept.Dec.MarJun.Sept.Dec.Mar.Jun.
Credit in drams14,15814,72814,78213,39912,90412,3068,2439,275
Industry1,8155805461,6321,6239195017494,1265,4996,2826,3404,8605,008
Agriculture and processing industry6526073342432392191435812,4783,1913,1503,8603,7404,566
Construction2232171972251839152521,0429451,0931,9121,0532,051
Energy2,8943,6654,2062,3701,8451,4221,4522,73716,99316,94616,39523,71115,83317,574
Commerce1,4701,7321,5831,5531,5781,5531,7413,1047,0546,4967,1747,5986,1796,935
Services254231194166145581616
Other sectors7607161,6179941,2631,8251,5851,48220,82224,70225,92232,96933,44932,197
Transport and communication101995831519012359614216714961,001416616
Overdue loans5,9896,8816,0475,9015,8386,0962,694493
Credit in foreign exchange3,6514,3205,75714,39515,55120,21123,15023,571
Credit to enterprises17,80919,04820,53927,79428,45532,51731,39332,84652,93658,45060,51277,39165,53068,947
Share of total credit to enterprises
Industry10.23.02.75.95.72.81.62.37.89.410.4827.47.3
Agriculture and processing industry3.73.21.60.90.80.70.51.84.75.55.25.05.76.6
Construction1.31.11.00.80.60.30.20.22.01.61.82.51.63.0
Energy16.319.220.58.56.54.44.68.332.129.027.130.624.225.5
Commerce8.39.17.75.65.54.85.59.513.311.111.99.89.410.1
Services1.41.20.90.60.50.20.10.00.00.00.00.00.00.0
Other sectors4.33.87.93.64.45.65.04.539.342.342.842.651.046.7
Transport and communication0.60.50.31.10.70.40.20.20.81.10.81.30.60.9
Overdue loans33.636.129.421.220.518.78.61.5
Credit in foreign exchange20.522.728.051.854.762.273.771.8
Credit to enterprises100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0
Source: Central Bank of Armenia.

Based on International Accounting Standards classifications

Source: Central Bank of Armenia.

Based on International Accounting Standards classifications

Table 32.Armenia: Total Electricity Generation, Distribution and Collection, 1994-99
1994199519961997199819981999
Q1Q2Q1Q2
Production of electric energy (in millions of kilowatts)5,6735,5766,2296,0305,6841,8131,1711,6181,359
Of which:
Thermal2,1593,3532,3323,0401,416766409676529
Hydro3,5141,9191,5731,3902,801333408259332
Nuclear 1/03042,3241,6001,466714354683499
Production of electric energy (in percent of total)
Of which:
Thermal386037502542354239
Hydro623425234918351624
Nuclear0537272639304237
Distribution of Sales (in percent of total net generation) 2/
Households484448504045393932
Industry (includes Nairit)18171817181819
Budgetary organizations787115126
Irrigation7610014320
Drinking water11798999
Transport345444
Others10101314121611
Collection rate (in percent of total sales)
Households262640588685977284
Industry (includes Nairit)10371961497161149
Budgetary organizations6396632611436107
Irrigation 3/181225192521337
Drinking water 4/545242314854344
Transport 4/95845511515495
Others76579310910163126
Total4258596277867770114
Sources: Armenian authorities; and the World Bank.

The nuclear power plant was recommissioned in November 1995.

Excludes technical losses and self-use of electric power.

The figure for 1996 includes other agriculture use of electricity.

In 1996 transport was included in drinking water.

Sources: Armenian authorities; and the World Bank.

The nuclear power plant was recommissioned in November 1995.

Excludes technical losses and self-use of electric power.

The figure for 1996 includes other agriculture use of electricity.

In 1996 transport was included in drinking water.

Table 33.General Government Tax Revenue in Selected BRO Countries(In percent of GDP)
19941995199619971998
Average (unweighted; twelve reform countries)26.319.219.320.619.3
Armenia13.012.712.916.417.1
Azerbaijan16.910.414.217.015.0
Estonia38.837.837.137.137.1
Georgia3.74.67.28.88.7
Kazakhstan20.019.719.016.6
Kyrgyz Republic 1/13.715.012.012.513.8
Latvia36.135.133.734.834.3
Lithuania31.431.628.832.033.1
Moldova26.428.827.429.930.6
Russia30.927.527.628.425.5
Tajikistan53.712.811.713.311.7
Ukraine39.134.834.735.632.6
Source: National authorities, data as of June 1999.

Central government only.

Source: National authorities, data as of June 1999.

Central government only.

Table 34.General Government Tax Revenue Performance in Armenia and Comparator Countries 1995 - 1998 1/
1995199619971998
(in percent of GDP)
Armenia
Total taxes12.712.916.417.1
indirect taxes4.86.89.811.5
VAT/Sales tax3.33.34.96.3
Customs duties0.50.91.31.1
Others1.02.63.54.1
Direct taxes7.96.16.65.6
Comparator group 1/
Total taxes19.219.320.619.3
Indirect taxes 2/9.09.810.810.1
VAT/Sales tax4.75.05.65.7
Customs duties0.70.71.01.1
Others4.23.3
Direct taxes 2/10.711.08.68.3
(in percent of total revenue and grants)
Armenia
Total taxes64.072.982.582.1
Indirect taxes24.238.449.255.2
VAT/Sales tax16.418.524.830.3
Customs duties2.65.06.75.4
Others5.214.917.619.5
Direct taxes39.834.533.326.9
Comparator group 1/
Total taxes84.187.789.488.3
Indirect taxes 2/39.444.546.846.1
VAT/Sales tax20.522.624.226.0
Customs duties3.33.04.54.9
Others18.015.2
Direct taxes 2/47.050.137.237.9
Memorandum items:
Total revenues and grants in percent of GDP
Armenia19.917.719.820.8
Comparator group22.922.023.021.8
Source: National authorities, data as of June 1999.

Comparator group includes Azerbaijan, Georgia, Kyrgyz Republic, Moldova, Tajikistan, and Ukraine. Kyrgyz data includes central government only.

Average excludes Georgia in 1995 and 1996.

Source: National authorities, data as of June 1999.

Comparator group includes Azerbaijan, Georgia, Kyrgyz Republic, Moldova, Tajikistan, and Ukraine. Kyrgyz data includes central government only.

Average excludes Georgia in 1995 and 1996.

1Time series data on wages in private sector companies are not available.
2The official unemployment figures do not take into account whether or not people are actively seeking a job, and there are indications that hidden unemployment may be quite high. For example, the Health and Education Survey conducted in November 1996 estimated that unemployment was 25 percent, compared to the official figure of 9.3 percent.
3Except for changes in deposits of local governments or the SFSI.
4These measures included new excises on alcohol, tobacco products, petrol, diesel and cars, as well as the introduction of presumptive taxes on retail shops. small kiosks, restaurants and other food services, and some transportation services. Without netting out operations, tax revenues would have been 1½ percent of GDP lower.
5Total revenue in 1995 was roughly the same as in 1994, although grants were down sharply in 1995.
6The new measures included a broadening of the presumptive tax base and the introduction of new presumptive tax rates. (See Chapter II)
7From 1995 through 1997, tax revenues in the fourth quarter averaged almost 7 percentage points of GDP more than in the third quarter.
8The new measures included a higher excise tax on cigarettes, new environmental fees and taxes, and fees for the replacement of automobile license plates and drivers’ licenses.
9The 1999 budget law prohibited the extension of credits by the CBA to finance the budget, other than intra-quarter credits.
10Unemployment compensation payments were minimal, at around 0.1 percent of GDP.
11This new system was designed to cover the cost of increased electricity tariffs for low income families (see section H below).
12The surge in net foreign assets of the CBA in December, and the largely offsetting decline in CBA NCG. reflects a late December disbursement from the World Bank.
13Despite the increase in treasury bill rates, both dram and dollar deposit and lending rates declined in the first quarter of 1999. A possible explanation for this divergent trend is that the data on lending rates are a weighted average of all loans, including special operations which have been growing in importance (e.g., foreign-financed, low-interest credits to small businesses). and publicly guaranteed loans to some state owned enterprises at below-market rates.
14Dram broad money declined even faster than reserve money, by more than 20 percent.
15This was accomplished in part through the use of funds from the special privatization account, which had been to cover expenditures in the third quarter, to repay the CBA in June.
16Most of the decline in the CIS share in total imports was on account of trade with Turkmenistan, following the suspension of natural gas imports in the second quarter of 1997.
17The low level of disbursements from international financial institutions reflected, in part delays in the execution of projects financed by the EBRD and World Bank.
18The privatization of Armentel (the telecommunications company) alone accounted for US$73 million in privatization receipts, and a total of US$94 million in FDI.
19For more detail on external debt developments, see chapter IV.
20This agreement relieved Armenia of any obligations related to the former U.S.S.R.’s external debt, in exchange for Armenia forgoing claims on any U.S.S.R. external assets.
21The grant element of this restructuring package was estimated at 56 percent.
22For more details on Armenia’s exchange system, see the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions. 1999.
23A fixed customs fee, to cover the cost of customs operations, is charged on specific operations. The fee generally varies from dram 1,000 to dram 5,000.
24For more detail, see Chapter III.
25One bank has been out of compliance with prudential requirements since July 1998.
26Tariffs for households were raised 25 percent. At the same time, the new budgetary family allowance system was designed to cover the cost of the increase for low income families.
27Imports from other countries were taxed on the destination principle. Because Armenia was a heavy net-importer from the CIS region, resulting revenue losses were considerable. The Ministry of Finance recently estimated the annual VAT revenue losses, caused by the adherence to the origin principle, at about 2.8 percent of GDP prior to the mid-1997 tax reform.
28The tax increase on gasoline was initially implemented as a hazardous goods tax, as the authorities considered that they need to act quickly, and the law gave the government the authority to increase hazardous goods fees without parliamentary approval. The intention is to replace this hazardous goods tax with an excise tax in the 2000 budget.
29The authorities also sought to address the growing stock of tax arrears by establishing a High Level Committee on Tax Arrears, chaired by the Prime Minister. The purpose was to establish a decision making body with sufficient political power to address and resolve the most complicated and largest cases of tax arrears, which typically involve poorly performing large state-owned enterprises. The success of this committee has been limited, with little revenue collected in 1998 and 1999.
30The framework for the analysis in this chapter is based on “Mapping Financial Sector Vulnerability in a Non-Crisis Country,” by Patrick T. Downes, David Marston and Inci Otker-Robe, IMF, May 1999. The limited timespan under which the current system has been operating will not allow for a quantitative analysis relying on stress tests to simulate the impact of shocks on banks’ portfolios of non-performing assets.
31The share of foreign currency deposits in total deposits was about 70 percent in mid-1999, up from 50 percent at the beginning of 1995. Loans to the economy denominated in foreign currency represent about 80 percent of total loans, up from 30 percent at the beginning of 1995.
32The aggregate foreign open position of the banking system is measured by adding the long and short positions of each bank. Thus, movements in this aggregate provide an indication about the exposure of the system as a whole, but do not reveal the extent to which individual banks may be exposed.
33The share of loans to public enterprises, which has been declining since the initial stages of transition, is now less than half of the total loan portfolio to enterprises, while credit to individuals and family-owned businesses has increased to 40 percent of all bank loans.
34Despite the recovery of profits and consequent growth in capital in the second quarter of 1999 the capital adequacy ratios declined somewhat, reflecting more rapid growth in risk-weighted assets.
35The ongoing strengthening of risk weighings may lower the capital-adequacy ratio somewhat. Risk weights on some items were increased in May 1999, and the CBA has announced that effective January 2000 they will raise from 0 to 20 percent the risk assigned government guaranteed loans.
36Armenia does not have any restrictions on capital inflows or outflows and therefore, the spread between these two rates provides a good assessment of a risk premium.

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