Overview

At a time when the Republic of Armenia has been seriously hit by the recent global economic crisis, the World Bank aims to assist Armenia to resume growth, create employment, and alleviate the impacts of the crisis on the poor, as well as to help Armenia lay the foundation for a more competitive economy. It is doing so through project financing, including the Bank's 'Rapid Response to Crises and Emergencies' policy that invokes a set of stream-lined procedures and prepares projects very rapidly to address the major adverse economic and/or social impacts. In addition, the Bank plays an advisory role on the country's development agenda and together with the Government of Armenia prepares the country's partnership strategy.

Improving the Lives of People in ECA— 2010

Challenge

The 2008, the global financial crisis had a major impact on the Republic of Armenia. The GDP of Armenia fell about 15 percent in 2009. The construction subsector was particularly hard hit, with output declining by about 38 percent, and employment by about 40 percent. Exports declined by 6.3 percent in 2008 and 37.4 percent in 2009. Foreign Direct Investment dropped to 3 percent of GDP in 2009, down from 7.9 percent in 2008. Many migrant workers in Russia lost their jobs and returned home, further stressing local labor markets while depriving the rural poor of critical income in the form of remittances.

As a result, a significant portion of the labor force became unemployed. By mid 2009 poverty had increased to 28.4 percent of the population, up from 23.5 percent in 2008. Extreme poverty increased to 6.9 percent of the population, compared to 3.1 percent in 2008. A rapid response was needed to help arrest this sharp rise in poverty levels.

Approach

The Government of Armenia acted swiftly and requested support from the Bank to help weather the economic shocks. In response, the Lifeline Road Improvement Project (LRIP) was prepared utilizing the "IDA Financial Crisis Response Fast-Track Facility" to provide $25 million of IDA funding and support "shovel ready" investments which would create jobs and mitigate the negative impact of the financial crisis. The Project was approved by the Board in February 2009, within two months since preparation started. The Additional Financing in the amount of $36.6 million was approved six months after the Board approval of the original project.

The original project aimed to rehabilitate 100km of critical road links called "Lifeline Road Network" (LRN) which connects rural communities to the national road network and provide them access to various social services and livelihood opportunities that are not available in rural areas. An additional 145km of LRN would be rehabilitated under the Additional Financing. As such, the Project would not only create temporary jobs and ameliorate the negative impact of the financial crisis but also address income and non-income poverty among Armenia's rural population.

Results

The Project has achieved significant results. The key results so far include:

• Approximately 160km of the LRN, including 40km under the Additional Financing, have been rehabilitated within eight months since the Project became effective, allowing the Government to swiftly mitigate the negative impacts of the financial crisis. The Project outperformed the original target by rehabilitating an additional 18 km of LRN with cost savings.
  
• Basic access to social services and livelihood opportunities has been improved by connecting rural poor to the main road network. Travel time was reduced on average by about 40 percent.
  
• About 12,000 person-months of jobs have been created under the original project, 50 percent higher than the target value. By hiring region-based contractors under National Competitive Bidding, the Project helped local construction industries remain in business -- for many contractors, LRIP contracts are the only contracts they had during the project period, and that, on average, LRIP contracts accounted for about 25 percent of their revenue during the period.
  
• Traffic safety was significantly improved on project roads. Sidewalks were built in urban settlements, which are highly appreciated by village residents.
  
• The capacity of local construction industry was significantly strengthened through the introduction of modern, cost-effective technologies and hands-on support and trainings by supervision consultants and the Bank task team.

Renewed [LRIP] roads will allow us to take our produce to the market quickly and in a better state

— Spartak Mkrtchyan from the Village of Haykavan

Toward the Future

Earlier this year, the Government of Armenia requested a Second Additional Financing to expand the successful implementation of the LRIP and finance the rehabilitation of approximately 190km of additional lifeline road links in Armenia. The proposed Second Additional Financing (LRIP-AF2) has been successfully negotiated between the representatives of the Borrower and the Bank on June 8, 2010 in Yerevan. The LRIP-AF2 will become effective soon.