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Armenia: Laying the Foundations for Sustainable Development

 Armenia: Laying the Foundations for Sustainable Development

Armenia: Laying the Foundations for Sustainable Development


Synopsis

Armenia’s economy has undergone a profound transformation since independence in the early 1990s. Today, it is market oriented and highly receptive to trade, capital, and technological innovation. From the late 1990s to 2008, gross domestic product (GDP) expanded by double digits on average, and Armenia now ranks as a lower middle-income country. As a result of sustained growth, ambitious reforms, and external inflows of capital and remittances, poverty plunged from over 55 percent at the start of the transition to less than 36 percent in 2010.

Full Brief—4 Pages
Laying the Foundations for Sustainable Development
—PDF



Challenge

The central challenge for the government is to mitigate the economic and social impacts of the global crisis for the mid-term, while continuing policy and institutional reforms essential for recovery and long-term development. Increasing the economy’s resilience to external shocks and creating new opportunities for development are important priorities.

Moving forward, Armenia needs to address the fiscal consolidation challenge, since the limited tax base and escalated tax burden necessitate fiscal adjustments for the medium to long term. Bolstering financial stabilityis also key. Due to major reforms over the past decade, the liquidity and solvency of Armenia’s banking system were strong at the start of the crisis. This needs to be maintained through flexible monetary and exchange rate policy, facilitating bank restructuring if needed, enhancing banking supervision, and broadening the reach of financial intermediation. Strengthening preparedness for natural disasters and climate change is another critical issue. Armenia is exposed to the impact of climate change through intensified droughts, but also landslides and hailstorms that affect rural communities and agriculture.


Approach

The Bank Group’s Country Partnership Strategy (CPS) for 2009 -2012, extended until 2013, is anchored on two strategic objectives: addressing vulnerability (for the short-term) and strengthening competitiveness for post-crisis growth (for the long-term). In addition to investment projects and analytical work, the World Bank has proposed a series of three annual development policy operations to protect the poor and support greater human capital development, and to improve competitiveness by encouraging better governance and fostering a more favorable investment climate.

Armenia was one of the first two countries that benefitted from a special fast track facility set up by the World Bank Group to help the world’s poorest countries cope with the impact of the global financial crisis. The Board of Directors approved a package of three operations—the Lifeline Roads Improvement Project, the Additional Financing for the Social Investment Fund, and the Additional Financing for the Rural Enterprise and Small Scale Commercial Agriculture Development Project—that helped Armenia mitigate the impacts of crisis on the country’s economy and the well being of its population. Throughout 2009-2011, the Bank made available around US$ 177 for various projects as well as in the context of the emerging Euro-zone crisis.


Results

International Development Association’s (IDA) impact in Armenia has been felt across many sectors:

  • 71 irrigation dams were brought up to international safety standards, reducing the risk of dam failure and flooding for about 570,000 people living downstream from the dams.
  • 290 km of roads linking villages to main highways have been rehabilitated throughout the last four years, while creating over 27,000 person-months of employment in affected rural areas.
  • 236 community infrastructure micro-projects (MPs) are completed, and another 29 are ongoing for the last two years. The completed and ongoing MPs and furniture production have so far created 519,000 days of employment and US$ 8.7 million wage income. The total number of beneficiaries from completed MPs for over the last decade is estimated at nearly 1.1 million people.
  • Yerevan’s water supply system shifted from public to private-sector management. Metering is nearly universal; collections have quadrupled from a low base of only 20 percent; water supply increased from 17.4 hours (in 2008) to 21.5 hours (in 2011); and energy consumption reduced from 119 MwH in 2008 to 24 MwH now.
  • The average number of daily hours of drinking water service outside the capital city increased from an average of six hours/day in 2004 to 17 hours/day in 2011. The average water losses have decreased in selected areas from 83.50 percent to 70 percent. The ratio of billing and collection has increased from 93.5 percent to 98 percent. The bacteriological safety compliance increased from 93 percent in 2004 to 98.8 percent now.
  • Small and Medium Enterprise (SME) loans, as of end-2011, have been provided to about 3,830 SMEs across all regions and are operating in trade, agricultural, production, and services sectors for both investment and working capital needs since mid-2009. SMEs have cumulatively received more than US$ 55 million equivalent in local currency loans. More than 60 percent of SMEs financed are from regions, or outside the capital city, with about 79 percent of the total amount going to small and micro borrowers. The SME share in GDP increased by 0.8 percent to 42.5 percent during the 2008-09 crises and reached 43 percent in 2010.
  • Over the last three years, eight regional Medical Centers (MCs) were renovated and/or provided with modern medical equipment and furniture. Civil works are currently in process in the Shirak region Gyumri, resulting in a new Medical Center.
  • Armenia’s main social protection programs now reach nearly 60 percent of all eligible households, with at least one member receiving one of the benefits: Family Benefits, pensions, or other cash transfer programs. Nearly 95 percent of beneficiaries reported “overall satisfaction” with social service and benefits (2011 survey data).

Bank Contribution

As of January 1, 2012, the World Bank portfolio of active projects in Armenia consisted of fifteen projects, totaling commitments of US$ 490.8 million, which address needs in various sectors including roads, energy, agriculture, education, health, irrigation, rural development, public administration, and judiciary.

Since Armenia joined the World Bank in 1993, IDA has provided about US$ 1.2 billion to Armenia for 54 projects. In 2008, Armenia became eligible to borrow from the International Bank for Reconstruction and Development (IBRD), and since March 2009, IBRD has provided US$ 294 million.

The Country Partnership Strategy (CPS) for FY09-12 envisaged financing in the amount of US$ 545 million (both IDA and IBRD) to help mitigate the impact of the financial and economic crisis. Overall lending has increased by US$ 150 million for FY11-13, bringing the total to US$ 640 million.


Partners

The Bank participates in or chairs donor meetings in Armenia on a wide range of topics. IDA also joined forces with the United Nations Development Programme (UNDP) and other donors to support the government and local stakeholders as they prepared Armenia’s first Poverty Reduction Strategy Papers (PRSP) and the follow-up Sustainable Development Strategy.

A number of donors (Japan, the United Kingdom, Netherlands, Sweden, and the European Union (EU)) have channeled grant resources through Trust Funds managed by IDA. The International Monetary Fund (IMF) has been a close partner in the area of economic advice and policy-based lending. The Bank’s supported projects are often co-financed by other donors: the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), the EU, the U.S. Agency for International Development, the Netherlands, and the Russian Federation.


Moving Forward

In view of the global economic crisis, IDA/IBRD will continue mitigating Armenia’s vulnerability to the shocks and strengthening competitiveness for post-crisis recovery and growth over the medium term. The Bank’s support will center on managing the impact of the crisis by maintaining a sound macroeconomic and fiscal framework while protecting the poor; and strengthening the management of education, health, and social protection programs. To strengthen competitiveness, the Bank will assist the government in improving economic competition and the business climate; strengthen the regulatory environment in infrastructure; improve competitiveness through the sustainable use of energy and natural resources; and improve public sector efficiency and effectiveness.


Beneficiaries

Lilit Harutunyan is a teacher at Halidzor Secondary School, located in a community of 900 within a spectacular gorge with rocky slopes and lush forests. Their main road was rehabilitated, including a section linking the village road to the school—repaved by unanimous request of the community. “I have worked in this school for seven years, and I travel from neighboring Shinuayr. I've never crossed this distance with the dignity I do now. In harsh winter weather, the roads would simply be blocked, and the school closed. But not anymore," said Harutunyan.


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