Yerevan /Mediamax/. Executive Board of the International Monetary Fund (IMF) has approved increase of the loan for Armenia up to $822.7mln.

As Mediamax was informed in IMF, the revised arrangement will support the government's economic program amid a sharper-than-expected impact from the global financial crisis.

The key objectives of the program are to help Armenia adjust to the external shock, maintain confidence in the currency and the financial system, and protect the poor. The sharp contraction in economic activity, the fall in remittances, an increase in unemployment, and difficult conditions in credit markets require an easing of macroeconomic policies and the implementation of several measures to stimulate domestic demand and create new jobs.

The main policies under the revised program are:

- Monetary conditions will be eased, including by widening the range of central bank instruments to provide longer-term dram liquidity to banks, and by increasing targeted on-lending to small and medium enterprises.

- Fiscal policy will also be eased. Despite the fall in fiscal revenue, the government will aim to maintain its overall expenditure at a level close to the original 2009 budget, protecting social spending while increasing expenditure on high-priority infrastructure projects, financed in large part by bilateral donors.

- Reforms will focus in particular on the continued strengthening of financial sector supervision and improving tax administration.

- Social safety nets will be enhanced by targeting social services to the poor.

Following the Executive Board's discussion on Armenia, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated: “Since the approval of the stand-by arrangement in March 2009, the external economic outlook has deteriorated significantly for Armenia. Falling private transfers and capital inflows have aggravated external imbalances and affected household incomes and investor confidence. Construction activity, the main driver of growth in previous years, has collapsed, and the economy is experiencing a deep contraction.

“The additional financial assistance from the Fund will help cover Armenia’s growing financing needs, while the recalibration of the authorities’ economic program will help them better respond to the deepening downturn. The program envisages an easing of monetary and fiscal policy to mitigate the severity of the crisis, while laying the ground for future fiscal consolidation primarily through one-off investment expenditures and measures to strengthen tax policy and administration. The authorities remain firmly committed to achieving the program’s objectives of adjusting to the changed external environment, supporting confidence in the currency and the banking system, and protecting the poor.

“Following the successful return to a flexible exchange rate, monetary policy will focus on maintaining low inflation. With the fall in inflation rates, the recent reductions of policy interest rates are appropriate. In addition, the authorities are taking active measures to provide liquidity to the banking system and help resume lending. Fiscal policy will provide crucial support by accelerating growth-enhancing investment in infrastructure and strengthening social safety nets.

“As external conditions improve in 2010, growth is expected to resume gradually. The short-term outlook remains, however, very challenging. Continued reforms will be necessary to boost the medium-term growth potential of the economy, including efforts to improve the business climate, completion of the unfinished tax policy and tax administration reform agenda, and progress on financial sector reforms.”