Implementation of structural reforms in Armenia could increase real GDP by 7 percent - IMF

10.06.2019 18:50
Implementation of structural reforms in Armenia could increase real GDP by 7 percent - IMF

YEREVAN, June 10. /ARKA/. A full implementation of structural reforms in Armenia could increase the country's real GDP by as much as 7 percent over the long run, the International Monetary Fund says in its fresh report.

The IMF report is focused on the impact of the government’s reform agenda, which covers three broad areas: tax policy and pension; governance, government efficiency, and corruption; and labor market and competition.

The IMF's analysts say Armenia’s economy has performed well since independence, but GDP growth has been volatile and productivity gains limited.

However, they say, Armenia has potential for higher and more stable growth. In the medium run, Armenia has the opportunity to improve economic conditions by implementing reforms in fiscal policy design and administration and in the labor market. In the long run, the country also needs to address its structural issues to enhance the business climate and competition to improve governance, tackle corruption, and boost government efficiency.

«Strengthening growth and competitiveness and addressing governance problems requires comprehensive reform efforts,» the IMF analysts say in their report. «The new government has made it clear that fighting corruption and improving governance remain top priorities.»

The analysts think impact of implementing a comprehensive structural reforms package on growth, public finance, and external accounts can be substantial.

«The macroeconomic model employed in this study suggests that a change in the composition of fiscal spending and reducing the deficit would have a significant impact on debt reduction,» they say in their report. «Higher public capital investment, if well targeted to infrastructure or human capital development projects, can raise the potential output.»

In their opinion, the tax policy reform, accompanied by firm measures to improve tax administration, can have a considerable impact on compliance and tax efficiencies.

They also say that the pension reform has critical roles not only in ensuring the future of pensioners, but also in future fiscal sustainability and capital market developments.

«On the structural front, an economy-wide improvement in governance would increase potential output permanently and lead to higher growth in the transition process,» the IMF analysts say. «Labor market reforms are important to tackle high unemployment, and they will have large impacts on consumption and investment too.»

Finally, they found it important that Armenia uses its export potential and addresses weaknesses in the trade sector.

According to the National Statistical Committee of Armenia, economic growth in the country stood at 5.2% in 2018 instead of the 4.5% projected in the government budget.

In the government budget for 2019, economic growth is projected at 4.9%. -0---

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