51060-002: Public Efficiency and Financial Markets Program (Subprogram 1) | Asian Development Bank

Armenia: Public Efficiency and Financial Markets Program (Subprogram 1)

Sovereign (Public) Project | 51060-002 Status: Closed

The proposed public efficiency and financial markets program aims to strengthen fiscal sustainability and deepen financial markets in Armenia. The program will strengthen public debt and fiscal risk management, deepen the government securities market and money market infrastructure, broaden the base of investors and enhance corporate transparency. The programmatic approach and policy-based loan will support two subprograms implemented during 2017 2018. A transaction technical assistance (TRTA) will be provided.

Project Details

Project Officer
Niazi, Tariq H. Central and West Asia Department Request for information
Country
  • Armenia
Modality
  • Loan
Sector
  • Finance
 
Project Name Public Efficiency and Financial Markets Program (Subprogram 1)
Project Number 51060-002
Country Armenia
Project Status Closed
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 3584-ARM: Public Efficiency and Financial Markets Program (Subprogram 1)
Ordinary capital resources US$ 40.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Partnerships
Private sector development
Sector / Subsector

Finance / Finance sector development - Money and capital markets

Public sector management / Public expenditure and fiscal management

Gender Equity and Mainstreaming No gender elements
Description The proposed public efficiency and financial markets program aims to strengthen fiscal sustainability and deepen financial markets in Armenia. The program will strengthen public debt and fiscal risk management, deepen the government securities market and money market infrastructure, broaden the base of investors and enhance corporate transparency. The programmatic approach and policy-based loan will support two subprograms implemented during 2017 2018. A transaction technical assistance (TRTA) will be provided.
Project Rationale and Linkage to Country/Regional Strategy

The economic contraction in the Russian Federation continued to be a drag on Armenia's economic performance in 2016, through financial, trade and remittance channels. Growth slowed substantially to 0.2% in 2016 from 3.0% in 2015. These negative pressures led to a widening of the fiscal deficit to 5.4% of gross domestic product (GDP) in 2016 from 4.8% in 2015 and to further substantial debt accumulation to 57.0% of GDP from 48.8% in 2015. This fiscal position and the prevalence of foreign-currency public debt pose a significant source of risk exposure of public debt to exchange rate movements. To reduce such debt related vulnerabilities and contain fiscal risks, the state budget envisages a substantial reduction in the budget deficit to 2.8% of GDP in 2017, mainly through cuts in capital spending and by containing the wage bill and public pensions. Armenia, however, faces the challenge of being fiscally responsible against a backdrop of slowing economic growth and a limited scope of further spending cuts. With the regional slow down and total public debt surpassing 50% of GDP, the next round of fiscal consolidation will have to be based on domestic revenue mobilization and public spending efficiency.

The current economic environment is also creating pressure on the country's financial system. Currency depreciation expectations are factored in the pricing of financial contracts and increase perception of solvency risks. The slowing down of economic growth is heightening credit risk. Increasing foreign inflows, exchange rate developments and under-developed capital markets played an important role in increasing dollarization in the aftermath of the global financial crisis. Since financial markets in local currency are not developed, the financial sector is characterized by high dollarization and limited mobilization of long-term Armenian Dram (AMD) financing for investment by private and public sectors. Financial dollarization of banks' assets and liabilities exposes banks to foreign exchange and refinancing risks. With the limited use of AMD, both fiscal and monetary policies have little maneuvering space to tackle external macroeconomic shocks and to ensure financial stability. Consequently the role of the exchange rate in macroeconomic and financial stability remains a core concern during external shocks. The deepening of financial intermediation in AMD thus assumes paramount importance.

Impact Fiscal sustainability and resilience in the financial sector increased (measured by the Financial Sector Development Index) by 2020
Project Outcome
Description of Outcome Depth of financial markets increased
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

Public debt and fiscal risk management policies strengthened

Government's securities market and money-market infrastructure improved

Base of instruments and investors broadened, and corporate transparency enhanced

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Nation-wide
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects The program is unlikely to have adverse impacts on the environment, require involuntary resettlement, or affect indigenous peoples. It is categorized C for each of these safeguard areas.
Involuntary Resettlement The program is unlikely to have adverse impacts on the environment, require involuntary resettlement, or affect indigenous peoples. It is categorized C for each of these safeguard areas.
Indigenous Peoples The program is unlikely to have adverse impacts on the environment, require involuntary resettlement, or affect indigenous peoples. It is categorized C for each of these safeguard areas.
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Procurement Not applicable.
Responsible ADB Officer Niazi, Tariq H.
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, CWRD
Executing Agencies
Ministry of Finance (MOF)
[email protected]
1 Melik Adamyan, Yerevan
Armenia
Timetable
Concept Clearance 27 Jun 2017
Fact Finding 28 Jun 2017 to 07 Jul 2017
MRM 17 Aug 2017
Approval 24 Oct 2017
Last Review Mission -
Last PDS Update 08 Nov 2018

Loan 3584-ARM

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
24 Oct 2017 27 Oct 2017 15 Dec 2017 31 Dec 2017 - 30 Dec 2017
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 40.00 Cumulative Contract Awards
ADB 40.00 24 Oct 2017 40.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 24 Oct 2017 40.00 0.00 100%

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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Safeguard Documents See also: Safeguards

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None currently available.

Evaluation Documents See also: Independent Evaluation

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Related Publications

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Tenders

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Contracts Awarded

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Procurement Plan

None currently available.