The Armenian government has had various lending arrangements with the IMF for 10 years (2009 to 2017). Over this period, IMF was rather quiet about Armenia’s law on public debt – enacted in 2008 – that drove the country’s fiscal consolidation exercise. The World Bank called it ‘one of the most ambitious’ in the region and documented its pernicious impact on public investment and growth. The IMF agreed, but did not explicitly point out the need for revising the 2008 public debt law – until now.
In its July 2017 review of Armenian macroeconomic policy, the IMF notes that:
‘…the authorities agree with staff that the implementation of the fiscal rule is overly contractionary at this conjunction. From a legislative perspective, the current fiscal framework is quite unique in the international landscape…such a framework does not provide a useful anchor when debt is sufficiently below the ceiling and…is likely to bind when economic activity is weak, resulting in a pro-cyclical bias…This may, therefore aggravate the economic downturn and thereby undermine the credibility of the fiscal framework. The authorities are currently being assisted by (the) IMF to revise and modernize their fiscal rule…’
The draft of a new fiscal rule is expected to be debated by the National Assembly in October 2017.
This current approach by the Fund represents a sharp change from previous positions. Indeed, in its December 2016 review, the IMF accepted the fact that:
‘…the authorities remain committed to fiscal consolidation and debt sustainability, as embodied in their fiscal rule, which aims to ensure that debt remains below 60 percent of GDP over the medium term. In this context, they have developed a fiscal consolidation plan for 2017 and beyond’.
One wonders why it took the IMF – a body with vast expertise on fiscal affairs – ten years to urge the Armenian government to revise its now discredited fiscal rule. Such a rule – and its manifest inadequacies – was public knowledge by the time the IMF entered into a lending arrangement with Armenia in 2009 and acquiesced in the unveiling and implementation of a fiscal consolidation programme that has turned to be damaging to growth and employment. Indeed, I do not feel flattered at all that I drew attention to the Armenian government (and more specifically the Ministry of Labour) to the problems that were embedded in its fiscal rule when I wrote a report on behalf of the Moscow office of ILO in May 2017 (see blog entries for June 2017).