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AIPRG - World Bank 2013 Conference

Armenia: Achieving sustainable growth – a transformation challenge
    1-2 June, 2013, at the World Bank, Washington, DC, USA and at World Bank Yerevan Office.


The two day conference organized by AIPRG covered wide range of topics and was webcasted to Yerevan via WB facilities. The conference participants recognized the existing gap in professional and academic policy dialogue in Armenia and Diaspora, the importance of keeping alive public policy debate and, encouraged further strengthening of AIPRG’s role in this process. Participants agreed on the timeframe for AIPRG next conference (January 2014), which would serve the purpose of building a culture of professional and academic policy debate between professionals, scholars representing Armenia, Diaspora and IFIs. The key topics for the next conference could include political economy of growth in Armenia, implications of pension reform for fiscal and capital market development, Diaspora and transmission of knowledge and innovation, etc. Ideas for topics are welcomed from all interested parties.

The organizers deeply appreciated contributions of all participants and supporters (including Ambassador Markarian, Minister Gabrielyan, Deputy Minister Aramyan and Deputy Governor of Central bank Yeritsyan, Mr. Happi the World Bank, Mr. Horton IMF, and Mr. Davis Pragma Corporation). The organizers also acknowledged the support from the WB South Caucasus Country unit and particularly Mr. Kerali, and the WB Dutch EDs office, particularly Mr. Heemskerk.

The following concluding remarks wrap up the discussions on key aspects of achieving sustainable growth in Armenia.

Preconditions for sustainable and inclusive growth: To grow sustainably Armenia will need: (i) a shift to increase the production in tradable sectors by encouraging investments in these sectors; (ii) measures supporting the reallocation of labor into more productive usage; (iii) policies aimed at diversifying exports towards the higher end in the value chain. Further efforts are needed to improve business enabling environment (including quality standards), and transparency in public finances (including tax and expenditure policies). Better understanding is required on how to use the Diaspora resources, importantly knowledge and innovation transformation.

Macroeconomic stability: Macroeconomic stability is required to minimize the vulnerability to shocks, which increases the prospects for sustainable growth. The macroeconomic stability is necessary but, not sufficient conditions for sustainable and inclusive growth. Factors like low productivity, large and poorly managed debt burden, dependence on narrow export and remittances can cause economic downturn and decline in GDP growth. Fostering the implementation of structural reforms can improve the business environment and competitiveness, thus support private investment growth and boost productivity. Moreover, the sustainable growth will require more balanced allocation of physical capital across sectors, higher investment in education to train a more productive labor force. Enhancing the efficiency of fiscal consolidation might be essential for maintaining the growth. The tax revenue mobilization has become an Achilles hill for the Armenian economy. The chronic inability to raise tax revenues if continued, will restrain the expenditures with likely consequences for growth and social development.

The competitiveness in Armenia faces a number of major challenges, including inadequately educated workforce, infrastructure constraints, limited capacity to innovate and limited opportunities to transfer savings into financing instruments. It is important to solve sector-specific challenges to foster competitiveness, create internationally accredited laboratories, internationally recognized certification bodies, develop the workforce (e.g. education and human development) etc. Inequality, migration and growth: There is a strong link between the income inequality and downturns in economic growth, and between the degree of obtained education and income level. These linkages are among key factors for migration. Household with lower education-living in rural areas, are more likely to become migrants. Moreover, many migrants don’t consider options for training (e.g. professional or language) and education. Measures to reduce the migration from Armenia could include: (i) enhancing the quality of education in all levels, which will contribute to more employment opportunities and reduce income inequality, (ii) creating the sense of fair competitive environment, (iii) enhancing transparency in government policies (both revenue and expenditures).

Financial sector development: Stand alone actions will not be enough, and comprehensive systemic policies are needed to foster the development of capital markets. For instance, without a systemic approach the pension reform may result in either reallocation of domestic savings to foreign assets or intermediation taking place through currently existing system. The development of debt instruments should be a short term-immediate goal, while the equity markets – is a long term goal, with rigorous measures to involve corporate sector starting today. Reducing interest rates requires not only macroeconomic stability, but also reduction in risks, changes in market structure and improved competition. Targeted reduction of interest rates may create market distortions and new risks.

Debt sustainability: Currently the debt sustainability does not appear to be a major concern for Armenia, however debt sustainability analysis are undermined by many uncertainties, including: (i) the difficulty in estimating the potential GDP growth for the medium to long-term, (ii) the ambiguity in financing options for Armenia following its graduation from concessional financing (including related strategies for financing and estimations of costs), (iii) risks stemming from possible energy subsidies and pension reforms, and, (iv), uncertainties and risks associated with the debt swaps (e.g. Russian loan) . Building around presentation by deputy minister Aramyan, participants agreed that further work has to be done to improve debt sustainability analysis for better policy making. A separate aspect of debt sustainability discussions was focused on enhancing the debt management strategy including, what type of debt is targeted by government, particularly in the domestic market (deficit financing or liquidity management). In this context, the key issue is improving the quality of government debt, and targeting the liquidity of government securities as one of the key objectives.

Trade facilitation, business taxes: A Deep and Comprehensive Free Trade Agreement (DCFTA) with EU should produce substantial gains from the deep aspects of the agreement, e.g. trade facilitation, services liberalization and standards harmonization; and improvement of the investment climate in the long run. Adoption of Sanitary and Phytosanitary (SPS) measures should be implemented gradually, as otherwise will increase the costs of agricultural production and reduce competitiveness Liberal rules of origin on services commitments would be a useful step toward non-discriminatory liberalization.CIS services agreements are not likely to be very helpful. The CGE model developed for the DCFTA analysis cannot be employed for cost-benefit analysis of other agreements (e.g. Customs Union) and the CGE needs to be complemented by gravity models.

Ownership of economic reforms: To be successful all government reforms need to be backed by analysis and research. Likewise, the criticism from civil society and political opposition should also be backed by similar research and analysis. The lack of capacity and diluted understanding of political economy aspects is a major impediment for enhancing the quality of reform agenda. Capacity building at the Government and NGO level, including through transfer of research resources from IFIs to those institutions would be an essential step in building research and analytical capacity within the country, thus creating in-house expertise. Communication (including IFIs, authorities and civil society) is very important tool in enhancing the ownership.



Gohar Gyulumyan: Accumulation, Competition and Connectivity: Re-Engineering a New Growth Model for Armenia

David Tarr: Deep Trade Policy Options for Armenia: The Importance of Services, Trade Facilitation and Standards Liberalization

Paul Davis: Enhancing Armenian Competitiveness: Successes and Challenges

For further information on conference, please contact at info@aiprg.net.

Conference Details

Date: 1-2 June, 2013

Time: 9am - 4:30pm

Venue: World Bank Headquarters in Washington, DC and World Bank Yerevan Office

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