The FINANCIAL — Armenia and the World Bank signed on December 8 a US$50 million development policy finance operation to support the Government’s reforms program across key economic areas.
The Fourth Development Policy Financing (DPF-4) for Armenia supports a wide range of reforms promoting fiscal, social and environmental sustainability and strengthening competitiveness. This is the last operation in a programmatic series of four DPFs spanning 2013-2016.
“We aim to support macroeconomic stability in Armenia. This operation will help to improve the country’s competitiveness and business environment, and enhance employment opportunities”, said Laura E. Bailey, World Bank Country Manager for Armenia. “The DPF series are based on a longstanding partnership between the Bank and Armenia and builds on previous operations. The current series is focused on supporting the Government in addressing challenges faced by the country with high external vulnerability and persistent unemployment.”
The first pillar of this operation includes measures for improving the financial sustainability of key sectors and the efficiency of social protection programs while enhancing environmental safeguards in the mining industry, which accounts for over half of Armenia’s exports. The second pillar, on improving competitiveness, focuses on strengthening the business environment and improving trade facilitation and connectivity, as well as access to credit, according to the World Bank.
Key milestones supported by this operation include the enactment of the Unified Tax Code, which will address shortcomings in the tax system, and increase the fiscal space for growth-enhancing capital investment and social spending. It includes measures to enhance revenues, improve the efficiency, transparency and equity of the tax system, and to strengthen tax administration.
“The new Code is a major step forward in the tax policy reform, as it unifies and harmonizes what were previously two different sets of tax laws, bringing them together into a single Code. The Code will reduce the risk of rule duplication and, more importantly, of inconsistencies across different tax laws. By revisiting the level and structure of income taxes, reducing the number of exemptions and tax gaps, increasing excise taxes and strengthening coverage of high-wealth individuals and large companies, the Code will lead to higher revenue mobilization in the medium-term,” said Gohar Gyulumyan, World Bank Co-Task Team Leader of the Project.
The program supports several reforms aimed at enhancing environmental safeguard legislation. In particular, the amendments to the Mining Code to align with the Law on Waste Management will reduce the negative environmental impacts from mining operations and preserve the asset endowment for households in rural areas, which often depend on income from agricultural activity.
Another focus area of this operation is improvement in the business environment, through enactment of the amendments to the Law on Bankruptcy, which strikes a better balance between creditors’ and debtors’ rights. The operation also supports increasing transparency and reliability of the financial sector by enacting regulations to ensure disclosure of beneficial ownership of financial institutions and groups.
The Fourth DPF, totaling US$50 million, is an IBRD loan with a fixed spread with a 14.5-year grace period and repayment of 25 years.
Since joining the World Bank in 1992 and IDA in 1993, total IDA and IBRD commitments to Armenia amount to US$2.3 billion.