Republic of Armenia: Second Poverty Reduction Strategy Paper

308 Pages·2008·2.15 MB·English

© 2008 International Monetary Fund December 2008
IMF Country Report No. 08/376

[Month, Day], 2001
[Month, Day], 2001
Republic of Armenia: Second Poverty Reduction Strategy Paper

Poverty Reduction Strategy Papers (PRSPs) are prepared by member countries in broad consultation
with stakeholders and development partners, including the staffs of the World Bank and the IMF.
Updated every three years with annual progress reports, they describe the country’s macroeconomic,
structural, and social policies in support of growth and poverty reduction, as well as associated
external financing needs and major sources of financing. This country document for the Republic of
Armenia, dated October 2008, is being made available on the IMF website by agreement with the
member country as a service to users of the IMF website.

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International Monetary Fund
Washington, D.C.

Annex
RA Government Decree
N 1207-N, October 30, 2008

REPUBLIC OF ARMENIA

SUSTAINABLE DEVELOPMENT
PROGRAM

Yerevan
October 2008
CONTENT
ACKNOWLEDGEMENT.............................................................................................................11
LIST OF ABBREVIATIONS.......................................................................................................12
Participatory Process in the PRSP Review..................................................................................14
1. Key Results of Poverty Reduction Strategy Paper (PRSP-1) Implementation and
Justification of Strategy Paper Revision......................................................................................23
1.1. Key target indicators and strategic priorities of PRSP..................................................23
1.2. Key outcomes of PRSP implementation in 2003-2006................................................25
1.3. Justification of the PRSP Revision Necessity and major priorities of Sustainable
Development Program.............................................................................................................28
1.4. Goals and strategic priorities of Sustainable Development Program...........................31
2. Overview of Poverty and inequality in Armenia and the PRSP Goals................................37
2.1. Economic growth and material poverty overview in Armenia in 1999-2005..............37
2.2. Regional dimension of material poverty in 1999-2006................................................46
2.3. Overview of Material Poverty in 1999-2006 by Gender, Age and Social Groups........49
2.4. Rural Poverty Reduction Factors and Peculiarities in Armenia in 1999-2006............53
2.5. Social Policy and Poverty Reduction in Armenia in 1999-2006..................................56
2.6. Employment and Reduction of Poverty in Armenia....................................................62
2.7. Alternative estimates of poverty..................................................................................66
3. Material Poverty Reduction goals under the SDP...............................................................68
4. Macroeconomic framework.................................................................................................71
4.1. Main macroeconomic developments in 2003-2007......................................................71
4.1.1. Real sector.............................................................................................................71
4.1.2. Prices.....................................................................................................................72
4.1.3. Developments of external sector..........................................................................72
4.1.4. Public finances......................................................................................................73
4.2. 2008-2021 macroeconomic framework projections.....................................................73
5. Economic Development Strategy.........................................................................................80
5.1. Key priorities of the Government’s economic development policy and priority
directions of economic reforms................................................................................................80
5.2. Ensuring equal conditions for economic competition.................................................84
5.3. Improvement of business environment........................................................................86
5.4. Improvement of investment environment and investment promotion.......................93
5.6. Monetary policy and deepening of financial mediation.............................................107
5.7. Tax policy and administration....................................................................................119
5.8. Institutional modernization of the country................................................................120
6. Employment, unemployment, labor productivity, population income and poverty
reduction....................................................................................................................................122
6.1 Correlation between employment and poverty........................................................122
6.2. Economic activity of population.................................................................................122
6.3. Overall level of employment.........................................................................................124
6.4. Level and structure of unemployment........................................................................125
6.5. Employment in agriculture........................................................................................128
6.6. The state and perspectives of non-agricultural employment......................................128
6.7. Formal and informal employment................................................................................130
6.8. Growth of labor productivity as the key driving force for the economic growth in
Armenia in 2002-2006...........................................................................................................131
6.9. Emigration and other determining factors..................................................................133
6.10. Labor market institutions and policies.....................................................................134
7. Agriculture and Rural Development..................................................................................138
8. Infrastructure Development...............................................................................................148
8.1. Drinking Water..........................................................................................................149
8.2. Irrigation.....................................................................................................................154
8.3. Transport....................................................................................................................155
8.4. Energy........................................................................................................................156
9. Regional Development.......................................................................................................160
10. Public Administration and Judicial System Reforms.....................................................169
10.1. Public Administration System Reforms.................................................................169
10.1.1. Structural and Functional Reforms of Public Administration System...............171
10.1.2. Introduction and Development of Civil Service.................................................182
10.1.3. Financial Management System Reforms.............................................................184
10.1.4. Main Target Indicators of the ROA Governance System Development.............188
10.2. Judicial System Reforms.........................................................................................188
10.2.1. Main Areas for Implementation of Judicial System Reforms.............................192
10.2.2. Maintaining Public Order, Raising the Efficiency of Ensuring Public Security and
Fight against Criminality...................................................................................................198
10.3. Anti-corruption Policy...........................................................................................202
11. Social Protection System................................................................................................206
11.1. Social Assistance System.........................................................................................208
11.1.1. Family Benefits...................................................................................................209
11.1.2. Childbirth One-off Benefit.................................................................................219
11.1.3. Child Care Benefit for Children under 2 Years Old...........................................221
11.1.4. A Benefit to Families Taking Care of Persons with Group I Disability and
“Disabled Children”............................................................................................................222
Public expenditures on the Benefit to Families Taking Care of Persons with Group I
Disability and “Disabled Children”....................................................................................223
11.1.5. Other Social Assistance Programs.......................................................................223
11.2. Pension System.......................................................................................................226
12. Human Development and Human Poverty Reduction..................................................232
12.1. Health.....................................................................................................................232
12.1.1. Overview of Major Developments in 2003-2006 and Current Situation............232
12.1.2. Health Sector Priorities.......................................................................................237
12.1.3. Programming Budget Expenditure in Health Sector..........................................238
12.1.4. Public Policy Intersectoral Priorities in the Health Sector................................239
12.1.5. Specific Program Priorities.................................................................................240
12.1.6. Ensuring the access to medicines.......................................................................242
12.2 Education....................................................................................................................244
12.2.1 Accessibility of Educational Services and Poverty: A General Overview..........244
12.2.2 Primary Goals, Targets and Priorities.................................................................254
12.2.3 The Program Indicators for Public Expenditures in Education and the Expected
Outcomes...........................................................................................................................256
12.3 Poverty Reduction: Culture Concept.........................................................................261
12.3.1 General Overview...............................................................................................261
12.3.2 Objectives...........................................................................................................263
12.3.3 Key components of the culture concept of poverty reduction...........................264
12.3.4 Funding of programmes in the culture field for 2008-2021...............................270
12.4 Youth Policy...............................................................................................................271
12.4.1 Situation Overview.............................................................................................271
12.4.2 Key Principles and Objectives of National Youth Policy...................................274
12.4.3 Priorities for Action............................................................................................275
12.4.4 Key Objectives of National Youth Policy...........................................................277
12.1.5. Implementation, Monitoring, Evaluation and Funding.....................................278
12.5 . Environmental Protection.......................................................................................279
12.6. Urban Development...............................................................................................286
12.6.1. General Overview...............................................................................................286
12.6.2. Spatial Development and Planning.....................................................................287
12.6.3. Earthquake resistant design and construction....................................................289
12.6.4. Reduced impact of geological hazards (combatting landsclides).......................290
12.6.5. Improvement of Housing Conditions.................................................................291
13. Program for Sustainable Developement Budget Framework.........................................295
Key Developments in Fiscal Area in 2003-2006....................................................................295
2008 - 2021 Budget Framework Projections..........................................................................297
RA Public Debt......................................................................................................................300
14. Program Monitoring, Evaluation and Review..............................................................304

LIST OF TABLES
Table 1.1. Main Results of PRSP Implementation, 2006.............................................................26
Table 1.2. Distribution of consolidated budget expenditure growth in 2003-2006 (billion drams,
in current prices)..........................................................................................................................28
Table 2.1. Key indicators of economic growth and poverty as compared with PRSP-1 target
indicators.....................................................................................................................................37
Table 2.2. Income dynamics of poor and very poor population of Armenia in 1999-2005 (in
current prices, dram and percentage as compared with general incomes).................................43
Table 2.3. Monetary income flexibility of poor, very poor and non-poor population income in
1999-2005 (in current prices)......................................................................................................44
Table 2.4. Income dynamics of non-poor population in Armenia in 1999-2005 (in current
prices, dram and percentage as compared with general incomes)...............................................45
Table 2.5. Number of poor and very poor population and economic development dynamics by
marzes and in the rural-urban context, 1999-2006*....................................................................46
Table 2.6. Poor and very poor population in 1999-2006 and the dynamics of economic
development in 1999-2006 by marzes and village-city ratio*......................................................47
Table 2.7. Average territorial elasticity of poverty reduction and economic growth in 1999-2005
(in current prices)........................................................................................................................48
Table 2.8. Dynamics of economic development and regional differences of poverty in 1999-2005
.....................................................................................................................................................48
Table 2.9. Dynamics of poverty levels by gender and age groups, 1999-2006.............................49
Table 2.10. Dynamics of poverty level by household size, 1999-2005........................................50
Table 2.11. Dynamics of poverty level by the number of children and elderly in a household,
1999-2005*...................................................................................................................................51
Table 2.12. Dynamics of poverty level depending on employment status and education level (for
the population above 16) in 1999-2006.......................................................................................52
Table 2.13. Dynamics of poverty level for the most needy groups of the population in 1999-2006
.....................................................................................................................................................53
Table 2.14. Dependence of the level of the rural poverty on the altitude above sea level, 1999-
2006..............................................................................................................................................54
Table 2.15. Dependence of the level of rural poverty on the size of the owned land, 1999-2006
.....................................................................................................................................................54
Table 2.16. Borrowing capacity of farms and poverty level in 2002-2006..................................55
Table 2.17. Impact of social payments on the levels of poverty and extreme poverty in 1999-
2006..............................................................................................................................................56
Table 2.18 Impact of social payments on the levels of poverty and extreme poverty in 2005, by
regions..........................................................................................................................................57
Table 2.19. Per capita distribution of social payments by income deciles in 1999-2005*............58
Table 2.20. Distribution of family benefits by decile groups formed on the basis of consumption
aggregate in 2005*........................................................................................................................61
Table 2.21 Population employment and per capita monthly incomes in 1999- 2004 (in current
prices, dram)*...............................................................................................................................63
Table 2.22. Monthly income growth per employee in 2004 (in percentage as compared with
1999, Index=100)..........................................................................................................................64
Table 2.23. Employment and unemployment level or population in 1999- 2004.......................64
Table 2.24. Alternative estimates of poverty in 1999- 2005........................................................66
Table 3.1 The PRSP main target indicators for poverty reduction..............................................69
*by the average prices for the third quarter.................................................................................69
Table 3.2. The PRSP main target indicators for poverty reduction by particular groups of
population....................................................................................................................................70
Table 4.1. SDP macroeconomic framework: forecast of key indicators......................................76
Table 4.2. Projections of key indicators for the development of economy sectors......................79
Table 5.1. EBRD transitional status assessments in 2001 and 2006.............................................81
Table 5.2. EBRD assessments of “first” and “second” generations of reforms in 2001 and 2006.81
Table 5.3. “First” and “second” generations reforms implementation benchmarks.....................84
Table 5.4. Assessment of the quality of Armenia’s business environment in comparison with the
assessments of other transition countries’ business environment in 2006...................................86
Table 5.5. The quality benchmarks for business environment....................................................87
Table 5.6. Summary investment environment assessment in ECA countries, 2005....................93
Table 5.7. Target indicators characterizing the infrastructure quality, enterprise funding and
labor market 2005-2021...............................................................................................................97
Table 5.8. Target indicators characterizing the quality of public administration, the situation
with corruption, the quality of the judicial system and the influence of crime, 2005-2021......99
Table 5.9. Target indicators characterizing the innovation and technologies, and foreign
commerce, 2005-2021................................................................................................................101
Table 5.10. Investments in 2005-2021 (in prices of respective years).......................................102
Table 5.14. Dynamics of main indicators characterizing the monetary policy in Armenia in
2001-2007...................................................................................................................................108
Table 5.15. Gross foreign reserves and monetary aggregates forecasts for 2010-2021 (in
current prices)............................................................................................................................111
Table 5.16. Armenia’s financial system assets in 2001-2007 (bln drams in current prices)....112
Table 5.17 Structure of loan investments in 2001-2007, bln. drams......................................113
Table 5.18 Actual and rated values of domestic loan/GDP ratio in 2001-2007........................114
Table 5.19. Domestic loan/GDP ratio benchmarks envisaged for 2007-2021...........................114
Table 5.20. Actual and rated values of bank spread and bank capital/bank assets ratio 2001-2007
...................................................................................................................................................116
Table 5.21 Benchmarks for Interest rate spread and bank capital/bank assets ratio envisaged for
banking system in Armenia in 2007-2021.................................................................................116
Table 5.22. Benchmarks defining equity market volumes (in current prices) and capitalization in
2010-2021...................................................................................................................................118
Table 7.1: Main Indicators of Agricultural Development, 1996-2006.......................................139
Table 7.2: Export and Import of Agricultural Products, 1996-2006..........................................142
Table 7.3: Main Indicators Characterizing the Activities of Farms, 1996-2006........................143
Table 7.4: Main Indicators for Development of Agriculture, 2006-2021..................................145
Table 7.5: Target Indicators for Development of Agriculture, 2005-2021.................................147
Table 7.6: Target Indicators for Development of Agriculture, 2006-2021 (Year 2005 = 100)...147
Table 8.1. Armenia. Household access to drinking water, comparison between 1998/99 and
2004- 2006 (% of the population)..............................................................................................149
Table 8.2. Main target indicators for drinking water supply.....................................................154
Table 8.3. Main target indicators for irrigation sector...............................................................155
Table 8.4. Main target indicators for transport sector..............................................................156
Table 8.5. Main target indicators for energy sector...................................................................159
Table 9.1.GDP in Armenia. Regional distribution, 1999-2006 (AMD bln, current prices).......160
Table 9.2. GDP per capita in Yerevan, Marzes, Rural and Urban Areas, 1999-2006.................163
Table 9.3 Distribution of investments across Armenia, 2001-2006, by regions.........................165
Table 9.4. Regional development (GDP growth) average annual rate, 2008-2021....................165
Table 9.5. SDP regional distribution of planned investments...................................................167
Table 9.6. GDP per capita indicators, by regions.......................................................................168
Table 10.1: The Indicators of the ROA Governance System (percentage rating, 0-100,1998-2006)
...................................................................................................................................................170
Table 10.2: The Indicators of Governance System of the CIS and Eastern Europe Countries, 2007
(percentage rating, 0-100)..........................................................................................................171
Table 10.3. Public E-Services Subjected to Benchmarking by EU and ensuring them in Armenia
by 2021.......................................................................................................................................177
Table 10.4: Average Monthly Salaries for Employees of Public Administration System in 2007-
2021 (AMD ’000)........................................................................................................................184
Table 10.5: Planned Indicators for the ROA Governance System, (percentage rating, 0-100, 2006
- 2021)........................................................................................................................................188
Table 10. 6: Specific Weight of Total Judiciary Expenditures in the ROA and Several Other
Countries (2002).........................................................................................................................193
Table 10.7: Per Capita Expenses of Judiciary in the ROA and Several CIS and Eastern Europe
Countries (2004).........................................................................................................................194
Table 10.8: Average Monthly Salaries in the Judiciary, 2008-2021 (AMD ’000).......................195
Table10.9. Average monthly salaries of police staff in RA, and a number of EU and CIS
countries (2007).........................................................................................................................201
Table 10.10. Average monthly salaries of RA Police officers in 2008-2021..............................202
Table11.1. 2008-2021 projections for main indicators of social protection system funding......207
Table 11.2. 2008-2021 Projections for Main Indicators of Social Assistance System Funding. .209
Table 11.3: Dynamics for Number of the PFBS Registered and Beneficiary Families in 1999-
2007............................................................................................................................................211
Table 11.4: Dynamics of Public Expenditures Allocated for Family Benefits in 2000-2007.....211
Table 11.5: PFBS Impact Assessments.......................................................................................212
Table 11.6: Distribution of Family Benefit Recipient Population by Pre-Benefit Living Standard,
%................................................................................................................................................212
Table 11.7: Family Benefit Recipient Population in Pre-Benefit Consumption Deciles and Funds
Allocated for Benefits................................................................................................................214
Table 11.8: Family Benefits and Poverty in 2008-2021.............................................................216
Table 11.9: The Amount of Average Monthly Benefit per Benefit Recipient Family and Its Ratio
to Poverty Thresholds and MCB in 2008-2021..........................................................................217
Table 11.10: Ratio of Family Benefits to Minimum and Average Salaries in 2008-2021...........217
Table 11.11. The number of individuals who received one-off benefits for childbirth in 2001-
2007............................................................................................................................................219
Table 11.12. One-off childbirth benefit amount projections for 2008-2021.............................220
Table 11.13. Number of Beneficiaries of the Child Care Benefit for children under 2 over 1999-
2006............................................................................................................................................221
Table 11.14. Projections of the child care benefit for children under two over the period 2008-
2021............................................................................................................................................222
Table 11.15. 2010-2021 projections for the benefit amount for families taking care of Group I
disabled person and disabled child............................................................................................223
Table 11.16: Programmatic Indicators for Poverty Level of Pensioners....................................229
Table 12.1. Population Health Indicators and International Comparisons...............................232
Table 12.2 Program Indicators of Consolidated Budget Expenditure........................................238
Table 12.3 Targets for Maternal and Child Mortality................................................................241
Table 12.4: Dynamics of Public Expenditures in Education Sector in 2000-2006, percentage of
GDP............................................................................................................................................244
Table 12.5: The Structure of Public Expenditures in Education Sector in 2000-2006...............245
Table 12.6: Public Expenditures per School Student and Student in 2000-2006.......................247
Table 12.7: Program Indicators of the Consolidated Budget Expenditures in Education Sector256
Table 12.8. Intra-Sectoral Structure of Expenditures in Education Sector, % *........................257
Table 12.9. Per Student Public Expenditures in Elementary, Secondary and High Schools.....258
Table 12.10: Intra-Sectoral Structure of Public Expenditures in Professional Programs, %.....258
Table12.11: Structure of Public Expenditures in General Education, %...................................259
Table 12.12. State Budget Funding of Key Components of the Culture Sector, 2006-2021.....270
Table 12.13Public funding estimates for urban development sector, SDP framework, 2009 –
2012 (AMD mln)........................................................................................................................293
Table 13.1. Consolidated Budget Framework 2002-2007..........................................................295
Table 13.2. 2003-2007 Consolidated Budget Expenditure by aggregated budget components
(functional classification) (% of GDP)......................................................................................297
Table 13.3 2008-2021 Projections on Consolidated Budget Key Indicators..............................298
Table 13.5 2008-2021 Consolidated Budget Deficit and Funding Projections (% of GDP).......299
Table 13.6. Public Debt in 2002-2007 (% of GDP)....................................................................300
Table 13.7. Domestic Debt Transactions, 2002-2006, AMD million.........................................301
Table 13.8. RA External debt indicator projections...................................................................301

LIST OF FIGURES
Figure 1.1. Social sector expenditures of the consolidated budget in 2003-2006 (% as of 2002-
left axis) and their ratios to GDP and total public expenditures (%, right axis)..........................27
Figure 2.1. Economic growth and poverty reduction in Armenia in 1999-2005 (cumulative
percentage change to 1999).........................................................................................................39
Figure 2.2. Economic growth and poverty reduction in Yerevan in 1999-2005 (cumulative
percentage change to 1999).........................................................................................................40
Figure 2.3. Economic growth and poverty reduction in other towns in 1999-2005 (cumulative
percentage change to 1999).........................................................................................................41
Figure 2.4. Economic growth and poverty reduction in rural areas in 1999-2005......................41
Figure 2.5. Dynamics of the population incomes in Armenia in 1999-2005 (in percentage as
compared with 1999, in current prices).......................................................................................42
Figure 2.6. Impact of economic growth and social transfers on the poverty and extreme poverty
reduction in 1999-2005, %...........................................................................................................57
Figure 2.7. Distribution of the family benefits among poor and non-poor population in 2001-
2005, % (as by income deciles)....................................................................................................60
Figure 2.8. Number of the households registered in the family benefit system in 2005 (by
poverty level)...............................................................................................................................61
Figure 2.9. Major reasons for exclusion from the family benefits system by poverty levels.......62
Figure 2.10. Comparison of income growth due to economic growth and poverty line, 1999 and
2004..............................................................................................................................................65
Figure 51. General estimate for the quality of the investment environment for 2005-2021.......95
Figure 5.2 Estimates of infrastructure quality, enterprise financing and labor markets for 2005-
2021..............................................................................................................................................96
Figure 53. Estimates for the quality and corruption of public administration and judiciary and
crimes for 2005-2021...................................................................................................................98
Figure 5.4. Estimates for innovation and technologies and external trade for 2005-2021........101
Figure 6.1. The level of economic activity by age groups in 2002 and 2006, % of the relevant
population group........................................................................................................................123
Figure 6.2. Projections of the number of economically active population (assuming constant
economic activity level at 65%).................................................................................................124
Figure 6.3. Structure of population income in 1999-2006, % of toal income............................125
Figure 6.4 Dynamics of registered and real (self-reported) unemployment rates in 2002-2006126
Figure 6.5. Level of the real (self-reported) unemployment by age groups in 2002-2006.........127