The document discusses Armenia's economy and key development challenges. It notes that Armenia experienced strong growth following the global financial crisis, but the economy remained dependent on non-tradable sectors. Poverty decreased but inequality increased. The World Bank intends to support job creation through improving the business environment, agriculture, infrastructure, and macroeconomic stability. Priority reform areas include health, education, social protection, disaster risk management, and anti-corruption.

2. Better connectivity, better livelihoods…
Out of each 6 communities 1 has benefitted from the rehabilitated roads
Easily Accessible Precious Commodity…
For each hour of water Yerevan residents now get 2 extra hours of high
quality water
The World of Knowledge is a Click Away…
Half of the teaching force is actively using multimedia technologies in the
classroom
Empowering the Communities…
1 out of each 4 persons benefitted from temporary employment under ASIF
managed projects has later on transferred to a permanent job
Some of the Key Results of Our Engagement

3. Security in Old Age…
All pensioners receive their pensions in a well-timed manner
Yielding the Entrepreneurial Spirit….
2 out of each 3 beneficiary SMEs have expanded their volume of production
and services during the global crisis
Upgraded Courts, Superior Justice…
2 out of each 3 courts in the country have been rehabilitated
Less Paper, more Results…
Instead of 1 or 3 business days now it takes 40 minutes to circulate
documents among various state bodies
Some of the Key Results of Our Engagement

4. *Recent Economic
Developments

5. The crisis revealed weaknesses in
the growth model.
• Armenian economy grew by
about 12%
• Construction became the
dominant sector
• The high level of informality
(40% of the sector's turnover
and two-thirds of
employment)
• The share of manufacturing
declined from 17% to 9% of
GDP
• The fiscal deficit jumped from
less than 2 percent of GDP to
7.6%
The Government’s strong counter-
cyclical fiscal policy focused mainly on
increased spending on infrastructure,
social protection, and emergency
financing for enterprises.
-60.0
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
2008-Q1
2008-Q2
2008-Q3
2008-Q4
2009-Q1
2009-Q2
2009-Q3
2009-Q4
2010-Q1
2010-Q2
2010-Q3
2010-Q4
2011-Q1
2011-Q2
2011-Q3
2011-Q4
2012-Q1
2012-Q2
2012-Q3
GDP Agriculture Industry Services
Sources: NSS data and Bank staff calculations.
Figure 3. Real GDP and its Components
(year-on-year change in percent)

6. *
Inflation dynamics followed
developments in agricultural
production
• Agriculture contracted by 16.2 %
in real terms in 2010
• Inflation soared to double-digits
in early 2011
• Recovery of agriculture brought
prices down
• Inflation returned to the Central
Bank’s target of 4%
Strong growth of exports contributed to
improving external balances
• Average growth rate of merchandise
exports was 37%
• High growth of exports narrowed trade
deficit from 24.% to 20.5 % of GDP
• After shrinking by 30% remittances
rebound to 10% above the 2009’s level
• Remittances eased pressures on current
account
• Current account deficit reduced to 10.7 %
of GDP

7. *
• Crisis response policies
substantially expanded the
fiscal deficit from 0.4% of
GDP in 2008 to 7.6% of GDP
in 2009
• In 2011 public-debt-to-GDP
ratio peaked at
approximately 42 percent,
up from 16.4 percent at the
end of 2008
• Lending from multilateral
and bilateral donors
remained the key source of
deficit financing
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2008 2009 2010 2011 2012
Revenue and grants Tax revenue Expenditures Overall balance
Key Fiscal Indicators, 2008-2012
(percent of GDP)
Source: MOF, NSS and Bank staff calculations

8. *
Progress notwithstanding, the
economy grew primarily on the basis
of its transition catch-up premium
and the development of non-
tradable sectors
• Over the past decade, the tradable
sectors either stagnated or shrank.
• The exceptions were tourism and,
more recently, the mining and
information and communication
technology (ICT) sectors.
• Armenia’s labor market
experienced little transformation
during this process.
Armenia has yet to experience a
significant transformation of its
economic structure
• Manufacturing and services have yet
to absorb the excess labor in rural
areas, and agricultural productivity
is still too weak to increase
significantly.
• In the labor market, a tremendous
amount of mobility needs to take
place to move workers from low-pay
and low-productivity jobs to high-
pay and high-productivity ones.

9. *Poverty, Inequality and
Gender

10. *
Source: “Social Snapshot and Poverty in Armenia”, 2012, National Statistical Service (NSS).
Inequality as measured by the Gini coefficient increased on the basis of
both consumption (from 0.24 to 0.27) and income aggregates (from
0.34 to 0.37).

11. *
Employment. Employment
plays a key role in
determining the poverty
status.
Poverty incidence with no
employed members was 41%––
21% higher
Women earn on average 40
percent less than men
Education. Poverty incidence
is the lowest among those
with tertiary education:
Approximately 16% points lower
Households headed by
individuals holding university
degrees on average had
consumption levels 24%
Demographics. The
demographics of the
household, both in gender and
composition, affects poverty
incidence:
Female-headed households are
more likely to be poor (34.3%
vs. 35.2%);
Households with several young
children are more likely to be
poor
Household location and
migration. Location also
correlates to household
welfare:
Households with members who
had emigrated demonstrated
18-23 percent higher
consumption

12. A development policy operation (DPO) series will help the government to plan
its financing needs and establish a framework for cross-sectoral policy reform
dialogue, complemented by knowledge products and TA operations
Strengthening
Competitiveness
1. Improve the
business
environment
Enhance
competition
2. Promote
industrial
development and
exports
3. Develop the
financial sector
4. Enhance the
sustainability of
key infrastructure
Enhancing Social
and
Environmental
Sustainability
1. Strengthen
social protection
systems,
especially
coverage and
targeting
2. Roll-out the
integrated social
services centers
across the country
3. Mainstream
environmental
sustainability in
the mining sector
Improving
Efficiency of
Public
Administration
1. Fight corruption
and conflict of
interest in public
sector
2. Mobilize tax
revenue
3. Reform the civil
service
4. Promote e-
governance

13. *Job Creation

14. Growth
Job
Creation
Poverty
Reduction
Opportunitie
s
For All
TransfersTaxes
*

15. *

16. The World Bank intends to support private sector-led job creation through the
four outcome areas
Improve the business
environment and
investment climate
Support to improve the
environment for SME
development
-appropriate macroeconomic
policy
-flexible exchange rate policy
-business climate reform
-export and investment
promotion
-corporate financial information
and access to finance
Increase agricultural
production in a
sustainable way
1. Support the
development of
agriculture and rural
development with better
value chain and market
integration
2. Through enhanced
infrastructure support
sustainable development
of the agricultural and
rural economy
3. Support competitive
businesses along the
agriculture supply chain
Upgrade key economic
infrastructure services
1. Accessibility of quality
economic infrastructures,
notably transport, energy,
water and sanitation
2. Support reforms aimed
at addressing regulatory
weaknesses in air
transport to improve air
connectivity
Maintain macroeconomic
stability

17. Improved maternal and child health, NCD management, and hospital efficiency,
accountability and quality
• develop primary healthcare, improve health financing, optimize and modernize public
hospitals
• assist in better targeting limited health budget to the poor
Improved general education quality and labor market linkages of higher education
• improve school readiness of children entering primary education
• improve the learning environment in general education, including integration of ICT
into teaching and learning processes and enriching education in high schools
• increase partnerships between higher education institutions and the private sector
established under the Competitive Innovation Fund
Improved coverage and targeting of the FBP and efficiency of social services
delivery
• assist in identifying options for further updates to the FBP’s eligibility formula
• support the integrated delivery of social services through one-stop-shops
Improved disaster risk mitigation and adaptation
• support the development of catastrophe risk financing and weather risk hedging
instruments

18. * Improved anti-corruption framework in public services
• promote improved access to information on Government activities, notably through
the ongoing electronic procurement program which would allow disclosure of
procurement outcomes, effective contract management to ensure compliance with
deliverables, and public reporting to enhance accountability over results
• strengthen the core anti-corruption bodies, including the Anti-Corruption Council,
Anti-Corruption Strategy Implementation Monitoring Commission, and Ethics
Commission for High-Ranked Officials. Additional efforts should concern, notably, the
Chamber of Control (CoC)
• roll-out legal and judicial reforms to capture demand-side institutions, including
advocacy and pre-court investigative functions and documentation
• design and implement a capacity development and anticorruption training and
awareness program for employees across all levels of the civil service
• strengthen the CoC’s auditing capacity and professionalism

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