NOVEMBER 18, 2004 – The World Bank today approved a Poverty Reduction Support Credit (PRSC) for Armenia worth US$ 20 million. The first of a three-year program by the World Bank, this project is designed around four themes and targeted to support the implementation of the government’s PRSP program.

The International Development Association (IDA) Credit will assist the government in sharpening competition and entrenching property rights, mitigating social and environmental risks, consolidating macroeconomic discipline and modernizing the rural economy.

„The project will assist the government to implement the ambitious Poverty Reform Strategy over the coming years,“ said Saumya Mitra, World Bank Task Manager and head of the team designing the project. „It will also support the government’s drive to improve the quality in the delivery of essential public services.“

The PRSC is based upon and supports the policy and institutional reforms reflected in the Government’s PRSP document, and builds on achievements of the previous Bank supported Structural Adjustment operations provided by the World Bank from 1994 until 2003 (5 SACs and a Rehabilitation Credit).

The Poverty Reduction Support Credit is designed around the following four themes:

• Consolidating macroeconomic discipline and strengthening governance. The first theme recognizes that a continuation of Armenia’s exemplary macroeconomic performance over the past five years is necessary to underpin high rates of growth. Moreover, governance reforms that cut across budget, fiduciary, revenue raising, and public administration institutions and sectors will improve the climate for private sector investment, remove opportunities for corruption, and enhance revenue mobilization.
• The second theme of sharpening competition and entrenching property rights – cutting across trade, utilities regulation, property and contract law, banking and capital markets, and rural sectors – addresses the key weaknesses in the competition environment. Armenia needs to reduce transaction costs and sharpen its competitive edge by complementing its highly liberal regime in trade in goods with liberalization in key services and by consolidating its impressive reforms in state owned utilities. In addition, entrenching property rights through the provision of a legal framework for secured transactions, by instilling confidence in the banking sectors and developing insurance markets is essential to secure increasing rates of private investment.
• Social and environmental risks – the third theme – that cuts across education, health, social risk management and environmental protection sectors – are designed to be mitigated by a program of reforms directed at raising both the share of public spending devoted to these sectors and the quality of spending through changes in their composition and institutional reforms. The resulting strengthening of human capital and reduced risks for sustainable natural resource use will greatly assist in the reduction of poverty.
• Interventions in the rural economy – the final theme – that cuts across the agriculture, non-farm incomes, and infrastructure sectors – are intended to modernize a lagging sector of the economy and one in which the impact of growth on poverty needs to be further strengthened. Greater predictability and sustainability in public services in rural Armenia is expected to strongly benefit the fight against poverty.

The project will also be supported by a EURO 4.3 million co-financing Grant from the Netherlands Government, which together with PRSC I proceeds will support the State budget.

The Credit will be made to Armenia on standard IDA terms, including 40 years maturity and a 10-year grace period.

Since joining the World Bank in 1992 and IDA in 1993, the commitments to
Armenia total approximately US$ 841 million for 37 operations.