Fiscal Consolidation and Recovery in Armenia

Armenia's strong economic growth
from 2001-2008, when real gross domestic product (GDP) grew
12.6 percent per year on average, boosted living standards
and created the fiscal headroom necessary for the Government
to respond to the 2009 financial crisis with a large fiscal
stimulus. As a result, the fiscal deficit reached 7.6
percent in 2009 and helped limit the contraction in real GDP
to 14 percent. With the economy growing again, the stimulus
has to be gradually withdrawn. However, the retrenchment
will need to be designed carefully to limit negative impact
on growth. Improving the efficiency of all aspects of public
finances - tax policy, tax administration, and public
expenditures - will be crucial to the planned fiscal
adjustment. With the ratio of tax revenues to GDP lower than
that of comparator countries with similar levels of income
per capita, the brunt of the fiscal consolidation should be
borne by an increase in tax revenues (the lower bound
estimated to be between 2.3 and 5.8 percent of GDP).