MAJOR STRUCTURAL REFORM DEVELOPMENTS
The authorities advanced their efforts to institutionalize the fight against corruption.
An anti-corruption strategy for 2019-23, approved in October 2019, outlines the new institutional framework and proposes concrete actions. The strategy envisages setting up an Anti-corruption Committee, an independent entity in charge of detection and investigation of corruption offences, in 2021. Also in October 2019, the government approved the 2019-23 Strategy for Judicial and Legal Reforms aiming at enhancing the effectiveness of courts, the prosecutor’s office and investigative bodies as they play a key role in the anti-corruption fight.
New labor market policies have been adopted.
These include an employment strategy and an increase in the minimum wage. The employment strategy aims to address persistent labor market shortcomings. Armenia is facing skills mismatches despite rising educational attainment levels, and the private sector often has difficulty in finding skilled workers although the unemployment level is high. Adopted in December 2019, the employment strategy “Work, Armenia” proposes a set of active labor market policies in order to address labor market shortcomings and create sustainable and inclusive employment. At the same time, the government approved an increase in the minimum wage by 23 per cent to the equivalent of US$ 142 per month, effective from January 2020.
The authorities have adopted a new strategy for the development of capital markets.
Implementation of the capital market development programme, adopted by the authorities in July 2020, would help better utilize domestic savings while increasing transparency in the corporate sector and enhancing the monetary transmission. The programme analyses the current state of the capital market in Armenia and proposes an action plan to strengthen the foundations, expand the market and achieve longer-term goals.
Improvements in the business environment have been made.
At the end of 2019, the authorities created an Investment Support Office within the Ministry of Economy to promote domestic and foreign investments. The office acts as a one-stop-shop for investors, providing information on investment opportunities and the business environment, and supporting investors in accessing public services and in communicating with the state authorities. The government approved a set of measures for 2020-23 to address drawbacks in the business environment as identified in the World Bank Doing Business 2020 report, while the strategy for the development of SMEs for 2020-24 and the associated action plan for 2020-22 aim to create a more favorable environment for smaller companies. Lastly, to strengthen state-owned enterprise (SOE) reporting requirements, audit and publication of financial reports of SOEs fulfilling certain criteria were made mandatory from January 2020.
- Strong economic growth and macroeconomic stability have been challenged by the shock of the Covid-19 pandemic. GDP growth of 7.6 per cent in 2019 was followed by a slowdown to 3.7 per cent year-on-year in the first quarter of 2020 and to a 13.7 per cent year-on-year decline in the second quarter.
- A crisis response package has been supported by external financing. To cope with rising financing needs the authorities drew on the existing International Monetary Fund (IMF) programme and augmented the financial assistance envelope.
- The authorities took steps to tackle longstanding governance and business environment deficiencies. Measures adopted in the past year are helping to institutionalise the fight against corruption, address labour market shortcomings and advance business environment reforms.
- The government should continue steps towards a new growth model. The Covid-19 pandemic has shown the limitations and weaknesses of a growth model based on consumption driven by remittances. Good domestic policies, drawing on the support of the diaspora, could be helpful in exploiting new opportunities in the post-pandemic world.
- Reforms in the key areas of governance and competition need to continue. The institutional fight against corruption, a better rule of law and a good business environment are key components in building an economy more resilient to external shocks.
- Fiscal prudence should be continued with a clear focus on needs and priorities. Once the Covid-19 crisis subsides and the flare-up in Nagorno-Karabakh calms, the fiscal prudence characteristic of the last year can help to reduce the elevated public debt level. However, that should not be at the cost of much-needed infrastructure investments.