Armenia

1
Armenia Public Expenditure Reviewthe Report
by the World Bank2002
2
Armenia country background

• 3 mln people, 2.5 bn economy
• More 6 mn in the Diaspora
• IDA post-conflict country
• Leading reformer in the CIS
• Average growth in 2000-03 about 8

3
Core recommendations

• Improve a revenue performance by at least 2 of
  GDP
•  
• Provide for major improvements in budget
  accountability
•  
• Ensure an additional reduction in budget deficit
  relative to the 2001 level and full elimination
  of quasi-fiscal deficit
•  
• Channel incremental revenues to increase
  expenditures on basic health and education as
  well as on old-age pensions
•  
• Accelerate sectoral and civil service reforms to
  ensure much more efficient use of budget
  resources, primarily in social sectors and public
  administration. 

4
Innovative Technical Features

• Attention to the off-budget and quasi-fiscal
  issues
• Coverage of revenue performance
• Incidence analysis of public spending in health
  and education
• Combination of institutional analysis with the
  analysis of policy outcomes at both macro and
  sectoral levels
• Emphasis on cross-country comparisons

5
The Pace of Fiscal Adjustment
6
Off-budget Grant Assistance, US mn 
7
Scheme of QF Subsidization
8
Tax collections in transition economies
9
Expenditure Ratios in Selected Economies

• Under-financing of Health and Social
  Protection/Insurance vs. Education
• Very low level of spending on Government
  Administration
• Defense and Real sector really too high

10
Sources of budget uncertainty

• Non-realistic budgeting
• Budget is over-committed
• Budget discipline is weak
• High dependence on external financing

11
Budget transparency
-- Quality of classification, coverage, budget
accounting

• Switching to the new GFS (2001) budget
  classification and transition to the new
  accounting standards
• Consistency in presentation between annual budget
  Laws and budget execution reports
• Improvements in reporting on budget arrears,
  guaranties, on multi-sectoral donor projects,
  non-cash external grants
• Reporting on salaries in the budgetary sector and
  public employment
• Transparency of operations of the Reserve Fund
• Making budgetary support for public utilities
  more transparent
• Reduce share of spending classified as other
  expenditures
• Establishment of a modern system of financial
  reporting by state enterprises, including in
  education and health

12
Features of Policy Dialogue

• Joint PER with the Government
• Working Group chaired by the 1st Dep Minister of
  Finance
• Local Consultants as a bridge to the senior MOF
  staff
• Direct link to the TA programs of the IMF and
  DFID
• Expanded consultations at the final stage of the
  report preparation 8 months of editing

13
Links to the Lending/TA (1)

• 1. SAC5 several core conditions
• Plan to Improve Budget Management 15 specific
  benchmarks
• Action Plan on Tax and Customs Administration
  12 specific benchmarks
• School Rationalization Program
• Hospital Optimization Plan in Yerevan
• Advancing Pension Reforms (collections and
  increase in the benefits)

14
Links to the Lending/TA (2)

• 2. Education Credit funding to consolidate
  reforms per capita funding, downsizing,
  attrition (15,000 redundant teachers)
• 3. IDF Grant Expanding Treasury Capacity
• 4. New Stage of the DFID Program capacity
  building for the MTEF

15
Specific Outcomes

• Making a MTEF an annual exercise
• Increase in health Spendingby more than 1/3 in
  2002 vs. 2001
• Improvements in budget transparency share of
  non-classified budget expenditures from 1/3 to
  12 in 2003
• Increased number of active taxpayers to the
  Pension Fund by more than 10
• Improved administration of excise taxes