World Bank launches New Partnership Strategy with Armenia

(Press Release) - The World Bank Board of Directors today discussed a new Country Partnership Strategy (CPS) with Armenia, which provides the framework guiding the World Bank's assistance to Armenia for 2009-2012.

This Strategy, prepared at a time when Armenia is rocked by the global economic crisis, is intended to assist Armenia to resume growth and reduce the impacts of the crisis on the poor. It also aims to help Armenia lay the foundation for a more competitive economy—a key requirement for diversified and sustainable growth.

The strategy reflects Armenia’s eligibility for International Bank for Reconstruction and Development (IBRD) borrowing, which has stemmed from Armenia’s success in reducing poverty by fifty percent over the last 10 years. The Strategy also encompasses operations of the International Finance Corporation (IFC)—the World Bank Group’s private sector arm that lends to private companies. In addition to its lending operations, the World Bank will provide a range of analytical and advisory services in support of Armenia's development agenda.

Armenia has benefited tremendously from openness to global trade and investment, and its future is closely linked to better integration with the global economy. However, the country has been struck by a steep fall in demand for its exports, a collapse of metal prices, and a sharp decline in remittances and foreign direct investment. These have led to a severe economic contraction in 2009, lower fiscal revenues, and rising unemployment and poverty.

“In a difficult global environment, Armenia faces the simultaneous challenges of reducing the impacts of the crisis on the poor, and laying the foundations for rapid recovery and sustained post-crisis growth,” said Asad Alam, World Bank Regional Director for South Caucasus. “To help Armenia succeed in this, the World Bank is scaling up its efforts, through both additional financing and intensive dialogue. The three IDA Fast-Track projects recently launched in Armenia were prepared very quickly and are already generating local employment.”

The new CPS is firmly grounded in Armenia’s Sustainable Development Program (SDP), which is built on the two challenges of addressing vulnerability (for the short-term) and strengthening competitiveness for post-crisis growth (for the long-term). The World Bank Group will extend $670-700 million in financing to Armenia under the Strategy, of which $150 million will be low interest IDA credits; $395 million will be IBRD lending, and some $120-160 million will go to the private sector through the IFC.

To address vulnerabilities, the World Bank will support Armenia’s budget through Development Policy Operations to help protect key pro-poor programs and strengthen the management of education, health, and social protection programs. In addition, the Bank will lend for projects that will generate short and medium-term community employment and thus reduce the risks of rising poverty in the country.

To strengthen competitiveness for post-crisis growth, the same Development Policy Operations will help improve the business climate; strengthen the regulatory environment in infrastructure; ensure sustainable use of energy and natural resources; and reinforce accountability, transparency, and efficiency in the use of public funds. The Bank will also help build a knowledge-based economy with the necessary IT infrastructure and improved education of the labor force, reduce transport costs by improving roads, help make energy more reliable and efficient, and improve irrigation systems.

Armenia’s Development Results

The Rural Enterprise Small-Scale Commercial Agriculture Development project, is already improving infrastructure (drinking water, irrigation, etc.) and helping to generate higher rural incomes by providing modern tools (agricultural machinery, milk collection coolers, etc.) to farmers who need it and who are testing technical innovations. Also, some 100 long-term loans have been provided to farmers through participating financial institutions. The CPS has allocated additional financing to the project, and also envisages a follow-up Agriculture project to continue to strengthen rural competitiveness and reduce social vulnerabilities in rural areas.

Community investments in the poorest communities have helped rehabilitate basic small-scale social and economic infrastructure through the Social Investment Fund III project. So far, 700 community driven initiatives have been supported, reaching up to 1.8 million people. By the time the project is completed, around 180 of the neediest communities will have benefited from renovated schools with heating, specialized schools, community centers, potable water, and irrigation systems. The CPS has provided additional financing that will improve infrastructure and will generate short-term jobs that are badly needed in the current financial crisis.

In the Financial sector, through the Access to Finance for Small and Medium Enterprises project, medium-term financing will become available to small and medium businesses through local banks, which will help minimize job losses, and will encourage investment and economic growth.

The Second Education Quality and Relevance project will build on the achievements of previous projects and extend the reform agenda to cover preschool and higher education. A new energy project will help enhance the reliability and capacity of the electricity transmission network and reduce the energy consumption of public buildings. A new irrigation project will continue the rehabilitation of irrigation systems and help to create federations of Water Users Associations.

The IFC will also provide financing to support growth of the private sector. To support improvements in the business enabling environment, the IFC has launched an advisory initiative, which will help decrease the costs of doing business in Armenia and bolster the competitiveness of its private sector. IFC will also remain engaged in the development of housing finance, through advisory and investment services, and will directly finance eligible private companies and invest in sectors where Armenia has a comparative advantage.

Since joining the World Bank in 1992 and IDA in 1993, the commitments to Armenia total approximately US$1.2 billion.