Summary of Country Operations and Prospects for Engagement (SCOPE) Equitable Growth, Finance & Institutions Armenia | ECA Key Indicators Indicator Value (Year) Poverty headcount ratio at $1.90 a day (2011 PPP) (% of population) Shared prosperity (%) GINI index (World Bank estimate) (Index 0-100) Human Capital Index (HCI) (Scale 0-1) Regulatory governance score (Score 0-5) Transparency accountability and corruption in the public sector (Scale 1-6) Trade (% of GDP) Gross domestic product, constant prices (% change) Current account balance (% of GDP) Financial institution account (% age 15+) Ease of doing business (Ranking 1-190) Labor productivity: Output per employed person ($) Revenue, excluding grants (% of GDP) Domestic credit to private sector (% of GDP) 1. Context, challenges and opportunities • Armenia is a small open economy of $3,937 GDP per capita (2017), a 3 million population and a parliamentary democracy.Services account for about half of GDP, followed by agriculture, on a declining path. Poverty stood at 25.7 percent in 2017.With two out of four borders closed, the country is heavily affected by a conflict with Azerbaijan and vulnerable to geopolitical risks. • Macro-fiscal and financial sector management is sound. Macro-fiscal policies are prudent thanks to sound monetary and exchange rate policies. Growth was strong in 2017 at 7.5% rebounding from a 2016 flat growth, with medium-term outlook of 4.5%. In 2016, public debt exceeded the domestic fiscal rule threshold of 50 percent of GDP, forcing to an aggressive fiscal consolidation across the board. Revenue collection despite an improving trend remains below peers. The 2018 FSAP found the CBA managing the financial sector effectively. • Macro-financial vulnerabilities include high public debt, low FDI and high exposure to shocks coming from the Russian economy, through FDI, remittances and trade, and high dollarization. Social challenges include a declining and aging population, low formal employment, spatial disparities in living standards and skills mismatches. Other challenges are public and economic governance gaps such as justice reform and corruption, lack of competition and low productivity in both public and corporate sectors. Lack of connectivity illustrated by a low export growth and undiversified trade is a key constraint. EFI SCOPE Note: Page 1 of 6 • Opportunities include a reform-minded government freshly appointed after a 2018 peaceful revolution, an appetite for ICT technological advances and a dynamic diaspora. Armenia can benefit from being a multi-club member, benefiting from Eurasian Economic Union membership and close links to the EU. Greater economic opportunities will be key to poverty reduction and shared prosperity as highlighted by the increasing role of employment and wages as drivers of poverty reduction. 2. Current engagements EFI is committed to contributing to Armenia's transition and poverty reduction and equity agenda by supporting export enablers and firm competitiveness connectivity, strengthening governance, and greater resilience (macro and micro). A Development Policy Operation under preparation supports the above priorities across the board. In line with the upcoming CPF, EFI priority engagement respond to the above challenges and opportunities above as follows: • Enhancing growth and competitiveness. EFI is engaged to support: 1. Competition and competitiveness, including greater integration with global value chains (GVCs). This includes 'just-in-time' engagements on GVCs, innovation, digitalization, investment climate, advice on the competition ecosystem, lowering trade costs and an ICT high-tech value chain analysis, in addition to support to agriculture value chains. Activities also include the restructuring of the trade promotion and quality standards (TPQI) IBRD project. 2. Diversified finance, with a program in the financial sector informed by the 2018-completed FSAP (cash-less economy, capital market development), support to PPP pipeline development. • Strengthening Governance by focusing on its nexus with competitiveness and growth . That includes an IBRD Public Sector Modernization Project (PSMP3), focusing on PFM and e-governance. • Building resilience: EFI is engaged to improve: 1. Macroeconomic and fiscal management and risks mitigation through macroeconomic monitoring (bi-annual economic updates and MPOs, monthly updates, just-in-time notes), support to PFM improvements e.g. through improving public investment management (PIM), strategic procurement and PPP development, and internal audit to limit fiscal risks and allow greater efficiency of public asset management. That also includes supporting the design of a bank resolution framework. 2. Household resilience through a poverty reduction programmatic engagement (knowledge generation and monitoring, operational support, technical assistance for measurement of living standards, statistical capacity building), responsible finance and financial inclusion (deposit insurance, financial inclusion, pension reform) and technical assistance for better understanding of distributional impacts of taxes and transfers reforms. 3. Pipeline and future engagement opportunities In line with the above challenges and priorities, pipeline activities support: • Greater resilience, governance and competition, through a Development Policy Operation, to be delivered in 2019. An EU-funded economic governance TF is planned for mid-2019 (Euro 2.5m) with activities on fiscal and debt, procurement, PIM, and regulatory framework. We will reengage in the Justice sector, one of the unfinished reforms in Armenia, through a Justice sector survey (in the context of EU engagement in several countries of the region) which will be prepared in the first half of 2019 to be implemented subsequently, and possibly a Justice sector functional review. To engage with the Government on its high priority governance and anti-corruption agenda, we will prepare a Just-In-Time governance roadmap in early 2019. Future engagement opportunities may include: • To follow on reforms and support the broad spectrum of CPF priorities: Development Policy Operations, possibly in FY22 and later. • To further support inclusive competitiveness and resilience: A growing engagement on competition and market contestability, responsible finance, deposit insurance, fiscal risks, integration with GVCs, regional integration, lowering connectivity and logistics costs, assessing the environment for e-commerce, with an EFI integrative EFI SCOPE Note: Page 2 of 6 approach. • To support leveraging greater resources for government priorities: TA for PPP pipeline development, together with a TA for PPP fiscal risks (PFRAM). • To support the Government focus on governance and anti-corruption: possible areas of engagement may be anti-corruption, civil service, public sector management, or customs. 4. Ongoing lending, ASA (WB) or AS (IFC) activities led by EFI * "Size" indicates "Commitments" for Lending; "Activity Plan" for WB ASA; and "Total Funds Managed by IFC " for IFC AS. "Milestone" indicates "Board Date" for Lending; "Closing Date" for Portfolio and WB ASA; and "Implementation End" for IFC AS. Activity details Practice Manager Team Lead Status Milestone* Size (in K)* Lending $124,000 FCI $50,000 P146994: Trade Promotion and Quality Marialisa Motta Yeraly Beksultan Active 6/30/2020 $50,000.0 Infrastructure GOV $21,000 P149913: Public Sector Modernization Daniel J. Boyce Davit Melikyan Active 12/31/2020 $21,000.0 Project III MTI $50,000 P169624: Armenia Resilience and Sandeep Mahajan Genevieve F. Pipeline 10/29/2019 $50,000.0 Competition Development Policy Operation Boyreau POV $3,000 P155630: Implementation of the National Carlos Silva-Jauregui Moritz Meyer Active 6/30/2021 $3,000.0 Strategy Program for Strengthening of the N ASA (WB) $2,622 FCI $842 P166048: Armenia #E013 Long-Term Marialisa Motta Raquel Alejandra Active 11/30/2019 $352.4 Finance – Capital Markets Development an Letelier P170065: Armenia Deposit Insurance (FIRST Marialisa Motta Natalia Tsivadze Active 7/30/2021 $230.0 TA) P169971: FSAP finalization and financial Marialisa Motta Isfandyar Zaman Active 7/29/2019 $140.0 sector work Khan P169451: Realizing Armenia's Technology Marialisa Motta Ifeyinwa Uchenna Active 9/25/2019 $120.0 Potential Onugha GOV $1,690 P170814: Armenia: Supporting Tax Daniel J. Boyce K. Migara O. De Active 6/30/2021 $970.0 Administration and Policy Leadership Silva P165251: Programmatic Technical Daniel J. Boyce Pierre Prosper Active 12/17/2020 $564.5 Assistance on Public Financial Management Messali P170398: Looking Forward: Strategically Daniel J. Boyce Eva Maria Melis Active 6/28/2019 $70.0 Engaging in Select Reform Areas in Armenia P170344: Portfolio Implementation Support Daniel J. Boyce Lusine Grigoryan Active 6/30/2019 $50.0 and assessment of Alternative Procurement P169857: Assessment of strategic V. S. Krishnakumar Tanvir Hossain Active 6/28/2019 $35.0 procurement system with realistic cost estim MTI $90 P166748: A Reform Assessment on Sandeep Mahajan Sara Nyman Active 6/21/2019 $90.0 Competition in Armenia: Fostering Market Co EFI SCOPE Note: Page 3 of 6 AS (IFC) $3,008 FCI $3,008 600244: Armenia Investment Climate II Damien Shiels Nazaryan, Arsen Active 3/31/2018 $1,508.5 601945: Armenia IPP/Agribusiness Project Damien Shiels Nazaryan, Arsen Active 12/31/2020 $1,500.0 603670: Armenia Women Entrepreneurship Damien Shiels Mkrtchyan, Gayane Active $0.0 Project 5. Ongoing lending or ASA (WB) activities co-led by EFI Activity details Practice Manager Team/Co-Team Status Milestone* Size (in K)* Lead ASA (WB) N/A P162052: Armenia Systematic Country Carolina Sanchez Genevieve F. Active 4/19/2018 Diagnostic Boyreau (OTH) Nistha Sinha (POV) 6. Country Team Program Leader (OTH) Genevieve F. Boyreau 5252+239 / 995-322-296239 Program Leader gboyreau@worldbank.org ECCSC TBILISI, GEORGIA Country Team Member (FCI) Arsen Nazaryan 5251+4289 / 374-10-594-289 Senior Private Sector Specialist anazaryan@ifc.org GFCE2 YEREVAN, ARMENIA Isfandyar Zaman Khan 5258+70584 Lead Financial Sector Specialist ikhan2@worldbank.org GFCEE VIENNA, AUSTRIA EFI SCOPE Note: Page 4 of 6 Karen Grigorian 5220+87451 / 1-202-458-7451 Senior Private Sector Specialist kgrigorian@worldbank.org GFCAE WASHINGTON, DC Wolfgang Fengler 5258+70780 Lead Economist wfengler@worldbank.org GFCEE VIENNA, AUSTRIA Yeraly Beksultan 5248+474 Senior Private Sector Specialist ybeksultan@worldbank.org GFCEE ASTANA, KAZAKHSTAN Country Team Member (GOV) Arman Vatyan 5251+4227 Lead Financial Management Specialist avatyan@worldbank.org GGOEE YEREVAN, ARMENIA Armine Aydinyan 5251+4246 / 374-10-594-246 Procurement Specialist aaydinyan@worldbank.org GGOPC YEREVAN, ARMENIA Davit Melikyan 5251+4234 / 374-10-594-234 Senior Public Sector Specialist dmelikyan@worldbank.org GGOEE YEREVAN, ARMENIA Galina S. Kuznetsova 5738+2063 / 7-499-921-2063 Sr Financial Management Specialist gkuznetsova@worldbank.org GGOEW MOSCOW, RUSSIAN FEDERATION K. Migara O. De Silva (202) 473-2303 Senior Economist kdesilva@worldbank.org GGOAE WASHINGTON, DC Kathrin A. Plangemann 5220+37012 / 1-202-4737012 Lead Public Sector Specialist kplangemann@worldbank.org GGOEE WASHINGTON, DC Lusine Grigoryan 5251+4241 / 374-10-594241 Financial Management Specialist lgrigoryan1@worldbank.org GGOEE YEREVAN, ARMENIA EFI SCOPE Note: Page 5 of 6 Pierre Prosper Messali 5220+89488 Senior Public Sector Specialist pmessali@worldbank.org GGOEE WASHINGTON, DC Tanvir Hossain 5255+2270 / 994-12-4921941 Senior Procurement Specialist thossain@worldbank.org GGOPC BAKU, AZERBAIJAN Country Team Member (MTI) Armineh Manookian Salmasi 5251+4242 / 374-10-594242 Economist amanookian@worldbank.org GMTE2 YEREVAN, ARMENIA Evgenij Najdov 5252+250 / 995-322-296250 Senior Economist enajdov@worldbank.org GMTE2 TBILISI, GEORGIA Sara Nyman (202) 473-5897 Senior Economist snyman@worldbank.org GMTCI WASHINGTON, DC Country Team Member (POV) Alan Fuchs Tarlovsky 5220+81339 / 1-202-458-1339 Senior Economist afuchs@worldbank.org GPV03 WASHINGTON, DC Cesar A. Cancho 5220+82218 / 1-202-458-2218 Economist ccancho@worldbank.org GPV03 WASHINGTON, DC EFI SCOPE Note: Page 6 of 6