COUNTRY PROGRAM SNAPSHOT World Bank Group – Armenia Partnership April 2015 0 RECENT ECONOMIC AND percent and contributed 3.0 percentage points to SECTORAL DEVELOPMENTS inflation. Interventions by the Central Bank of Armenia (CBA) have limited depreciation and led Growth Performance to an appreciation in the real effective exchange rate that might, however, hinder export Low growth continued during 2014. After competitiveness. losing steam toward the end of 2013, the economy slowed further to around 3.4 percent in 2014 (see Fiscal Performance figure 1), as the decline in the construction and mining sectors more than offset the growth in The fiscal deficit contracted in 2014. Under- agriculture, manufacturing, and services. execution of spending led to a surplus in the state budget during the first nine months of the year. Figure 1. Real GDP Growth (percent) Overall tax revenues grew by 5.0 percent in 2014. Indirect taxes also grew, mainly due to higher 15 value added tax (VAT), the excise tax on tobacco, 10 and changes in personal income taxation and 5 mining royalties. 0 Armenia’s borrowing capacity in 2015–16 2007 2008 2009 2010 2011 2012 2013 2014 -5 might be constrained by legally defined fiscal rules on debt thresholds. Actual indicators for -10 2013 and World Bank staff estimates for 2014–15 -15 suggest that by the end of 2015, Armenia’s public debt-to-GDP ratio might exceed 50 percent. This implies that the Government might be obliged to Industry as a whole stagnated in the same period. declare a moratorium on new borrowing in 2016 The mining sector shrank by 5.8 percent, and the to comply with the Eurasian Economic Union energy sector experienced an even larger decline (EEU) Membership Agreement, i.e., draft a state (15.1 percent). Jointly, these losses offset the 7.7 budget for 2016 that limits the budget deficit to percent contribution to growth from well below 3 percent of the average GDP for manufacturing. In 2014, growth was mostly driven 2012–14. Alternatively, the Government may seek by the non-tradable sectors (see figure 2). Parliament’s approval of legislative amendments to expand the borrowing space for providing a Figure 2. Contribution of Tradable and Non- fiscal impulse. Tradable Sectors (percentage points) 1 15 Financial Sector Performance 10 5 Armenian banking sector assets continued to grow rapidly in 2014, even though the sector’s 0 stability and resilience were tested in the fourth 2005 2010 2004 2006 2007 2008 2009 2011 2012 2013 2014 -5 quarter by the nominal depreciation of the -10 Armenian dram (AMD) and the lower inflow of -15 remittances from Russia. According to the CBA, Tradable Non-tradable assets of Armenia’s banking system accounted for 69 percent of GDP and loans accounted for 42.1 percent of GDP in December 2014, and the share Inflation and Monetary Policy of nonperforming loans (NPLs) increased to 7.0 percent compared to 4.5 percent in December Annual consumer price index (CPI) inflation 2013. The aggregate capital adequacy ratio (CAR) was 4.6 percent in 2014, well within the 2.5–5.5 of Armenian banks declined to 14.5 percent percent target band. Food prices grew by 6.2 compared to 16.7 percent at the end of 2013. However, the country’s banking system thus far 1 For the analysis in this section, tradable branches are remains well capitalized above the minimum industry and agriculture, and non-tradable branches are required 12 percent CAR, with the return on construction and services. 1 equity (RoE) at 6.4 percent. The financial The stock of external public debt decreased performance of the sector must be carefully by 2.7 percent from January to September 2014 monitored in light of continued foreign exchange and reached US$3.3 billion. During the first and liquidity pressures driven by lower remittances nine months of the year, the CBA repaid around and higher NPLs. US$66 million of the Stand-by Arrangement with the International Monetary Fund (IMF), which The CBA has undertaken a number of accounted for the bulk of the decrease in the measures to mitigate the negative impact of CBA’s obligations to multilaterals. Those declined exchange rate volatility, foster banks’ by 8.3 percent in the reporting period and capitalization to offset growing NPLs, and contributed 0.9 percentage points to the overall contain price inflation. Specifically, at the end of decline of external public debt. 2014 to early 2015, the CBA: (i) increased the mandatory reserve requirements for commercial Outlook and Risks banks in foreign currency from 12 percent to 24 percent; (ii) increased the refinancing rate by 375 Economic contraction in Russia represents a basis points in three stages; and (iii) increased significant downside macroeconomic risk for banks’ minimum capital requirement sixfold Armenia in 2015. The 2014 slowdown of effective from January 1, 2017. economic activity in Russia—the key destination for Armenian labor migrants and the largest External Sector Performance market for agricultural and manufacturing exports —has already led to a contraction in remittances, The trade deficit narrowed by 0.9 percent in exports, and FDI. Armenia is also heavily 2014. The largest reduction came from higher net dependent on copper exports and thus susceptible exports of processed food, due to the unilateral to base metal prices, which are likely to continue waiver of export duties on natural gas and oil to decline over the medium term. products by Russia (see figure 3). At the same time, low growth, remittances (which fell 10 Financial Sector percent over the course of 2014), and the adjustment in the exchange rate helped reduce Armenian banks remain severely exposed to imports. currency-induced credit risk and AMD funding constraints. Despite heavy dependence Figure 3. Merchandise Exports by Major on foreign currency deposits and external funds Categories (US$) 160 from parent banks and international lenders, local 140 currency lending grew until mid-November 2014, 120 100 with a negative impact on dollarization. The AMD 80 lost about 14 percent of its value against the U.S. 60 40 dollar (December 2014 vs. 2013). As of December 20 2014, foreign currency–denominated deposits 0 year-on-year grew by 11 percent and reached 72 Jan Apr Apr Feb Sep Dec Jan Feb Sep Dec Aug Nov Aug Nov Mar May May Jun Jul Oct March Jun Jul Oct percent of total deposits, while foreign currency– 2013 2014 denominated loans increased by 30 percent year- Gold&jewelry Machinery&equipment Metals&minerals on-year and reached 66 percent of total loans. Other primary Manufacturing The Armenian financial sector remains Inflows of foreign direct investment (FDI) did heavily dominated by the banking sector, not improve in 2014. In the first nine months, which comprises 21 private and one net inflows of FDI amounted to US$359.3 development bank, accounting for 92 percent million, or 4.8 percent of GDP. However, the of financial sector assets. Fifteen foreign-owned bulk of those investments were earnings accruing banks dominate the banking sector, with a 70 to Russian investors engaged in the energy sector. percent market share in total assets and 73 percent The energy sector attracted almost 40 percent of in statutory capital. Ameriabank is the largest bank FDI inflows. in terms of assets, with a market share in June 2014 of 11.7 percent in assets, 13.9 percent in loans, and 13.5 percent in deposits. Market 2 concentration is not high, and further Public Sector/Governance consolidation of the banking sector is expected during 2015–16 in response to the CBA’s capital Since 2011, the state budget has been increase requirement. Non-bank financial designed using a program-based budgeting institutions (NBFIs) account for only 7 percent of format. This informal exercise has sought to financial sector assets. strengthen the linkages between policy objectives and budgets, although the formal budget Private Sector Development continues to be prepared based on economic classification. Since fall 2013, based on the revised The World Bank is a strong advocate of Law on the Budgetary System, the presentation of micro, small, and medium-sized enterprise program budgets to the National Assembly has (MSME) growth. The Bank’s support is aimed at been mandatory. A Public Expenditure and (i) establishing a clearer legal framework to Financial Accountability (PEFA) assessment in strengthen government capacity to deliver services 2013 provided an overview of the post-crisis and (ii) reducing regulatory barriers to improve the public financial management (PFM) system, business environment and investment climate, observing improvements in 11 out of 31 PEFA thereby encouraging new business entries and indicators. improving access to finance. E-government is an overarching direction for Armenia has undergone extensive business all public sector reforms supported by the environment reforms over the past years and World Bank, the European Union (EU), and has achieved a remarkable turnaround in its other donors. Both the executive and judicial investment climate. In 2014–15, Armenia branches of government have introduced their improved its ranking by four to 45th position out own e-government portals, with a growing of 189 economies in the Doing Business ranking, number of services and an increasing amount of and the World Economic Forum’s Global information available online. Competitiveness ranking improved from 98th place in 2010–11 (out of 139) to 85th in 2014–15 INFRASTRUCTURE DEVELOPMENT (out of 144). However, this has not yet translated into substantial increases in FDI or business Energy activity. Fostering entrepreneurship and stimulating the growth of MSMEs continue to be Armenia’s energy sector has moved from among the major development challenges. severe crisis to a state of stability that is more characteristic of developed countries than Mining emerging markets. A combination of policy, legal, regulatory, and institutional reforms has Since 2007, the International Finance rendered remarkable results, as improvements in Corporation (IFC) has been investing equity operating efficiency have helped create in Lydian International to finance the Amulsar commercially viable service providers, a decrease gold mine project. Mining is Armenia’s main in technical and nontechnical line losses, and an export-generating sector. IFC’s investment has increase of nearly 100 percent of sales in enabled Lydian to prepare the Amulsar mining collections as of December 2013. project, with a potential to attract additional mining exploration and investment to the country. However, Armenia faces three principal The World Bank is also engaged in the mining challenges in meeting these energy sector sector through budget support operations and objectives: (i) an emerging supply gap; (ii) the technical assistance, with support to the new need to maintain energy supply reliability; and (iii) Mining Code as well as measures to incentivize the need to maintain affordable tariffs. Poor responsible mining to better align the industry households spend around 15 percent of their with good environmental practices. disposable income on energy. 3 Roads investments—making the returns on such an investment low. As a landlocked country with limited transport routes, the road network is essential to Water and sanitation tariff adjustment and Armenia’s sustainable economic cost recovery are an important sector reform development. The road transport network has a element that is being supported by the significant impact on the country’s economic Development Policy Operation Series (DPO, competitiveness and to a large degree determines 2013–15). The reform is expected to result in the success of the export-oriented economy. adequate tariff levels, allowing for the fulfillment of services in the long term with a robust method The total length of Armenia’s road network is of dealing with future change to ensure the water 7,704 kilometers, excluding urban roads, less sector’s long-term sustainability. than half of which is in good or fair condition. The Government has prioritized the rehabilitation Irrigation and Drainage and reconstruction of roads, as reflected in the Transport Sector Strategy and the Armenia The Government is working to recover Development Strategy. irrigated areas and consequently to increase rural incomes by rehabilitating the country’s The improvement of the road network for irrigation and drainage infrastructure. More than rural communities has been one of the 80 percent of agricultural GDP is generated from Government’s key objectives. These roads are irrigated lands. Thus, the deterioration of the called “lifeline” roads and they cover about 40 irrigation infrastructure threatens rural percent of Armenia’s rural roads. As part of its employment and rural incomes. anti-crisis policy aimed at creating temporary employment through investment in public works, Agriculture the Government has embarked on a program to make significant investments in the improvement Agriculture constitutes 19.2 percent of GDP of the “lifeline” road network. and contributes substantially to employment and rural incomes, as 40 percent of total Lifeline Roads reconnect isolated rural employment is involved in the sector. communities to their urban centers. Large disparities remain in the rural poverty levels between Armenia’s regions. In the mountain communities, rural poverty incidence grows with altitude: 34.7 percent above 1,700 meters, as opposed to 27.1 percent below 1,300 meters or 29.5 percent in the 1,300–1,700 meter range. Access to sufficient land resources is also critical. Poverty affects 40.6 percent of landless rural residents, 32.4 percent of those with access of up to 0.2 hectares of land, and around 30 percent or less of those who own more than 0.2 hectares. Water Some 335,000 farms operate in the sector, with Over the past decade, the Government has an average landholding of around 1.4 hectares per strived to improve access to, and the reliability household. This is rather small for efficient and quality of, drinking water and its agriculture and a diversified production system, infrastructure. However, there are still several involving both crops and livestock. The agro- sector-related challenges that need to be addressed processing subsector is the main employer in rural to further improve the water sector in the medium areas. to long term. Nonrevenue water (NRW) remains high, but the costs entailed in reducing it are also The economic downturn increased the very high—given the needed infrastructure vulnerability of small-scale operators, making 4 them more dependent on livestock and natural HUMAN DEVELOPMENT resources for their livelihoods. At the same time, the livestock sector is facing serious challenges, Shared Prosperity, Poverty Reduction, and such as unsustainable pasture management and the Labor Market underutilization, persistent livestock diseases, processing and marketing constraints, and reduced Since the 2009 global economic crisis, productivity. Additionally, there are huge Armenia has made limited progress in fluctuations in the supply of dairy products, with reducing poverty. Patterns of shared prosperity most milk produced in the summer months and between 2010 and 2013 show that growth has almost no production in winter and spring. benefited the top 60 percent of the income distribution more than the bottom 40 percent. These challenges limit Armenia’s capacity to Analysis of the drivers of poverty reduction and exploit opportunities stemming from profiles of the bottom 40 percent clearly show the increasing domestic demand. Imported meat importance of labor markets, remittances, and now accounts for half of national meat public spending on social protection. consumption, due to low productivity in the livestock sector and the unreliable supply of meat The World Bank’s shared prosperity indicator and milk. The dairy and meat sectors are measures growth in the mean consumption of competitive in the domestic markets, however, the bottom 40 percent of the welfare and there is scope for strengthening their distribution (see figure 5). This indicator, competitive position through addressing reflecting the extent to which aggregate growth in productivity and supply constraints. the economy reaches the less well-off in society, shows that in the early 2000s, economic growth in ICT Sector and Innovation Armenia benefited the poor and vulnerable in the country. However, the global economic crisis of Information and communications technology 2009 and the sluggish recovery diluted those gains. (ICT) has become one of the important sectors of the Armenian economy, contributing Prior to the crisis, the bottom 40 percent to technological innovation and productivity enjoyed an annual growth in mean growth in the country. In 2013, the turnover of consumption of 4.29 percent, exceeding the the Armenian software and services sector population average of 3.50 percent per year. In reached approximately US$245.7 million, resulting 2009, the bottom 40 percent were hit hard by the in a 21.4 percent compound annual growth rate contraction of the economy, facing a reduction in (CAGR) during 2008–2013. This turnover consumption of 7.46 percent per year, a constitutes about 3.6 percent of Armenia’s contraction larger than that experienced by the nominal GDP and 9 percent of export (see figure economy as a whole. Especially between 2012 and 4), although the sector employs only 1 percent of 2013, the annual growth rates in mean labor of the country. consumption suggest that the bottom 40 percent of the welfare distribution was not able to grow at Figure 4. Armenian ICT Industry Turnover a speed similar to the rest of the population. 300 mln. USD Exports Figure 5. Patterns of Shared Prosperity: Percentage 250 Growth of Mean Consumption Domestic Market 200 150 100 50 0 2006 2008 2010 2011 2012 2013 Source: World Bank Armenia Poverty Assessment 2015, based on data from the Integrated Living Conditions Survey. 5 In 2013, 32.0 percent of the population lived effects of growth on poverty reduction. During below the national poverty line of 39,193 the time period following the global economic drams, an incidence of poverty that has decreased crisis, Armenia witnessed a widening gap between only marginally since the 2009 economic crisis, the relatively rich and the poor in society. and GDP per capita declined by 14.1 percent (see figure 6). Between 2008 and 2011, the poverty Although Armenia has had success in headcount increased by 7.4 points—from 27.6 reducing poverty, since the 2009 crisis the percent to 35.0 percent—but growth did not country has not performed as well as other translate into sustainable poverty reduction. low-middle-income countries in the Europe Between 2011 and 2013, the poverty rate and Central Asia (ECA) region (see figure 8). decreased only 3 percent. Comparisons over time show that poverty in Armenia fell sharply between 2001 and 2008; Figure 6. Changes in Poverty in the Aftermath of poverty at US$2.50 per person per day fell from the Crisis (as percentage of population) 67 percent in 2001 to 26 percent in 2008. Cross- country comparisons show a high level of poverty in Armenia, although lower than in neighboring Georgia.2 In 2013, 30 percent of the population lived on less than US$2.50 per person per day, while about 80 percent lived on less than US$5. The poor and those in the bottom 40 percent are more likely to: (i) live in urban areas outside the capital; (ii) have larger households with more Source: Integrated Living Conditions Survey (ILCS) data 2009–2013. children; (iii) have less education; (iv) be out of the labor force or unemployed; (v) live in households headed by women; and (vi) be more dependent on The geography of poverty in Armenia shows substantial gaps between the capital city income from agriculture. Yerevan (25.6 percent), rural areas (31.7 Figure 8. Relative Poverty in Armenia based on percent), and other urban areas (39.4 percent) Consumption Data (as percentage of population) (see figure 7). Between 2008 and 2009, poverty in Yerevan increased dramatically from 20.1 to 26.7 percent of the population and then slowly declined to 25.6 percent in 2013. Regional disparities are linked to structural differences related to employment and economic activity across regions. Figure 7. The Geography of Poverty in Armenia Source: World Bank Armenia Poverty Assessment 2015; (as percentage of population) calculations based on Integrated Living Conditions Survey. The size of the working-age (15–75 years) population was 2.3 million in 2012, or 75 percent of the population.3 Of these, 63 percent were economically active. The economically inactive population was made up of students, homemakers, and pensioners. Among the economically active, 17 percent were unemployed. Source: Integrated Living Conditions Survey (ILCS) data 2009–2013. 2 The differences between the national and ECA-harmonized poverty rates lie in the different consumption aggregates Consumption inequality is relatively low in used, as well as the application of adult equivalence in the Armenia but shows an increasing trend. national measure as compared to per capita in the ECA- harmonized measure. Although inequality is a concern in itself, it can 3 Republic of Armenia, “Social Snapshot and Poverty in also weaken the transmission of the possible Armenia 2013” (Yerevan: National Statistical Service, 2013). 6 Among the employed, nearly 60 percent were policies to cash transfers in order to reduce engaged in paid work, 30 percent in own-account the root causes of poverty through the work, and 14 percent in unpaid family work. provision of integrated social and employment Services followed by agriculture accounted for the services. To this end, the World Bank has been largest share of employment. Only 20 percent supporting the realization of new Integrated Social were employed in the public sector. Nearly half of Service Centers and the modernization of the unemployed were in Yerevan. About 50 employment services through Social Protection percent of the jobs were informal, mainly in Administration Projects. These centers will allow agriculture, and about 26 percent of the employed for the administration of benefits and delivery of and 40 percent of the unemployed were poor. services in a single location, and should with time facilitate the provision of well-coordinated social The share of the working-age employed is policies to tackle the different challenges faced by low. Over time, employment growth has not kept household members, in line with international best pace with the increase in the working-age practices. population or economic growth. The employment-to-population ratio is low, largely Education because of the low employment-to-population ratio of women. The GDP contraction in 2009 Considerable progress has been made to was accompanied by a fall in men’s employment- improve access to preschool, general to-population ratio from 60.6 percent in 2008 to education, and higher education. Armenia has 56.7 percent in 2009; women’s employment share nearly achieved universal enrollment rates at the remained unchanged. primary (grades 1–4) and lower secondary (grades 5–9) levels with little geographical or Between 2008 and 2012, poverty rates were socioeconomic disparity. Indicators compare well substantially lower than what would have with the countries at similar stages of economic occurred in the absence of certain public development in the ECA region. In terms of policy measures. Government efforts to financing, Armenia invests 2.6 percent of GDP in maintain public spending on social protection education overall, of which 0.3 percent is invested cushioned and helped alleviate poverty during this in higher education. Both of these figures are low. severe downturn. Poverty would have been much higher in the absence of these transfers before and A wide range of reforms aiming at improving during the crisis. In 2013, poverty incidence would education quality and efficiency have taken have been 46 percent in the absence of social place in the sector. The Government developed protection, as opposed to the actual rate of 32.0 a National Curriculum Framework with new percent. Pensions represent the largest social standards and syllabi, extended general education transfers, reaching 53 percent of households, and from 10 to 12 years, and introduced a network of thus have the greatest impact on poverty high schools that offer specialized streams. alleviation among the whole population. Furthermore, there has been a concerted effort to provide all 1,431 schools in Armenia with The family benefits program (FBP) is computers and Internet access. The Government Armenia’s flagship noncontributory social has also introduced a teacher certification system, assistance program, covering 12 percent of the complemented by the implementation of population, and the most pro-poor transfer in comprehensive professional development policies Armenia. The FBP is means tested and accords and performance-based salary differentiations. priority to the poor and other vulnerable social groups, such as the elderly, persons with Improving student performance remains a key disabilities, and orphans. Although still fairly well challenge. The results of the Trends in targeted to the bottom 40 percent, the precision International Mathematics and Science Study has fallen over the past two years, in part because (TIMSS) indicate that Armenian student of the categorical component of the targeting performance at 4th and 8th grades is not formula that allows coverage to socially vulnerable improving and that the overall level of but non-poor households. achievement is low compared to the Organisation for Economic Co-operation and Development The Ministry of Labor and Social Issues (OECD) average. These results corroborate with (MLSI) is actively pursuing complementary 7 the gap between the formal qualifications of 2010 and 2013, hospitalization rates significantly graduates and the skills employers actually require. increased in the different regions. Employers are increasingly pointing out that those graduating from post-secondary education THE WORLD BANK GROUP ROGRAM institutions often lack the skills to meet their IN ARMENIA needs and to succeed in today’s labor market. World Bank Program Health The Country Partnership Strategy (CPS) for Since the late 1990s, Armenia has made FY14–17 supports accelerating growth, significant achievements in redesigning its reducing poverty, and boosting shared health system. Key reforms have included: (a) prosperity. This is to be accomplished by strengthening primary health care (PHC) providing policy advice and investments in three provision; (b) downsizing excess hospital capacity; strategic clusters: (i) supporting competitiveness (c) changing provider payment mechanisms and and job creation; (ii) improving the efficiency and introducing a purchaser-provider split; and (d) targeting of social services; and (iii) improving targeting the poor in providing free-of-charge governance and anti-corruption measures. health care services. The World Bank’s portfolio in Armenia Many health indicators are improving, but performs satisfactorily and consists of 18 challenges remain. Since 1995, the average life operations with a total commitment of expectancy in Armenia has increased. Infant, US$592.7 million. It includes US$200 million in child, and neonatal mortality continue to decline, International Development Association (IDA) approaching targets set in the country’s maternal credit and US$391 million in International Bank and child health (MCH) strategy. Nevertheless, for Reconstruction and Development (IBRD) Armenia’s health care system is still struggling to loans, along with a Global Environment Facility effectively respond to the epidemiological changes (GEF) project amounting to US$1.8 million. An in morbidity and mortality patterns in recent years. active program of 42 trust fund operations The greatest burden of disease now comes from totaling US$18 million is cofinancing ongoing noncommunicable diseases (NCDs); roughly 80 projects that support institutional capacity percent of all deaths are due to a combination of building and activities in key reform areas. circulatory system diseases, malignancies, respiratory system diseases, and diabetes mellitus. Financial Sector The World Bank continues its support to A major challenge in addressing the current financial sector development through a NCD burden is the relatively low government number of policy reforms supported by the health budget. The health budget for 2014 was third Development Policy Operation (DPO-3), increased by 14 percent, and the number of poor specifically in the area of consolidated supervision covered by a free health benefits package went up and secured transaction reform, information by 46 percent. Despite this, at a level of 1.51 disclosure, insolvency, and NPL foreclosure. In percent of GDP in 2013, Armenia has one of the addition, the Bank provides technical assistance to lowest state allocations to health in the region. the Ministry of Finance to enhance its capacity in The share of public sector expenditures comprises financial sector regulation, pension reform only 36.8 percent of total health expenditures, and oversight, and financial sector policy formulation. the level of out-of-pocket payments remains high. Private Sector Development Utilization of health services, both PHC and The World Bank is supporting the hospital, has increased. PHC per capita visits diversification of exports and tradable per year have doubled since 2001, increasing from industries. Specifically, the Trade Promotion and 1.8 to 4.0 in 2014. A further increase is expected Quality Infrastructure Project will strengthen the in the next three years following the full-scale Government’s capacity to provide export implementation of active screening programs on promotion, investment attraction, and quality NCD early detection and management. Between infrastructure services to firms. The project laid the groundwork for IFC’s new Armenia Investment 8 Climate Reform Project. This will support the of the Armenian Roads Directorate, upgrade Government in designing its investment policy road construction standards, improve road safety, and improving the legal framework for FDI enhance the sustainability of road financing and attraction, along with advancing business management, and adopt new road design and inspection reforms. maintenance technologies and approaches. Energy Agriculture The World Bank promotes electricity supply The ongoing IDA-funded Community Agriculture reliability through a US$79 million loan to Resource Management and Competitiveness (CARMAC) rehabilitate an important segment of the Project and a follow-up CARMAC-2 project are key transmission network. The Bank is also instruments for addressing farmers’ supporting improvements in the energy efficiency competitiveness through addressing productivity of social and other public facilities (e.g., schools, and supply constraints. kindergartens, hospitals) through a US$1.82 million GEF grant. The grant, coupled with Water US$8.8 million in government cofinancing, The Bank has supported Armenia’s efforts to supports energy-efficiency investments in social provide a safe and constant water supply and and other public facilities. reduce environmental pollution through water management projects (US$50 million for Yerevan Under the Scaling-Up of Renewable Energy and US$58 million for the areas outside Yerevan). Program (SREP) and with World Bank Over 332,000 households in Yerevan and 264,000 support, the Government prepared an households in the regions have benefited from Investment Plan that identifies priority improvements in the duration of water supply and renewable energy technologies and projects. water quality. Under the SREP Investment Plan, Armenia will receive US$40 million in concessional financing. The Government opted to partner with the The Geothermal Exploratory Drilling Project at the private sector to introduce significant reforms. Karkar site (a US$8.55 million SREP grant With the Bank’s support, the Government administered by the World Bank) will help to introduced a performance-based management confirm (through exploratory drilling) whether the contract for Yerevan. Building on its success, the geothermal resource at the site is suitable for authorities decided on a lease contract for 10 power generation and, if confirmed, to involve the years, supported by a second project. A public- private sector in the development of a geothermal private partnership (PPP) model was subsequently power plant. Implementation is expected to replicated for urban areas outside Yerevan, commence in June 2015. Preparation of the covering about 45 percent of the population. Utility-Scale Solar PV project is also under way to add around 25–30 megawatts (MW) of solar Irrigation and Drainage energy–based generation capacity. While much has been achieved, the need for irrigation rehabilitation investments in Roads Armenia remains high. The ongoing Irrigation The World Bank supports the Government’s System Enhancement Project helps improve the effort to improve the road network for rural availability and reliability of important sector data communities through the Lifeline Roads and information for decision makers and Improvement Project (LRIP) and two continues the institutional reforms with a focus on additional investments, as well as the newer water management, including the wider use of Lifeline Road Network Improvement Project (LRNIP), modern irrigation techniques and a more efficient with total financing of US$146.6 million. The use of water. objective of this reform program is to continue to the rehabilitation of lifeline roads and strengthen ICT and Innovation the management capacity of the lifeline network, The World Bank is supporting the and thereby improve the access of rural development of the ICT sector under the E- communities to markets and services. Society and Innovation for Competitiveness Project. The project has contributed to an The Bank also provides technical assistance increase in the share of the population with access to strengthen the in-house technical capacity to a computer, a share that more than tripled 9 between 2009 and 2013. Under the project, the finance the foreign trade transactions of Armenian first regional technology and innovation center companies, thus boosting trade. IFC has provided was opened in Gyumri in September 2014. two loans of US$4 million and US$3 million in local currency, which will be lent to MSMEs and Education entrepreneurs nationwide. Bank support includes two investment projects. The second Education Quality and IFC, together with other international Relevance Project (EQRP) (US$25 million) aims at financial institutions, has invested in the first enhancing school learning in general education professionally structured and managed private and improving the school readiness of children equity fund in the South Caucasus region, Small entering primary education. The Education Enterprise Assistance Funds (SEAF) Caucasus, to Improvement Project (EIP) (US$30 million) targets provide debt and equity capital to MSMEs. In investments in preschool, general school, upper December 2013, IFC issued a AMD 2 billion secondary, and higher education. (approximately US$5 million) bond to strengthen Armenia’s capital markets and boost lending to Health the private sector. The bond is IFC’s first dram The Bank has supported the health sector issuance; it is also the first placement by a through two Health System Modernization nonresident issuer and the first foreign corporate Projects amounting to US$60 million, which bond issued in Armenia’s capital markets. focus on providing more accessible, high-quality, and sustainable health care services to the Energy population. The new Disease Prevention and Control IFC has provided a US$15 million loan to Project will improve MCH services and the Ameriabank, along with advisory support prevention, early detection, and management of from the Armenia Sustainable Energy Finance selected NCDs at the PHC level. Project, for lending to small hydropower projects, supporting Armenia’s renewable energy sector, The IFC Program and Strategy and helping lower greenhouse gas (GHG) emissions. Projects supported by the loan are Armenia became an IFC member in 1995. expected to reduce carbon dioxide emissions and Since then, IFC has invested more than US$320 help increase Armenia’s domestic electricity million in 52 projects across a range of sectors, production. As of fall 2014, the bank had financed including financial markets, manufacturing, and 12 small hydropower plants (SHPPs) with mining, and mobilized nearly US$23 million from installed capacity of 40.1 MW, annual generation other lenders. IFC Advisory Services provide of 124.9 gigawatt hours (GWh), and expected advice through projects focusing on the financial annual GHG emission reductions of 49,964 tons sector, sustainable energy, regulatory of CO2 equivalent (tCO2e). simplification, and food safety. With the support of the Government of Financial Sector Canada, IFC has partnered with HSBC Bank IFC’s strategy in Armenia is part of the joint Armenia to expand the financing of renewable World Bank Group CPS. IFC’s priorities include energy and energy-efficiency projects, supporting the development of MSMEs to create promoting the efficient use of resources and employment opportunities, promoting energy reducing GHG emissions. It has provided HSBC efficiency to increase the competitiveness of local Bank Armenia with a US$30 million companies and mitigate climate change, and loan, including US$8 million from the IFC-Canada helping banks improve risk management to reduce Climate Change Program, and advisory support their vulnerability to economic downturns. from the Armenia Sustainable Energy Finance Project. The advisory services from IFC support energy- IFC loans to financial institutions are efficient and renewable energy projects for strengthening lending to MSMEs, including those MSMEs in Armenia. So far, the bank has financed in rural areas, and helping several banks engage in nine projects with expected energy savings of international interest rate and currency swap 34,991 MWh per year (MWh/y) and an expected transactions to reduce risks. Under the Global annual GHG emission reduction of 6,614 tCO2e. Trade Finance Program (GTFP), IFC helped banks 10 IFC funding, along with advisory support Agriculture from the Armenia Sustainable Energy Finance IFC has supported agribusiness in Armenia in Project, is being provided to Byblos Bank a wide range of interventions. A US$2.5 million Armenia to increase access to housing finance loan to Euroterm, a leading producer of Noyan and support Armenia’s first residential energy- fruit juices and preserves in Armenia, benefits the efficiency lending packages offered by a local rural community by creating jobs, boosting bank. So far, the bank has financed 59 projects agriculture, and increasing exports. IFC has also with expected energy savings of 801 MWh/y and provided advisory services to Euroterm, helping an expected annual GHG emission reduction of implement a food safety management system 401 tCO2e. based on international standards. The IFC Armenia Food Safety Improvement Project has helped increase Advisory support from IFC also helps partner the competitiveness of Armenian food producers banks design renewable energy and energy- and facilitated access to market for local food efficiency financing products, encouraging them producers by helping them implement food safety to adopt international environmental and social management systems and build the capacity of standards and contribute to decreasing GHG local consultants. Loans to Armenia’s ACBA- emissions. Credit Agricole Bank (US$50 million in total) expand lending to local MSMEs and agribusinesses, boosting job creation and economic growth. 11 ARMENIA: IRRIGATION SYSTEM ENHANCEMENT PROJECT Key Dates: Approved: May 22, 2013 Effective: July 15, 2013 Closing: June 30, 2017 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IBRD loan 30.00 10.07 19.93 Government of 7.5 Armenia Total 37.5 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: The irrigation System Enhancement Project (ISEP) is designed to address some of the irrigation and drainage (I&D) sector challenges with the aim of contributing to the country’s ultimate goal of ensuring efficient, cost -effective, and sustainable irrigation. ISEP will consolidate the results achieved to date through past operations and develop synergies with ongoing and planned outcomes. The Project Development Objectives are (i) to reduce the amount of energy used and to improve irrigation conveyance efficiency in targeted irrigation schemes; and (ii) to improve the availability and reliability of important sector data and information for decision makers and other stakeholders. Results achieved to date:  Energy savings of slightly more than 38 million kilowatt hours (kw/h), equivalent to about 30 percent of the total needs of the irrigation system in Armenia;  Improvement in the conveyance efficiency of the outlet canals of selected schemes by reducing water losses from 1.91 liters per second per 100 meters (liters/s/100m) to 0.71 liters/s/100m;  Crucial information for irrigation water management made available, including: (i) an updated estimate of the operations and maintenance (O&M) needs of the I&D system; (ii) an updated estimate of the extraordinary maintenance (EM) needs of the I&D system; (iii) information on the amount of water made available to the system and to its operators—water supply agencies (WSAs) and water users associations (WUAs); and (iv) an analysis of the effectiveness of irrigation institutions (WSAs and WUAs) in the performance of their duties. Key partners: The Bank works closely with the Ministry of Agriculture and State Committee of Water Systems (SCWS), as well as the Ministry of Finance. Key development partners: The Bank team closely cooperates with the Eurasian Development Bank (EDB), which the Bank assists in preparing a project in the sector in order to ensure that the principles underlying the project design are confirmed (cofinancing request to WUAs for tertiary rehabilitation, respect for environmental and social considerations for any pump-to-gravity interventions, etc.). Other partners involved in the sector are the German Development Bank (KfW), the French Development Agency (AFD), and the Japanese International Cooperation Agency (JICA). 12 ARMENIA: LIFELINE ROAD NETWORK IMPROVEMENT PROJECT Key dates: Approved: January 31, 2013 Effective: July 15, 2013 Closing: June 30, 2017 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IBRD Loan 45.00 17.8 27.2 Government 11.25 of Armenia Total 56.25 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Since the launch of the Lifeline Road Improvement Project (LRIP) in 2009, there have been noticeable improvements in both local employment and journey time. Despite the extensive rehabilitation and visible improvement, about 50 percent of Armenia’s Lifeline Road Network (LRN) remains in poor condition, and there is still an important investment shortage. The degraded part of the LRN causes high transport costs and journey times for road users, restricting connectivity to key markets such as agriculture and to important services such as health and education, as well as negatively affecting the country’s competitiveness. This has occurred due to a historic pattern of underinvestment and deferred maintenance, resulting in a considerable maintenance backlog. Deferred maintenance leads to a future burden of more expensive rehabilitation and road reconstruction, which increases overall transport costs in the long run. The Project Development Objective is to improve the access of rural communities to markets and services through the upgrading of selected lifeline roads, and to strengthen the capacity of the Ministry of Transport and Communications to manage the LRN. Results achieved to date: IDA Core Indicators:  Average speed on lifeline roads in project areas improved  The share of the rural population with access to an from 20 to 31.6 kilometers per hour (target: 40); all-season road increased from 51 to 57.4 percent  Development and use of Risk Assessment and Management (target: 60); System (RAMS) within Ministry of Transport and  The number of rural people with access to an all- Communications to support decision making on LRN is in season road increased from 600,000 to 675,285 progress; people (target: 710,000), of which 364,654 are  Number of “Safe Village” projects completed is 13 (target: women; 4);  The proportion of roads in good and fair condition  The span of rural roads rehabilitated increased from 0 to 73 as a share of total classified roads increased from 50 kilometers (target: 170). to 52.8 percent (target: 54.2). Key partners: The Bank team works closely with the (i) Ministry of Transport and Communication (MOTC), which is responsible for the overall policy setting and for overall implementation of the project; (ii) Transport Project Implementation Unit State Institution (Transport PIU), charged with coordination and management of implementation activities on a day-to-day basis; and (iii) Armenian Roads Directorate State Non-Commercial Organization (ARD), which is responsible for the technical aspects of project implementation. Key development partners include the Asian Development Bank (ADB), which is implementing a similar project and with which the Bank team coordinates closely on policy issues. The Bank also works closely with many other donors, including the European Investment Bank (EIB), EDB, and European Bank for Reconstruction and Development (EBRD), to coordinate investments in the water and wastewater sector, and these efforts bode well for future reforms in the sector. 13 ARMENIA: MUNICIPAL WATER PROJECT Key dates: Approved: February 21, 2012 Effective: June 23, 2012 Closing: June 30, 2015 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IBRD Loan 15.00 11.82 3.18 Government 3.00 of Armenia Total 18.00 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: For many years after the collapse of the Soviet Union, most of the water supply systems in Armenia were in a serious state of disrepair. Despite an abundance of water in the country, in most cities and villages it was available only a few hours per day and at low pressure. Over the past decade, the Government has succeeded in improving access to, and the reliability and quality of, drinking water service through the increased use of public-private partnerships (PPPs), which have brought about higher efficiency and improvements in the quality of service to customers. Considerable progress has been made in the delivery of water services in small and medium-sized towns in Armenia. Despite such improvements, however, the sector is still facing some challenges. The Project Development Objective is to support improvements in the quality and availability of the water supply in selected service areas of the Armenian Water and Sewerage Company (AWSC). Results achieved to date: IDA Core Indicators:  The weighted average daily supply of drinking water service  The number of piped household water in selected areas increased from 12.30 to 16.60 hours daily connections benefiting from the rehabilitation (the end-project target is 16.60 hours daily); work undertaken by the project is 33,819;  The weighted average nonrevenue water in selected areas  The number of people in rural areas provided with decreased from 83.50 to 82.30 percent (the end-project access to improved water sources under the target is 70 percent); project is 21,400 (the end-project target is 33,328),  The ratio of billing and collection increased from 93.50 to of which 13,830 are women; 95 percent (the end-project target is 98 percent);  The number of people in urban areas provided  Annual electricity consumption decreased from 0.23 to 0.15 with access to improved water sources under the kilowatts per cubic meter; project is 92,530 (the end-project target is 99,263),  The amount of water production decreased from 752 to 489 of which 50,457 are women. liters/per capita/per day. Key partners: The Bank team works closely with the (i) State Committee on Water Economy (SCWE) and the Ministry of Territorial Administration; SCWE reports to the ministry and is responsible for the overall policy setting in the water and irrigation sectors; and (ii) Armenia Water and Sewerage Company, a water utility outside the Yerevan service area, which covers about 45 percent of the country’s population and is the implementer of the municipal water project. Key development partners include ADB, KfW, the U.S. Agency for International Development (USAID), and EBRD. The Bank coordinates with ADB on water sector reforms, particularly on the exchange of information on mutual efforts in the AWSC service area. EBRD invests in five treatment plants in the Sevan region. KfW is financing water supply investments in the cities of Armavir, Vanadzor, and Gyumri. The Bank works closely with many donors to coordinate investments in the water and wastewater sector, and these efforts bode well for the significant future improvement of the sector. 14 ARMENIA: ELECTRICITY SUPPLY RELIABILITY PROJECT Key Dates: Approved: May 26, 2011 Effective: November 28, 2011 Closing: June 30, 2016 Additional Financing Closing: December 31, 2018 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IBRD Loan 39.00 13.8 25.2 IBRD Loan 40.00 40.0 Government of Armenia 23.00 Total 102.00 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Armenia’s power transmission infrastructure is old and undermaintained. The average age of transmissi on assets is 45 years. Some sections of the 220-kilovolt power transmission backbone are in urgent need of rehabilitation. The Government’s Energy Sector Strategy and the Sustainable Development Program recognize this challenge, and an increase in power supply reliability is among the key strategic objectives of the sector. The Government prioritizes the replacement of one section of the power transmission backbone, the transmission line connecting two key generation centers in the central part of the country (Hrazdan Thermal Power Plant) and in the South (Vorotan Cascade of hydropower plants), and service for large electricity consumers in the central-eastern part of the country. Replacement of the targeted section of the transmission line is critical, since it is in extreme disrepair and jeopardizes the reliability of the power supply and overall network stability. The line was constructed in 1956–58 and has been in service since then. Conductors, pylons, insulators, and other key pieces of infrastructure are obsolete and need replacement. There are also a number of critical substations that are essential to the reliability of the power supply in the country and require urgent rehabilitation, particularly given that some of the equipment dates back to the 1930s and has not been replaced since then. The Additional Financing will be rehabilitating three of those substations: Haghtanak, Charentsavan-3, and Vanadzor-1. The Project Development Objective is to increase the reliability and capacity of the transmission network. Results achieved to date:  The transmission line replacement works are in progress;  The tender for the procurement of the contractor to rehabilitate the above three substations is expected to be announced in April 2015. Key partners: The Bank team works closely with the (i) High Voltage Electric Networks of Armenia, the power transmission company responsible for the construction, operation, and maintenance of the high-voltage power transmission network of the country; and (ii) Ministry of Energy and Natural Resources, which is responsible for the overall policy setting. 15 ARMENIA: GEF ENERGY EFFICIENCY PROJECT Key Dates: Approved: March 27, 2012 Effective: August 10, 2012 Closing: June 30, 2015 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed GEF grant 1.82 1.1 0.68 Government of Armenia 8.84 Total 10.66 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Armenia has significant potential for energy efficiency and can recoup sizable economic benefits through the utilization of this potential. While Armenia is one of the less energy-intensive economies in the region, largely due to structural changes in the economy, large potential remains for further efficiency improvements. A 2008 World Bank study found that Armenia could save 132 billion Armenian drams (more than US$360 million) annually, equivalent to 4 percent of its GDP, through energy-efficiency investments. The study estimated that the energy-efficiency investments in public facilities would have the highest returns, with paybacks of 2–10 years. The energy-efficiency potential has not been realized due to several informational, knowledge, financing, and legal obstacles. Improvements in energy efficiency will contribute to addressing the energy sector challenges. Specifically, higher energy efficiency will contribute to: (a) a reduction of investment needs in new generation due to a realization of the energy- efficiency potential; (b) an improvement in the country’s energy security due to a reduced demand for gas used for heating purposes and as a fuel for electricity generation; and (c) the better affordability of energy for the poor, given that improved energy efficiency will require less energy consumption to achieve the needed comfort level of heating, lighting, or other use. The Project Development Objective is to reduce the energy consumption of social and other public facilities. The global environmental objective is to decrease greenhouse gas emissions through the removal of barriers to the implementation of energy-efficiency investments in the public sector. Results achieved to date:  Implementation of energy-efficiency retrofits has been completed at 44 facilities, which will help reduce their energy consumption by 216 million kWh during the economic life of the investments made;  The above facilities experienced average energy savings of 40–50 percent during winter 2013–15;  Procurement of retrofits at an additional 25 facilities is under way. Key partners: The Bank team works closely with the (i) Renewable Resources and Energy Efficiency Fund, a nonprofit organization established by the Government with a mandate to promote the development of renewable energy and energy- efficiency markets in Armenia and to facilitate investments in these sectors; and (ii) Ministry of Energy and Natural Resources, which is responsible for the overall policy setting. 16 ARMENIA: COMMUNITY AGRICULTURAL RESOURCE MANAGEMENT AND COMPETITIVENESS (CARMAC) PROJECT Key Dates: Approved: March 22, 2011 Effective: July 26, 2011 Closing: September 30, 2016 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Credit 16.00 12.46 3.04 Government of 5.33 Armenia Total 21.33 * World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: The livestock sector in Armenia faces serious challenges, such as unsustainable pasture management and underutilization, persistent livestock diseases, processing and marketing constraints, and reduced productivity. This project builds on World Bank experience and successes in agriculture, rural development, pasture and livestock management, and participatory community development to help Armenia address these urgent challenges and provide investment support. The Project Development Objective is to improve the productivity and sustainability of the pasture/livestock livelihood systems in selected communities. Results achieved to date:  Support for services for farmers involved in livestock production are being improved. Between 2010 and 2014, milk productivities for cattle and sheep have increased by 11 and 6 percent, respectively, from 1,428 to 1,585 kg/year for cattle and from 66 to 70 kg/year for sheep. The growth rates of animals for cattle and sheep have increased by 12 and 3 percent, respectively. The efficiency of communal pasture management as measured by increased communal budgetary revenues from the lease of pastures has increased by 55 percent, while sales from livestock have increased by 48 percent.  Efficient and sustainable community-managed pasture/fodder-based livestock production systems have been introduced in selected mountainous communities through establishing farmers associations and leasing pastures and grasslands. In addition to the 55 originally planned pasture users associations (PUAs) under the project, 90 more have been established and registered. Preparation of 55 pasture management plans has been completed and the development of 14 others is under way. Community funds for the implementation of these plans are being established.  Community animal health services are being improved through the mobilization of veterinarians with the provision of training. 76 veterinarians participated in the trainings, of which two were women. Disease control strategies are being implemented. Veterinary Service Centers (VSC) in the Artashavan community of the Aragatsotn marz (region) and in the Kndzoresk community of the Syunik marz have been completed, and VSCs are equipped and have started functioning, while construction works of VSCs in the Chambarak community of the Gegharkunik marz are under implementation.  Activities for the Technology Assessment Program (TAP) are making good progress; 150 out of 262 proposals have been presented, of which 109 projects have been implemented and 40 are under implementation.  Within the framework of Competitive Grants Program (CGP), five rounds of competition have been held and 37 grant projects were selected as winners. 18 projects out of the 53 have been completed, while 35 are at different stages of implementation. During the seventh round, 27 applications were submitted, 16 projects of which were recognized as winners. Key partners: The Bank works closely with the Ministry of Agriculture and regional governors, as well as village mayors and farmer groups. 17 ARMENIA: SECOND COMMUNITY AGRICULTURAL RESOURCE MANAGEMENT AND COMPETITIVENESS (CARMAC) PROJECT Key Dates: Approved: June 20, 2014 Effective: January 23, 2015 Closing: May 31, 2020 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Credit 9.67 0.00 9.67 IBRD Loan 23.00 23.00 Government of 10.00 Armenia Total 42.67 * World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: The livestock sector in Armenia faces serious challenges, such as unsustainable pasture management and underutilization, persistent livestock diseases, processing and marketing constraints, and reduced productivity. This project builds on World Bank experience and successes in agriculture, rural development, pasture and livestock management, and participatory community development promoted under the CARMAC project to help Armenia address these urgent challenges and provide investment support. The Project Development Objective is to (i) improve the productivity and sustainability of pasture and livestock systems in targeted communities and (ii) increase the marketed production from selected livestock and high-value agri-food value chains. This would be evidenced by: (i) increased livestock productivity as measured by milk productivity and an increase in daily animal weight gain; (ii) the increased efficiency of communal pasture management, as measured by increased communal budgetary revenues from the lease of pastures; (iii) increased farm sales from livestock; and (iv) increased pasture management effectiveness. Key expected results:  Support for services for farmers involved in livestock production in another 100 communities in addition to the 89 included under CARMAC will be improved. Between 2015 and 2020, milk productivities for cattle will increase by 20 percent. The efficiency of communal pasture management as measured by increased communal budgetary revenues from the lease of pastures in targeted communities will increase by 150 percent, while the number of animals sold will increase by 2 percent for cattle and 20 percent for sheep.  Efficient and sustainable community-managed pasture/fodder-based livestock production systems will be introduced in selected mountainous communities through establishing farmers associations and leasing pastures and grasslands. In addition to 89 pasture users associations (PUAs) under the CARMAC project, 100 more are planned under CARMAC2. Pasture management plans will be developed for all of them, and community funds for the implementation of these plans will be established.  The ability of agricultural producers and processors to meet domestic demand and access international market opportunities in the food value chains of fodder-based milk and meat and in processed fruit and vegetables, where Armenia has a competitive advantage, will improve.  The capacity of public sector institutions to facilitate business development and enable market access in the selected value chains supported under the project will increase. Key partners: The Bank works closely with the Ministry of Agriculture and regional governors, as well as village mayors and farmer groups. 18 ARMENIA: E-SOCIETY AND INNOVATION FOR COMPETITIVENESS PROJECT Key Dates: Approved: November 30, 2010 Effective: May 18, 2011 Closing: June 30, 2016 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IBRD Loan 24.00 11.45 12.55 Government 6.00 of Armenia Total 30.00 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: The main challenge in the sector remains the lack of coordination in information and communications technology (ICT) development efforts. The main constraints for ICT business development and innovation generation are still the lack of adequate infrastructure for business incubation and the low access to credit and commercial investments, particularly in the regions of Armenia. The Project Development Objective is to address the constraints to a competitive e-society and enterprise innovation in Armenia by strengthening the underlying infrastructure and enabling environment. Results achieved to date:  Citizens and businesses have been equipped with a tool for identifying and authenticating electronic transactions: number of electronic certificates (eIDs) issued reached 175,000 in 2013 from zero in baseline year (2009);  Increased access to affordable computers: the share of population using a computer more than tripled during 2009– 13, owing to investments by the private sector in the Computer for All program. More than 8,000 computers were financed under the project in all 11 regions of Armenia;  First-ever Early Stage Venture Fund was established in 2013;  Gyumri Technology Center (GTC) has been established and is contributing to the region’s enterprise innovation: GTC opened in February 2014;  Enhanced capacity and growth of the ICT/knowledge-intensive sector through the establishment and support of IT labs and innovations centers: three labs were established owing to project support (mLab, Armenia-India ICT center, and Center of Innovative Solutions and Technologies). Key partners: The World Bank team works closely with the Ministry of Economy and the Project Implementation Units: Enterprise Incubator Foundation (EIF), E-Governance Infrastructure Project Implementation Unit (EKENG), and Foreign Financed Projects Management Center (FFPMC), which are responsible for implementation of the project. Key development partners include the recently completed USAID-funded Competitive Armenian Private Sector (CAPS) project, which supported the IT industry as one of the identified competitive clusters with a series of trainings, consultancy, and other capacity-building activities. Other donors currently do not have major specific projects in these areas, but some of their projects have an indirect relation to the aforementioned area, such as cluster development, development of micro, small, and medium-sized enterprises (MSMEs), improvement of the regulatory environment, community building, etc. 19 ARMENIA: SECOND PUBLIC SECTOR MODERNIZATION PROJECT Key Dates: Approved: March 16, 2010 Effective: July 26, 2010 Closing: January 31, 2017 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IBRD Loan 9.00 6.5 2.5 Government 2.54 of Armenia Total 11.54 * World Bank disbursements as of April 2015. Note: Some of the amounts disbursed amounts may be on client’s bank account. Challenge: The basic challenge has been change management in relation to the introduction of new systems and practices. Civil service management became possible only due to strong government ownership, and only after the introduction of work planning and performance and information management systems. Another big challenge is the management of conflicts of interest in the public sector. Even after the increase of civil servant salaries of about 70 percent, the low level of public salaries remains a challenge holding up the efficiency gains from the introduction of performance appraisal and pay systems. The Project Development Objective is to enhance the performance of public sector management for better service delivery by: (i) strengthening institutional capacity in policy formulation; (ii) maximizing the efficiency of human capital; and (iii) developing information systems for internal work flow and external communication. Results achieved to date: Toward a paperless office  The Commission on Ethics of High-Ranking Officials was established in January 2012 as part of a policy dialogue on conflict of interest management reform. The Commission is in charge of conflict of interest, income, and asset declarations from about 700 of the highest-level officials.  The e-disclosures system launched in 2013 fully automated the online submission and publication of income and asset declarations. Yet the proper verification of collected information requires additional steps for ensuring interoperability with other state databases.  An automated Information Retrieval System in the Traffic Police Service was launched in April 2012, reducing, among other indicators, the average time for registering a vehicle from one day initially to the current 30 minutes.  An archiving system for the electronic document management system (Mulberry), operational in all ministries, all governors’ offices, and other public administration bodies (totaling 50 entities), was launched in 2012. Key partners: The Bank team is working closely with the (i) Office of the Government of Armenia, which is the main project counterpart and has been leading the policy efforts on public administration reforms; (ii) Civil Service Council (CSC) in charge of civil service reform and administration; (iii) Commission on Ethics of High-Ranking Officials; and (iv) Ministry of Territorial Administration, Ministry of Justice, Ministry of Foreign Affairs, Ministry of Energy and Natural Resources, and selected service delivery units of the police, where the project will support functional reviews and business process reengineering. Key development partners include the EU (including advisory group), United Nations Development Programme (UNDP), and USAID, which support related activities in the areas of electronic government, civil service reform, and regulatory guillotine. 20 ARMENIA: TAX ADMINISTRATION MODERNIZATION PROJECT Key Dates: Approved: July 03, 2012 Effective: December 28, 2012 Closing: April 30, 2016 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Credit 12.00 3.8 7.4 Government 3.1 Total 15.10 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Although the Ministry of Finance (which, following mid-2014 Cabinet reorganization, is in charge of both revenue administration and public expenditure functions) has successfully maintained an adequate level of revenue collection through the economic downturn, Armenia’s tax-to-GDP ratio remains low for its level of income. This is the result of narrow tax bases with numerous tax exemptions and weak capacity to detect and penalize tax frauds, both of which undermine compliance and contribute to widespread tax evasion and informal sector activities. The Project Development Objective is to modernize Armenia’s tax administration to (i) increase voluntary tax compliance, (ii) reduce tax evasion, (iii) reduce compliance costs, and (iv) increase administrative efficiency. Results achieved to date: The achievement of the project’s development objectives will be assessed through a number of quantitative outcome indicators. A few project targets are already met as of end-2014 outcomes:  US$12.2 million average adjustment results (as of end-2013) from audits against the project baseline of US$10.1 million (end-of-project target of US$12.1 million);  95.5 percent ratio of collected revenue to tax administration’s operational cost (as of end-2013) against the project baseline of 74 percent (end-of-project target of 83 percent);  22 tax inspectorates against the baseline number of 39 (end-of-project target of 29);  321 hours to prepare and pay taxes against the baseline 500 (end-of-project target of 400 hours);  The percentage of total tax returns filed electronically grew from a baseline of 20 percent to 69.6 percent, exceeding the end-of-project target of 60 percent. Key partners: Through the project’s design, the Bank team has ensured that implementation arrangements are designed to ensure cross-departmental coordination within the Ministry of Finance. Key development partners include the representatives from USAID, IFC, and the International Monetary Fund (IMF). The project will work in tandem with the USAID Tax Reform project, where USAID will provide extensive complementary technical assistance. 21 ARMENIA: HEALTH SYSTEM MODERNIZATION PROJECT Key Dates for APL2 and AF: Approved: March 08, 2007 Effective: June 06, 2007 Closing: December 31, 2012 Additional Financing Approved: January 26, 2011 Additional Financing Effectiveness: June 08, 2011 Additional Financing Closing: February 29, 2016 Financing in million US Dollars: Financier Disbursed* Undisbursed IDA Credit 22.00 22.9 0 IBRD Loan 19.00 15.98 3.02 Government 13.49 Armenian 0.15 communities Yerevan State Medical 0.30 University Total 54.94 38.88 3.02 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: There is a concern that people may postpone seeking medical care because of a lack of resources, high out-of-pocket payments, which constitute about 55 percent of total health spending, and the perceived low quality of care, especially in rural areas. The main challenges in the health system are to ensure better access to health services and to pursue a reallocation of the health budget toward primary health care (PHC). The Project Development Objective of the APL2 and Additional Financing of HSMP is focused on (i) completing the family medicine–based PHC reform (launched in 1996) to ensure that every Armenian citizen will have access to a qualified and well-motivated family doctor and nurse of his/her choice; (ii) consolidating the hospital sector to minimize the waste of scarce resources and improve the quality of care; and (iii) strengthening the Government’s competencies for effective stewardship in policy making, regulation, oversight, and public accountability. Results achieved to date:  1,676 physicians have been retrained as family physicians and 1,804 nurses retrained as family nurses. About 90 percent of the population is covered by retrained family medicine providers.  Infrastructure of 94 PHC facilities has been improved (45 new constructions and 49 renovations) in rural areas. Construction of one new facility is currently ongoing.  200 PHC facilities were provided with a standard set of medical equipment, supplies, furniture, and IT equipment.  Space vacated as a result of the modernization of Yerevan hospitals was 15,577 square meters, and in the regions, 74,888 square meters.  726 managers of hospital facilities participated in management training courses; as a result, 48 regional hospitals have trained key management personnel.  Ten regional medical centers (MCs)—in the regions of Kotayk (population of 105,300), Tavush (49,200), Armavir (121,500), Ararat (95,300), Syunik (44,700), Aragatsotn (22,300), Gegհarkunik (57,800), Alaverdi (14,000), and Abovyan MC (111,5) as well as the new Gyumri Medical Center of the Shirak region (146,000)—were renovated and/or constructed and provided with modern medical equipment and furniture. Four regional medical centers are currently being renovated/constructed. Key partners: The Bank team works closely with the (i) Ministry of Health, responsible for the overall policy setting and implementation of Bank-financed projects; (ii) Ministry of Territorial Administration, responsible for the programs on regional developments; (iii) local authorities; and (iv) Ministry of Finance, responsible for the Sustainable Development Program as well as for mid-term expenditures, projections, and programmatic budgeting. Key development partners include a USAID-funded project in the area of performance-based contracting. With the World Health Organization (WHO), the team collaborates in the development of Health Care Performance Assessment reports and a copayment strategy. The United Nations Children’s Fund (UNICEF) is a traditional partner in supporting the mother and child health (MCH) programs. 22 ARMENIA: DISEASE PREVENTION AND CONTROL PROJECT Key Dates: Approved: March 27, 2013 Effective: July 22, 2013 Closing: December 15, 2019 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Credit 35.00 5.57 27.06 Government 8.20 Health Results-based 1.80 0.18 1.62 Financing Trust Fund Total 45.00 5.75 28.68 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Armenia today faces the dual challenge of the unfinished Millennium Development Goals (MDG) agenda and a record increase in noncommunicable diseases (NCDs). The greatest burden of disease in Armenia, as in most European countries, comes from NCDs, a group of conditions that includes cardiovascular disease, cancer, mental health problems, diabetes mellitus, chronic respiratory disease, and musculoskeletal conditions. The Project Development Objective is to improve (i) maternal and child health (MCH) services and the prevention, early detection, and management of selected NCDs at the primary health care (PHC) level; and (ii) the efficiency and quality of selected hospitals in Armenia. Results achieved to date:  Training of about 2,700 PHC providers was completed in 2014 during the preparation stage of population screening programs for cardiovascular disease, diabetes, and cervical cancer;  85 percent of antenatal care (ANC) attendees screened for glycosuria, hypertension, and proteinuria in at least three antenatal visits;  60 percent of population aged 40–74 screened for hypertension at least once in the past year (by gender);  From 57 to 60 percent of population aged 40–74 screened for diabetes mellitus at the PHC level at least once during the past three years (by gender);  50 percent of women aged 30–60 screened for cervical cancer at least once during the past three years and received the results;  80 percent bed occupancy rate at the new Medical Center in Vanadzor;  For 63 percent of MCH services and 66 percent of NCDs, the quality of care was provided by doctors measured by clinical vignettes. Key partners: The Bank team works closely with the (i) Ministry of Health, responsible for the overall policy setting and implementation of Bank-financed projects; (ii) Ministry of Territorial Administration, responsible for the programs on regional developments; (iii) Armenian Medical Association; and (iv) Ministry of Finance, responsible for the Sustainable Development Program, as well as for mid-term expenditures, projections, and programmatic budgeting. Key development partners include several international organizations, in particular, WHO, UNICEF, World Vision, and Save the Children, which are involved in different components of health care reform undertaken by the Government of Armenia. 23 ARMENIA: SECOND EDUCATION QUALITY AND RELEVANCE PROJECT Key Dates: Approved: May 12, 2009 Effective: October 2, 2009 Closing: November 30, 2015 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed * IDA Credit 25.00 21.1 4.6 Government 6.26 of Armenia Total 31.26 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Since 1990, the continued investment in education has been aimed at the reduction of poverty by increasing access to, and improving the quality of, general secondary education. The current project addresses the challenge of sustaining and extending the accomplishments in general secondary education and at the same time, addressing equity and quality concerns in both preschool and tertiary education. The Project Development Objective of the second phase of the Education Quality and Relevance Project (EQRP) continues to focus on reform of the general secondary education system and addresses key policy issues in preschool and secondary and higher education through: (i) enhancing school learning in general education and improving the school readiness of children entering primary education; and (ii) supporting the integration of the Armenian tertiary education system into the European Higher Education Area. Results achieved to date:  337 preschool education microprojects benefiting over 8,000 students have been implemented since the beginning of the project (13,500 students since June 2008).  The project has supported the training of over 12,500 teachers.  Since January 2013, all public schools in Armenia are connected to the Internet with support from the project.  Internet speed for the network has been increased from 256 kilobytes to at least 3 megabytes.  1,360 schools have received hardware to support their administrative activities.  Resource centers combining library and computer labs have been established in 108 high schools. Training has been provided to 105 librarians, and 2,300 high school teachers have received subject-based training.  The National Center for Professional Education Quality Assurance completed pilot institutional accreditation of 10 public and five private universities. From this, two public universities received pilot institutional and pilot program accreditation by an international accreditation agency (NVAO). 21 public and five private universities received grants to implement Internal Quality Assurance units.  A tertiary education management information system (MIS) is in operation covering all vocational and higher educational institutions.  Implementation of 10 subprojects under the pilot Competitive Innovation Fund (CIF) is ongoing.  A long-term twinning arrangement took place between Armenia State Pedagogical University and Oulu University in Finland for technical assistance on reforming preservice teacher education. Key partners: The Bank team works closely with the Ministry of Education and Science, responsible for the overall policy setting as well as for the implementation of Bank-financed projects; and with the Ministry of Finance, responsible for deepening policy dialogue on the financial implications of the proposed project as well as for ensuring the proper flow of funds and financial monitoring of project activities. Key development partners include UNICEF, which financially contributed to the project through preschool teacher training. 24 ARMENIA: EDUCATION IMPROVEMENT PROJECT Key Dates: Approved: March 13, 2014 Effective: November 20, 2014 Closing: September 30, 2019 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed * IDA Credit 15.00 0.5 13.33 IBRD 15.00 0.5 14.5 Government 7.50 of Armenia Total 37.50 27.83 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Since 1990, continued investment in education has been aimed at the reduction of poverty by increasing access to, and improving the quality of, general secondary education. The current project addresses the challenge of sustaining and extending the accomplishments in general secondary education and at the same time, addressing equity and quality concerns in both preschool and tertiary education. The Project Development Objectives of the Education Improvement Project focus on: (i) improving the school readiness of children entering primary education; (ii) improving physical conditions and the availability of educational resources in upper-secondary schools; and (iii) supporting improved quality and relevance in higher education institutions in Armenia. Expected key results:  About 120 new grant microprojects will be awarded to poor communities in Armenia to support preschool expansion benefiting about 2,500 children. Children who benefit from preschool are projected to score 9–13 percent higher in the early development indicator.  17 (out of 107) high schools in Armenia will be fully renovated and retrofitted with seismic stability to meet current construction and safety standards. This means about 225 classrooms will be renovated in these 17 high schools.  All 107 high schools in Armenia will be equipped with up-to-date education resources provided by the project.  An integrated education management information system for general and higher education will be fully operational and expanded nationwide. About 4,000 staff will be trained to use the newly integrated system.  At least 10 higher education institutions or consortium of universities will receive grants under the Competitive Innovation Fund to strengthen the relevance, quality, and efficiency of their academic programs. Key partners: The Bank team works closely with the Ministry of Education and Science, responsible for the overall policy setting as well as for the implementation of Bank-financed projects; and with the Ministry of Finance, responsible for deepening policy dialogue on the financial implications of the proposed project as well as for ensuring the proper flow of funds and financial monitoring of project activities. Key development partners include UNICEF and the Step-by-Step Foundation for the provision of preschool teacher training. 25 ARMENIA: SOCIAL PROTECTION ADMINISTRATION PROJECT II Key Dates: Approved: March 24, 2014 Effective: October 29, 2014 Closing: December 31, 2018 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Credit 21.20 0.00 21.20 Government 4.30 0.00 4.30 of Armenia Total 25.50 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: The improvements in living conditions witnessed in the country before the 2009 global financial crisis have since reversed, with increased inequality and more instances of people falling below the poverty line. In post-crisis Armenia, improvements in living conditions have remained slow, renewing the Government’s focus on the efficiency of the social service delivery system and effectiveness of the Family Benefit Program. These efforts need further enhancement to cope with protracted and high unemployment, poverty, and vulnerability, which disproportionately affect women. The Project Development Objectives are to (i) improve social protection service delivery and (ii) strengthen the analytical and monitoring and evaluation functions of the agencies delivering social protection benefits and services. Key expected results:  The project will support the model of the functional integration of four existing agencies responsible for pensions, social assistance, employment, and disability certification.  This model will be rolled out to another 37 Integrated Social Protection Centers. The activities, from civil works to furniture and IT equipment with software provision, as well as trainings and on-the-job mentoring along with a proactive communication with the public, will ensure the fully operational nature of the centers, delivering high-quality services tailored to the needs of the beneficiaries.  Among the beneficiaries, this project will also target the registered unemployed and employers by promoting employment intermediation and employer-employee matching, thereby increasing labor market efficiency and job opportunities.  Implementation of the Government’s New Employment Strategy will come in a number of ways, such as by providing capacity building of the state employment agency via trainings and modernized IT infrastructure and expanding career orientation through skills-tailored distance learning programs. It is expected that about 1,400 men and women will benefit equally from this orientation program, along with 700 who are enrolled in the Youth without Education and Skills Program.  The project will finance an integrated system of monitoring and evaluation of social protection benefits and services, targeting over 70 different programs. This would enable the Ministry of Labor and Social Issues to directly manage the beneficiary feedback, specifically collecting information on the quality of delivered services.  The project will support the State Social Security Service in improving and upgrading its core business processes. A risk- based fraud-and-error supervision software and system, along with improved human resource management capacity, such as central payment services for the integrated social delivery system, will be developed and made fully operational. In addition, it is expected that by the end of the project, the average time required for processing a pension case would decrease by three times. Key partners: The Bank works closely with the Ministry of Labor and Social Issues, as well as with its detached unit, the State Employment Service Agency. Key development partners involved in different components of the social protection reform are UNICEF and USAID. 26 ARMENIA: SOCIAL INVESTMENT FUND III Key Dates: Approved: October 26, 2006 Closed: March 31, 2012 First Additional Financing Closed: June 30, 2011 Second Additional Financing Closed: October 31, 2012 Third Additional Financing Closing: March 31, 2015 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Credit 25.00 26.10 0.00 IDA Credit 8.00 8.00 0.00 IBRD Loan 7.00 7.00 0.00 IDA Credit 11.00 10.82 0.00 Government of 12.4 Armenia Communities 3.8 Sponsors 0.4 Total 67.6 51.92 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Notwithstanding infrastructure investments in recent years, major local social infrastructure gaps have remained, largely reflecting years of neglect in maintenance. Social infrastructure gaps have been most acute in the rural areas. Another main challenge was improving the living standards of the poor as, despite the strong economic growth before the crisis, Armenia was facing critical vulnerabilities, stemming from the global economic and financial crisis. Three Additional Financings were provided to support small-scale infrastructure investments that also helped generate employment and mitigate the impact of the crisis by supporting activities that can be quickly and effectively scaled up and implemented under the existing project. The Project Development Objective is to support the Government’s policy to raise the living standards of poor and vulnerable groups through: (i) improving the quality, access, and coverage of community services and infrastructure in poor communities; (ii) promoting complementary institutional capacity building at the community and municipal level so as to improve the quality and sustainability of community investments and service delivery, increase accountability, and enhance greater stakeholder empowerment at the local level; and (iii) creating employment associated with the provision of community infrastructure and services. Key results achieved:  320 community infrastructure microprojects were completed with 637,098 job-days of employment created and US$10.7 million in wage income. The total number of beneficiaries of completed microprojects is estimated at about 1.7 million, almost half of Armenia’s population.  The largest share of the completed microprojects belongs to schools (41 percent), followed by community and cultural centers (28 percent), kindergartens (14 percent), health care facilities (7 percent), and potable water supply systems (5 percent).  The beneficiary communities were selected based on their poverty ranking. The poverty mapping and ranking methodology was developed under the project for 915 communities (866 rural and 49 urban) and was last updated in December 2011.  Over 5,200 local community members (355 communities) received training on investment planning and management, and 716 municipal officials from 145 communities received training on financial management.  The Government, with World Bank support, developed an Armenian Social Investment Fund (ASIF) evolution strategy and approved it in March 2014. As of April 1, 2015, ASIF was transformed into the Armenian Territorial Development Fund. Key partners: The Bank team worked closely with the (i) Ministry of Territorial Administration and Emergency Situations responsible for the overall policy setting and implementation support; (ii) Ministry of Finance; and (iii) Ministry of Labor and Social Affairs, involved in policy dialogue and providing implementation support. Key development partners included the United Nations High Commissioner for Refugees (UNHCR), Swiss Agency for Development and Cooperation (SDC), All Armenia Fund, Armenian General Benevolent Union (AGBU), Aznavour pour l’Armenie (APA), IFAD, and Knights of Vartan (KoF). 27 ARMENIA: TRADE PROMOTION AND QUALITY INFRASTRUCTURE PROJECT Key Dates: Approved: July 2, 2014 Effective: January 14, 2015 Expected Closing: June 30, 2020 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed * IBRD 50.0 0.12 49.88 Government 9.5 of Armenia Total 59.5 *World Bank disbursements as of April 2015. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Challenge: Armenia has had a relatively low export base and seen a declining sophistication in export products over the years, while its export basket is primarily concentrated in commodities that have low value added and are vulnerable to volatility in global markets. Another challenge is to attract efficiency-seeking foreign direct investment (FDI) to maximize benefits to the local economy. Furthermore, while the requirements to meet global quality standards are more crucial to promote products and services, Armenia’s national quality infrastructure suffers from weaknesses that hinder technology upgrading and undermine the competitiveness of its exports. The Project Development Objective is to strengthen the Government’s capacity to provide export promotion, investment attraction, and quality management services to firms. Key expected results:  At least 40 contracts with new customers for exporters will be generated through newly established foreign representatives of the Armenian Development Foundation (ADF);  Seven facilities in the form of public private partnerships (PPPs) will be created to strengthen industry clusters (cluster development PPPs) and to facilitate efficiency-seeking FDI to strengthen their level of engagement in Armenia and facilitate skills development by funding joint projects between multinationals and academia (research and skills development PPPs);  Four new FDIs will be generated through the services provided by ADF;  Two Industrial Laboratories of the National Institute of Metrology will be internationally recognized;  A National Accreditation Body will obtain international recognition;  The project will support the training of technical staff of the national quality infrastructure. Key partners: The Bank works closely with the Ministry of Economy (MoE), which is responsible for the overall implementation of the project, the Project Management Unit (PMU) within the MoE, which is charged with coordination and management of implementation activities on a day-to-day basis, and the Foreign Financed Projects Management Center (FFPMC), which is responsible for the fiduciary aspects of project activities. 28 ARMENIA: HELPING AMERIABANK FINANCE RENEWABLE ENERGY PROJECTS Key Dates: Approved: December 18, 2009 Signed: December 22, 2009 IFC financing (in US dollars): Financing Type Amount Fiscal Year (starts in July) Loan 15 million 2010 Challenge: Armenia has no fossil fuel resources and relies heavily on energy imports. Underinvestment in renewable energy projects, particularly in small hydropower plants, is one of the major barriers to greater energy self-sufficiency. At the same time, long-term funding is scarce in Armenia. Project Objective: Ameriabank, one of Armenia’s strongest and most innovative banks, is seeking to pioneer local renewable energy financing. IFC has lent the bank US$15 million for a series of smaller, green subloans. Related advisory services from the IFC Armenia Sustainable Energy Finance Project helped the bank’s staff learn to develop sound sustainable energy finance products. The project has enabled the bank to provide long-term financing for small hydropower plants, which has helped increase Armenia’s domestic electricity production, diversify its electricity supply, and decrease its reliance on fuel imports. This has boosted the supply of renewable energy and cut greenhouse gas emissions. Key results: IFC’s US$15 million loan, together with advisory support from the IFC Armenia Sustainable Energy Finance Project, has helped Ameriabank finance the construction of 12 small hydropower plants. They have a total installed capacity of 40.1 megawatts and generate 124.91 gigawatt hours per year. They prevent the release of nearly 50,000 tons of carbon dioxide, or its equivalent, per year. 29 IFC ADVISORY SERVICES PROJECTS WORLD BANK GROUP TRADE AND COMPETITIVENESS ARMENIA: INVESTMENT CLIMATE REFORM PROJECT II (2014–17) Donor Partners: Hungarian Partnership Funding/Hungary EXIM Bank and the Ministry of Finance of Austria Challenge: The World Bank Group has identified the promotion of sustainable growth and productivity as a pillar for economic and social development in Armenia and outlined the steps necessary to create a more competitive investment climate. The Armenia Investment Climate Reform Project is part of this effort. A previous Investment Climate Reform Project implemented in 2011–14 helped the Government of Armenia design and adopt framework reforms in inspections, trade logistics, food safety, and tax. However, some areas need further improvements. Enhanced transparency, a stronger investment policy, and a reformed inspection process will boost private sector growth and job creation by increasing investment and decreasing the costs for doing business, particularly in the agribusiness sector. The Project Approach: The Armenia Investment Climate Reform Project II will provide specialized advisory services to the Government in the areas of investment policy and inspections reform. The aim is to promote confidence and transparency, strengthen effectiveness and compliance, and accelerate private sector growth by creating simple, efficient, and business-friendly regulations while ensuring that public interests are protected. Project Objective: The Armenia Investment Climate Reform Project II has two main objectives: (a) improve investment policy by enhancing the current framework in terms of investment entry, protection, and the transparency and governance of investment incentives; and (b) reform business inspections by improving the system and enhancing regulatory certainty and efficiency. Expected Results:  Generate new investment, especially in the agricultural sector;  Increase the accessibility and quality of the implementation of investment policy;  Improve the inspections system with a focus on regulatory certainty and optimization;  Achieve compliance cost savings for the private sector through an improved inspections system;  Increase the confidence and trust of businesses in the inspections system. CORPORATE GOVERNANCE PROGRAM IN EUROPE AND CENTRAL ASIA (2012–15) Donor partners: the Swiss State Secretariat for Economic Affairs (SECO) and the Development Bank of Austria (OeEB). Challenge: Good corporate governance assists companies and financial institutions in enhancing their sustainability, access to capital, and performance. Yet many companies and financial institutions in Europe and Central Asia lack the knowledge and experience necessary to strengthen their governance practices so as to realize the real benefits such practices can bring. Local consultants and institutions also lack the skills needed to help businesses improve their corporate governance. In addition, the corporate governance framework in many countries is in need of further enhancement. The IFC Approach: The program provides in-depth advice to companies and financial institutions on implementing good corporate governance practices, strengthens the capacity of local partner institutions to deliver director-focused training and corporate governance services, and contributes advice on the corporate governance aspects of laws, codes, 30 regulations, and other tools. Expected Results:  The program aims to support its partners in Europe and Central Asia to raise US$180,000 in sales revenue through corporate governance work, to improve the performance of 32 companies through corporate governance improvements, and to help 24 companies access financing totaling US$100 million. RESOURCE EFFICIENCY PROGRAM IN EUROPE AND CENTRAL ASIA (2010–15) Donor partner: the Ministry of Finance of Austria Challenge: The efficient use of energy, raw materials, and water along a company’s value chain not only helps conserve resources and reduce waste, pollution, and greenhouse gas emissions, but also reduces operating costs. Yet many firms in Europe and Central Asia remain unaware of the potential cost savings and environmental benefits. As a result, firms are reluctant to invest the upfront costs needed to identify and take advantage of resource-efficiency opportunities. The IFC Approach: The program works at the firm and sector levels to stimulate investment in resource-efficient technologies and best practices, improve management and operational practices across industries, raise awareness among policy makers and financial institutions, and drive market transformation through sector studies, such as benchmarking and assessment tools. Expected Results:  The program aims to facilitate the investment of US$90 million and reduce carbon dioxide emissions by 120,000 tons of CO2 equivalent annually in Europe and Central Asia. AGRIBUSINESS STANDARDS ADVISORY PROGRAM IN EASTERN EUROPE AND CENTRAL ASIA (2013–16) Donor partner: The Ministry of Finance of Austria The Challenge: The agribusiness industry is a vital contributor to the economies of Europe and Central Asia. However, inadequate food safety standards keep the region’s agribusiness industry from advancing, while food companies are shut out of the modern food value chains, potentially aggravating global food security. The IFC Approach: The IFC program assists local companies in applying food safety standards throughout the agribusiness value chain while also strengthening the capacity of local consultants. Improved standards will help agribusiness firms meet regional and export market requirements while building a foundation to mobilize investments and help the agribusiness industry realize its full potential. Expected Results: The IFC Program is expected to:  increase the number of companies with food safety management systems in place, boosting their competitiveness, investment attractiveness, and export opportunities;  facilitate an increase in domestic and export sales by client companies;  facilitate investments as a result of improved food safety management;  build capacity among local consultants and firms;  create a demonstration effect for how to do business more sustainably, across the region and globally. 31 ARMENIA: BANK ADVISORY PROGRAM IN EUROPE AND CENTRAL ASIA (2009–15) Donor partners: the Development Bank of Austria and the Swiss State Secretariat for Economic Affairs The Challenge: The Europe and Central Asia region was among the hardest hit by the global financial crisis, and many financial institutions remain vulnerable to further instability and lack the confidence to restart lending to the micro, small, and medium-sized enterprise (MSME) sector in particular. This is a byproduct of insufficient knowledge of best practice MSME lending skills and a limited understanding of how to manage risk and high rates of nonperforming loans (NPLs). The IFC Approach: The program provides in-depth advice to help financial institutions reduce NPLs, improve risk management, and increase lending to MSMEs. It also supports the development of a market for distressed assets, increases awareness of best international practices in risk and NPL management, and supports the development of MSME banking with a focus on gender finance. Results achieved to date:  The project has helped clients in Europe and Central Asia release more than US$51 million for new lending and facilitated a further US$17 million in new financing to clients. ARMENIA: SUSTAINABLE ENERGY FINANCE PROJECT (2009–15) Donor partner: the Ministry of Finance of Austria The Challenge: Despite good land and water resources, Armenia imports around two-thirds of its energy. Obsolete power generation equipment and minimal investment in renewable energy, particularly in small hydropower plants, are the major barriers to greater energy efficiency. The Armenian industrial sector could save up to 14.5 percent of its energy costs by improving energy efficiency. Several international financial institutions are providing energy- efficiency financing opportunities directly and through local financing institutions, yet significant potential remains untapped. This is mainly due to the affordability of existing financing and low awareness among Armenian companies of the potential for operational cost savings through energy-efficiency investments. The IFC Approach: The IFC Armenia Sustainable Energy Finance Project aims to establish a sustainable market for investments in energy efficiency and renewable energy. The project works with local and international financial institutions to develop Armenia’s energy self-sufficiency. Results achieved to date:  IFC invested US$55 million in energy efficiency and renewable energy financing through local banks;  Over 40 megawatts of new renewable power generation capacity installed through client investments;  Over 125 gigawatt hours-per-year increase in renewable energy generation through client investments;  More than 35 gigawatt hours of energy saved each year. 32 Contact Info: 9 G. Lousavorich Street Yerevan 0015, Armenia WB Tel.: +37410 520-992 IFC Tel.: +37410 545-241 WB Fax: +37410 521-787 IFC Fax: +37410 545-245 www.worldbank.org/en/country/armenia 33 www.ifc.org/armenia