Public Expenditure Review of Armenia (World Bank Country Study)

199 Pages·2003·1.27 MB·English

by  Lev M. Freinkman

A W O R L D B A N K C O U N T R Y S T U D Y
Public Expenditure Review of Armenia is part of the World P Public Expenditure
Bank Country Study series. These reports are published with u
b
the approval of the subject government to communicate the
li Review of Armenia
results of the Bank’s work on the economic and related condi- c

tions of member countries to governments and to the devel- E
opment community. x
p
e
This, the first full-scale World Bank Public Expenditure Review n
d
for Armenia, reviews the main fiscal trends in Armenia for the
i
period of 1997-2001 and develops recommendations with t
u
respect to further fiscal adjustment, expenditure prioritization, r
e
and budget consolidation. The analysis focuses on the follow-
R
ing core issues: sustainability of fiscal adjustment, fiscal
e
transparency, expenditure priorities, and short-term v
i
expenditure management given the existing economy-wide e
w
institutional constraints.

o
f
This study covers extra-budgetary funds, in-kind external
A
grants, subsidies provided by the state-owned companies in
r
the energy and utility sectors, and operations of the Social m
Insurance Fund, as well as regular budgetary spending. It e
n
suggests a medium-term action plan to address identified
i
weaknesses. Sectoral chapters review health, education, and a
social protection and insurance. The report also analyzes
budget support for core public infrastructure, and Armenia’s
public investment program.
World Bank Country Studies are available individually or by
subscription, both in print and on-line.
ISBN 0-8213-5584-8
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A W O R L D B A N K C O U N T R Y S T U D Y
Public Expenditure
Review of Armenia
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C
ONTENTS
Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ix
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xi
Abbreviation and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xiii
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
1. Macroeconomic and Fiscal Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Recent Economic Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Major Features of Fiscal Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Revenue Performance: The Challenge Remains Unmet . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Low Credibility of the Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Budget Arrears . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Public Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
2. Main Expenditure Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Expenditure Trends in Functional Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Expenditure Trends in Economic Classification and Quality of Budgetary Information . . . .44
Additional Problems with the Quality of Budget Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
3. Off-Budget Elements of the Fiscal System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Extra-Budgetary Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Quasi-fiscal Deficits and Losses Generated by State Enterprises . . . . . . . . . . . . . . . . . . . . . .57
Government Guarantees on Commercial Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
4. Strengthening Public Expenditure Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Existing Situation Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Structure of the Budget System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Budget Formulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
Budget Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
5. Public Expenditure in the Education Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
Financing of Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
Efficiency of Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
Equity of Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
6. Public Expenditure in the Health Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
Health Sector in Armenia: Outcomes, Resources, and Utilization . . . . . . . . . . . . . . . . . . .109
Public Health Policies and the Reform Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113
Public Financing of Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116
Equity Impact of Public Health Expenditures: The Role of Out-of-pocket Payments . . . . .119
7. Social Protection and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125
Social Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126
Social Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131
Other Social Insurance and Non-insurance Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139
iii
IV CONTENTS
8. Main Financial Requirements in Public Infrastructure . . . . . . . . . . . . . . . . . . . . . . . .141
9. Public Investments: Trends, Structure and Sources of Financing . . . . . . . . . . . . . . .149
Annexes
Annex 1 Assessment and Recommendations
on Budget Management System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .157
Annex 2 MTEF Action Plan Matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .163
Annex 3 Fiscal and Quasi-fiscal Subsidies: Sources of Financing and
Recipients,1999–2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169
Annex 4 Directions for Re-classification of Non-classified Budget
Expenditures under the GDF 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173
Annex 5 Revised Demographic Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .177
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .181
TABLES
Table A. The Pace of Fiscal Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Table B. Main Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Table 1.1. Selected Macroeconomic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Table 1.2. Consolidated Government Budget, Percent of GDP . . . . . . . . . . . . . . . . . . . . .17
Table 1.3. Armenia’s Indicators of Fiscal Adjustment, 1995–2001 . . . . . . . . . . . . . . . . . .20
Table 1.4. Sources of Deficit Financing, State Budget, 1997–2001,
Percent of GDP, Cash Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Table 1.5. Various Indicators of the State Budget Deficit in 1997–2001,
Percent of GDP, Cash Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Table 1.6. Total Government Tax Revenues in Transition Economies, Percent of GDP . . . .25
Table 1.7. Tax Arrears, Stocks by the Year End, Million Dram . . . . . . . . . . . . . . . . . . . . . .27
Table 1.8. The Level of State Budget Execution: Budget Expenditures . . . . . . . . . . . . . . .30
Table 1.9. Budget Execution Across Various Sectors, Percent of the Approved
State Budget Allocations, 1998–2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Table 1.10. Contribution of Delays in External Disbursements to the
Overall Expenditure Cuts. 2000 State Budget, Million Drams . . . . . . . . . . . . .31
Table 1.11. Budget Arrears, Including the Pension Fund, Million Dram . . . . . . . . . . . . . . .32
Table 1.12. Treasury Bills: Contribution to Deficit Financing and Service Costs,
Percent of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Table 1.13. Treasury Bills: Average Maturity and Yields . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Table 2.1. State Budget in Functional Classification, 1997–2001,
Percent of Total (cash based) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Table 2.2. Consolidated Budget Expenditures, Percent of GDP . . . . . . . . . . . . . . . . . . . .38
Table 2.3. Main Expenditure Categories of the Consolidated Budget, Percent of GDP . . .38
Table 2.4. Structure of the Consolidated Budget: Main Expenditure Categories . . . . . . . .39
Table 2.5. Public Spending on Education and Health, Percent of GDP . . . . . . . . . . . . . . .40
Table 2.6. Expenditure Ratios in Selected Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Table 2.7. Social Spending in the Consolidated Budget, 1997–2001 . . . . . . . . . . . . . . . . .42
CONTENTS V
Table 2.8. Budget Expenditures on the Real Sector, Percent of Total . . . . . . . . . . . . . . . .43
Table 2.9. Consolidated Budget Expenditures in Economic Classification,
Percent of Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Table 2.10. Budget Subsidies and Direct Budget Credits to Large SOEs . . . . . . . . . . . . . . .45
Table 2.11. Budget Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Table 2.12. Budget Expenditures on Other Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Table 2.13. Budget Arrears and Total Spending in Social Sectors in 2001, Million Dram . . .49
Table 3.1. Consolidated Balance of Armenia’s Extra-budgetary
Funds in 2000–01, Million Dram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Table 3.2. Extra-budgetary Fund of the Ministry of State Revenues, including the
Customs Committee, Million Dram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Table 3.3. Off-budget Donor Assistance in the Health Sector, US$ thousands . . . . . . . . .56
Table 3.4. Off-budget Grant Assistance, US$ million . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Table 3.5. Budgeted Subsidies, Quasi-Fiscal Subsidies and Tax Arrears, Percent of GDP . . .58
Table 3.6. Commercial Debts Accumulated by SOEs in the Power Sector,
Million Dram, at the Year End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Table 3.7. Financial Performance of the Consolidated Sector of State Enterprises,
Million Dram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Table 3.8. Government Guarantees Issued for Banking Credits Granted to
Commercial Entities. Annual flow. US$ million . . . . . . . . . . . . . . . . . . . . . . . .62
Table 3.9. Illustrative Enlarged Budget for the Public Sector that Reflects Main
Off-budget Activities, 2000, Percent of GDP . . . . . . . . . . . . . . . . . . . . . . . . . .63
Table 5.1. Public and Total Education Expenditures as Percent of GDP and of
Total Public Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
Table 5.2. Distribution of Public Education Expenditure among Levels and
Types of Education, percent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
Table 5.3. Average Private Household Expenditures on Education by
Consumption Quintile, Dram per Month . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Table 5.4. Trends in Fee-Based Places in State Colleges and Universities . . . . . . . . . . . . . .92
Table 5.5. Student/Teacher Ratios by Level and Type of Education . . . . . . . . . . . . . . . . .94
Table 5.6. Non-Teaching and Total Staff Ratios by Level and Type of Education . . . . . . .95
Table 5.7. Teachers’ Salaries as a Percent of Per Capita GDP for Armenia and OECD . . .96
Table 5.8. Distribution of General Education Schools by Size and Resource
Use in 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Table 5.9. Rank Order of ECA Participants for PISA, Relative to 31 Countries . . . . . . . . .99
Table 5.10. Armenia’s Gross Enrolment Rates and OECD Net Enrolment Rates . . . . . . .101
Table 5.11. Gross Enrolment Rates by Age and Consumption Quintile . . . . . . . . . . . . . . .102
Table 5.12. Distribution of Public Expenditures on Education by Consumption Quintiles . .103
Table 5.13. Tertiary Enrolments by Type of Financing Arrangement and
Consumption Quintile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104
Table 6.1. Health Indicators for Armenia and Comparable Countries . . . . . . . . . . . . . . .110
Table 6.2. Armenia: Inpatient Utilization and Health Care Personnel . . . . . . . . . . . . . . .112
Table 6.3. Change in Health Care Utilization, 1995–2000 (per 1,000 individuals) . . . . .113
VI CONTENTS
Table 6.4. Armenia Public Expenditures in Health, Million Dram . . . . . . . . . . . . . . . . . .116
Table 6.5. Budgetary Expenditure in the Health Sector, Million Dram . . . . . . . . . . . . . .117
Table 6.6. Insufficient Financing and Arrears, 2000, Thousand Dram . . . . . . . . . . . . . . .118
Table 6.7. Armenia National Expenditures on Health . . . . . . . . . . . . . . . . . . . . . . . . . . .120
Table 6.8. Percent of Patients that Paid for Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121
Table 6.9. Distribution of Public Expenditures on Health, 1999, Million Dram . . . . . . .122
Table 7.1. Public Spending on Social Protection and Insurance, Million Dram . . . . . . . .126
Table 7.2. Poverty Family Benefit, 1999–2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127
Table 7.3. Changes in Distribution of Cash Social Assistance, 1998–1999 . . . . . . . . . . .129
Table 7.4. Resources Needed for the Extreme Poverty Alleviation—Three Scenarios . . .131
Table 7.5. Pensions, 1996–2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132
Table 7.6. Average Monthly Pensions and Wages in CIS Countries in 2000 . . . . . . . . . .134
Table 8.1. Financing Requirements for Adequate Maintenance and Operations in
Five Infrastructure Sectors for 2003–05, US$ million . . . . . . . . . . . . . . . . . . .142
Table 8.2. Efficiency in Water Delivery: Comparison of Yerevan with Budapest, 2000 . . .146
Table 9.1. The Levels and Structure of Public Investment Financing, 1998–2001,
Million Dram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150
Table 9.2. Capital Expenditures of the Consolidated Budget, 1997–2001,
as Percent of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150
Table 9.3. Capital Construction and Capital Repair, Shares of the Total Budget
Expenditures and GDP, 1997–2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150
Table 9.4. Capital Expenditures Financed from Domestic and
External Sources, 1997–2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151
Table 9.5. Domestically Financed Capital Expenditures (1999–2001) in the
Earthquake Zone from all Sources, Million Dram . . . . . . . . . . . . . . . . . . . . . .152
Table 9.6. Sectoral Allocation of Budget Investments in 1999–2001, Million Dram . . . .153
Table 9.7. Public Sector’s Need in Investments and Actual Provision in FY 2001,
US$ Million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .154
Table 9.8. Arrears on Counterpart Funding for only IDA Funded Projects,
Million Dram, Year End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155
FIGURES
Figure 1.1. Budget Dependence on Local Taxes and External Financing, Percent of
Total Spending in the Consolidated Budget . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Figure 1.2. Conventional Budget Deficit and Actuarial Deficit of the
Government Sector, Percent of GDP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Figure 1.3. Moldova, Fiscal Adjustment, 1995–2000, Percent of GDP . . . . . . . . . . . . . . . .22
Figure 1.4. Planned and Actual Cash Deficit of the State Budget, Percent of GDP . . . . . . .23
Figure 1.5. Overall Levy Ratio and Tax Ratio, 1996–2001, Percent of GDP . . . . . . . . . . . .26
Figure 1.6. Quarterly Budget Spending on Education and Health in 1998–99,
Million Dram . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Figure 2.1. Expenditure Growth in Real Terms Between 1997 and 2001, Percent . . . . . . .39
CONTENTS VII
Figure 2.2. Sectoral Shares in the Total Increase of the Budget Expenditure,
1997–2001,Percent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Figure 2.3. The Government’s Adjusted Budget Plans. Comparisons of Budget
Targets for the State Budget, Adopted in 1999 (MTEF) and in 2001
(2002 Budget Law) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Figure 2.4. Ratio Between the Average Government Wage and GDP Per Capita.
Second Half of 1990s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Figure 2.5. Average Monthly Wages in Budgetary and Private Sector,
US Dollars, Year End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Figure 6.1. Incidence of Malaria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
Figure 6.2. Number of TB Cases Notified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
Figure 6.3. Health Care Utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121
Figure 6.4. Health Care Providers by Quintiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121
Figure 9.1. Dynamics of Investment Allocations by Sector in 1999–2001,
Percent of Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153
BOXES
Box 1.1. Aid Dependency, Accountability and Capacity Building . . . . . . . . . . . . . . . . . . . .28
Box 2.1. Budget Support of Basic Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Box 3.1. UMCOR: NGO’s Participation in Delivery of Social Assistance . . . . . . . . . . . . . .57
Box 3.2. A Forgotten Budgetary Credit to the Irrigation Sector . . . . . . . . . . . . . . . . . . . . .60
Box 4.1. IGR Recommendations on Budget Management and Control . . . . . . . . . . . . . . .67
Box 4.2. Overview of Public Expenditure Reform Measures Undertaken, 1991–2002 . . . .69
Box 4.3. Recommendations for the Annual Budget Calendar . . . . . . . . . . . . . . . . . . . . . . .74
Box 4.4. GFS Classification and the Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77
Box 4.5. The Problem with Norms and an Alternative Approach . . . . . . . . . . . . . . . . . . . . .78
Box 4.6. The Importance of Sectoral Ceilings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Box 4.7. Budget Presentation by Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
Box 4.8. Example of Programs in the Health Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
Box 7.1. Recent Steps to Improve Targeting of Poverty Benefit . . . . . . . . . . . . . . . . . . . .130
Box 9.1. Programs for Rehabilitation of the Earthquake Zone . . . . . . . . . . . . . . . . . . . . .152

A
BSTRACT
This is the first full scale World Bank Public Expenditure Review (PER) for Armenia, which
reviews the main fiscal trends in Armenia for the period of 1997–2001 and develop recom-
mendations with respect to further fiscal adjustment, expenditure prioritization, and budget
consolidation. The analysis in the Report is focused on the following core issues:
(cid:2) Quality of fiscal adjustment: How sustainable have been the recent Government achievements
to reduce fiscal deficits and budget arrears?
(cid:2) Other sustainability concerns: How much potential risk for the fiscal system is associated with
off-budget Government activities, including operations of the Pension Fund, quasi-fiscal
subsidies provided by the energy sector, and Government guarantees.
(cid:2) Fiscal transparency: How reliable are the fiscal data in Armenia? What are the main directions
for improvements in reporting on fiscal operations of the public sector?
(cid:2) Expenditure priorities: What are the priorities for strategic re-allocation of public spending,
both at the inter-sectoral and intra-sectoral level, to maximize growth and welfare effects
within fiscally sustainable limits?
(cid:2) Expenditure management: What should be the short-term priorities for upgrading standards
of fiscal management, given the existing economy-wide institutional constraints?
The report has the following structure. Chapter 1 reviews the main features of the Government’s
fiscal adjustment effort, initiated in the mid 1990s. It is focused on the analysis of aggregated indica-
tors of fiscal performance such as deficit, public debt, budget arrears, and tax revenues. Chapter 2
looks at the main expenditure trends in the Armenia consolidated budget for 1997–2001 and
makes an assessment of the quality and depth of expenditure restructuring. Chapter 3 looks at the
public sector’s activities that remain non-reflected in the regular Government budget, which
includes extra-budgetary funds, in-kind external grants, subsidies provided by the state-owned
companies in the energy and utility sectors, and operations of the Social Insurance Fund.
Chapter 4 presents in-depth analysis of progress made to date in the area of expenditure
management and suggests a draft medium-term action plan to address identified weaknesses in
budget preparation, presentation, execution, and reporting. Chapters 5–7 review expenditure
policies in the main social sectors (health, education, social protection and insurance) and provide
recommendations on: (i) how current expenditures could be made more efficient; (ii) what should
be the main direction for intra-sectoral expenditure reallocation; and (iii) what should be medium-
term targets for an increase in public expenditures in these sectors. Chapter 8 estimates a minimum
level of budget support in core public infrastructure, which would stop deterioration of existing
core assets in respective sectors and prevent the further accumulation of arrears. Chapter 9 presents
an analysis of Armenia’s public investment program.
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