Second Development Policy Operation

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The objective of the Second Development Policy Operation (DPO) Program for Armenia is to address vulnerability by protecting the poor and supporting greater human capital development, while improving competitiveness by alleviating a selected set of private sector and governance constraints. Armenia was among the worst affected by the global crisis, notwithstanding its strong pre-crisis performance on growth and poverty reduction. As exports, remittances and foreign direct investment (FDI) fell, Gross Domestic Product (GDP) contracted by more than 14 percent in 2009 due mainly to a precipitous decline in the booming construction sector. Nearly 40 percent of households suffered from losses of wages, farm income and remittances; incidence of poverty rose from 23.5 to 26.5 percent of the population after more than a decade of continuing decline. The crisis impact also revealed the urgency of improving competitiveness, especially in the tradable sectors, given that construction is unlikely to be the major growth driver as it has been in recent years. The DPO series, initiated in 2009, supports Government efforts to address vulnerabilities resulting from the crisis and strengthen competitiveness for post-crisis growth. In addressing vulnerability, the DPO program protects the poor and sustains human capital development by safeguarding social safety net spending and its effectiveness, as well as by continuing reforms in education and health. In strengthening competitiveness, the DPO program alleviates private sector and governance constraints through various measures to improve the business environment and to enhance efficiency and accountability in public financial management.