Third Development Policy Operation

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The objective of the Third Development Policy Operation Program (DPO-3) 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. After a large economic contraction in 2009, the economy recovered in 2010-11. Armenia was hit hard by the global crisis with real Gross Domestic Product (GDP) falling by more than 14 percent in 2009. Growth resumed in 2010 at 2.1 percent and is expected to reach 4.6 percent in 2011. The economy has benefitted from gradually rising remittances, stronger inflows of foreign direct investment (FDI) and increased exports (mainly in the mining and tourism sectors). Both poverty and inequality increased significantly in the wake of the crisis. This operation completes the programmatic series that started in 2009. The programmatic DPO series is central to the Bank's current Country Partnership Strategy (CPS) for Armenia which was prepared against the background of the 2009 global economic crisis to support the efforts of the government to address vulnerabilities resulting from the crisis and to strengthen competitiveness for post-crisis growth. The DPO-3 in the amount of US$80 million supports a reform program to: (i) address vulnerability by protecting the poor and supporting greater human capital development; and (ii) strengthen competitiveness by providing a more favorable private sector environment and strengthening governance. Measures supported by the DPO-3 program include expenditures on key social safety net programs along with their improved targeting, and improving access and quality of basic social services for pre-school and hospital services. The program also supports measures to establish a one-stop shop for business registry, amendments to the Law on Inspections to reduce discretion and increase transparency, introducing a fully functioning green channel by default for customs clearance, and issuing regulations to implement the new mining code to enhance investments.