Third Development Policy Operation

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This program document proposes the third in a programmatic series of four Development Policy Operations (DPOs) designed to support the Government of Armenia’s efforts to promote fiscal, social, and environmental sustainability and to strengthen competitiveness. While three operations were originally planned, the series was modified to include a fourth operation in order to better align it with the government’s reform program. Including a fourth operation also increases the series’ ability to respond to a changing macroeconomic context, in addition to strengthening the sequencing and potential impact of the supported reforms. The series is anchored in the Armenia Development Strategy (ADS) for 2014-25, which was approved by the government in April 2014, and the Country Partnership Strategy (CPS) for FY2014–17. Originally, the Program Development Objective (PDO) of this DPO series was to support job creation through growth enhancing reforms. However, given the country’s increasing macroeconomic and fiscal vulnerability in the context of a worsening external environment, the PDO of this operation is amended to support the government’s reform agenda under two pillars: (i) promoting fiscal, social, and environmental sustainability; and (ii) strengthening competitiveness. These reforms will ultimately bolster the prospects for the government’s long-term objective of job creation. The first pillar includes measures to increase the fiscal space, improve the financial sustainability of key sectors, enhance the efficiency of social protection programs, and improve environmental and social safeguards in the mining industry, which accounts for over half of Armenia’s exports. The second pillar includes actions designed to strengthen the business environment, improve trade facilitation and connectivity, and improve access to credit.