Artak Azizyan speaks about EDB’s activity in Armenia in his interview to ARKA News Agency

03 August 2015

ARKA News Agency (Armenia). Business and Privatisation

In early July, the Eurasian Fund for Stabilisation and Development, managed by Eurasian Development Bank, signed an agreement with Armenia’s government to provide investment financing for the Irrigation System Modernisation project for the total amount of US $50 million. Artak Azizyan, Head of the Eurasian Fund for Stabilisation and Development Programmes Division, in his interview to ARKA News Agency, speaks about the objectives and prospects of this project, as well as about ways to deepen cooperation in the framework of Eurasian integration, the opportunities opening in the context of the Iranian factor and Armenia’s investment attractiveness and economic growth outlook in general.

ARKA — Mr. Azizyan, a delegation of Eurasian Development Bank, headed by you, has recently held discussions with Armenia’s government on investment financing for the Irrigation System Modernisation project to be funded by EFSD. What do you think about this project, its terms and effectiveness?

A. Azizyan — Despite the efforts already taken by the government and other development institutions, Armenia’s irrigation sector is faced with a deficit of investments, which would bring down the sector’s costs, particularly water losses and electricity expenses. The EFSD project is to generate annual savings of up to US $1.94 million through lower electricity consumption and network operation and maintenance costs. In addition, irrigated areas are to expand by 10,433 hectares. The financing will be provided to Armenia on concessional terms, the share of the grant component of the loan will exceed 30%.

ARKA — When will the project implementation start in Armenia? What will the credit resources be used for? Will the project implementation lead to creation of new jobs?

A. Azizyan —The launch of the project is scheduled for late 2015. The project is designed for five years and primarily aims at enhancing the efficiency of irrigation facilities and expanding irrigated land area. In particular, the project involves construction of eight gravity systems and 340 kilometres of main, secondary and tertiary canals. It is planned to contract mainly domestic construction companies to ensure temporary employment of labour migrants who have returned to Armenia because of the economic developments in the region. It should be mentioned that enhancement of efficiency and stability in irrigation water supply, as well as expansion of irrigated land will promote an increase in permanent employment and incomes of the rural population. Some 114,382 people are estimated to be the project beneficiaries.

ARKA — What activities are planned under the project to enhance the responsibility of water users who are targeted by this project and improve the efficiency of water user association management?

A. Azizyan — During the project preparation, the issue of improving the efficiency of water user association management was taken into account. Therefore, particular measures are to be taken as part of the project to improve the collection of irrigation fees, to lower the cost of irrigation water, to develop the management of WUAs, to upgrade irrigation services, to promote new irrigation technologies, and establish the WUA Federation. Demonstration sites for modern irrigation technologies are to be established as an important part of the project’s institutional component.

ARKA — This project is known to be part of the long-term national programme aimed at recovery and rehabilitation of Armenia’s irrigation and drainage infrastructure. What other projects under this programme can become the subject matter of discussions between the Fund and Armenia’s government?

A. Azizyan — We maintain an on-going dialogue with Armenia’s government and donors engaged in the irrigation sector. This sector is vital for Armenia’s economy. Projects related to the irrigation sector are consistent with the Fund’s objectives; therefore we are considering different options to further this cooperation.

ARKA — Mr. Azizyan, Could you please say in a few words why the Eurasian Economic Union’s Anti-Crisis Fund was renamed the Eurasian Fund for Stabilisation and Development and what new prospects has it opened for Eurasian Development Bank’s member countries?

A. Azizyan — The renaming was prompted by the closedown of the Eurasian Economic Community, but it was still mainly based on a new understanding of the Fund’s role. The Fund was established in 2009 in response to the then financial crisis, but over the last five years it has proved to be an effective instrument contributing to the microeconomic stabilisation and development of the Fund member countries’ economies.

ARKA — What are the Fund’s main objectives and goals in the context of ensuring the economic and financial stability of its member states and deepening Eurasian integration?

A. Azizyan — The Fund’s main objectives and goals are to contribute to the macroeconomic stability in its member states and enhance their integration in the regional economy.

ARKA — It has been stated that, in addition to lending, the Fund will also provide grants to EDB member states. What projects come under the category of grant financing? Has Armenia applied for grants?

A. Azizyan — Amendments in the Fund’s statutory documents have opened opportunities for providing grants to implement programmes in the social sector. It is still early to speak about particular projects, since elaboration of grant financing procedures and regulations is underway now.

ARKA — What segments of Armenia’s economy are top priority and most attractive ones for the EFSD?

A. Azizyan —The activity of the EFSD is not limited to particular sectors. The key principle of the Fund is to finance government-designed projects and programmes or those projects, which are among the government’s top priorities. Currently the Fund will finance projects in the irrigation and transport sectors in Armenia.

ARKA — Experts note that as soon as sanctions against Iran are lifted, Armenia, as a friendly to Iran country, which also has a common border with it, can become an outpost for the EEU countries in their relations with Iran. In this context, what real prospects are emerging for the EEU member states and how can they benefit from those prospects?

A. Azizyan —The gradual lifting of the sanctions is opening new opportunities for cooperation both for Armenia and for other EEU countries. The advantages, however, will not be seen immediately, but Iran is a country with 80 million people and a US $450-billion GDP. The country has long been under sanctions, and its needs are very big. In this context, the construction of the North-South road corridor and Iran-Armenia Railway, as well as the opening of Georgia-Russia Railway will create totally new opportunities. All this will form an important regional and international communication hub and a reliable transportation link between the EEU countries and the Persian Gulf, South Asia and South-East Asia. This is huge work that needs tremendous efforts for years.

ARKA — Can the adverse economic situation in the EEU (CIS) countries complicate or change the Fund’s financing policy and strategy in these countries?

A. Azizyan — Changes in member states’ priorities affect their needs and discussed projects and programmes. Besides, the macroeconomic situation in these countries, their debt sustainability risks are necessarily taken into account in assessment of investment projects. The procedure of consideration and disbursement of loans, as well as the methods of assessing programmes for consistency with the Fund’s objectives remain unchanged.

ARKA — Could you rate the investment attractiveness of the Armenian economy as of now?

A. Azizyan — Armenia holds quite a high position in the World Bank’s Doing Business rating, however the direct foreign investment inflow is low. It implies that there is still plenty to do. In accordance with the Eurasian Fund for Stabilisation and Development Board’s instruction dated 3 July 2015, the Manager is finalising a three-year reform programme for the country. This programme may be supported with a US $300-million financial credit to Armenia. The programme under preparation involves implementation of structural reforms agreed with the Armenian authorities and the Manager, which will mostly be aimed at improving the business environment by removing barriers to economic growth. And this will enhance the country’s investment attractiveness.

ARKA — What is your economic growth forecast for Armenia as of end-2015?

A. Azizyan — According to the latest CIS Macromonitor released in June, the economic activity in Armenia until the year end will depend on several opposing factors. For instance, the favourable effect of the recovering copper mining sector on the GDP is expected to weaken in the second half of this year. In addition, amid the ongoing recession in Russia and the limited space for fiscal stimulus, the domestic demand is unlikely to recover even despite signs of some slowdown in contraction of money remittances in dollar terms and a slight recovery in investment that remains possible due to the EEU. The loss of external price competitiveness, the recession in Russia, a weak recovery in the euro zone, and low prices for metals will contain export recovery. According to the updated consensus forecast, the GDP growth may slow down to 0.8% in 2015.