Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized 1 1 Acronyms AAA Analyhcal and Advisory Services AR Armenia Railways BTO Back to Office CAE Country Assistance Evaluation CAS Country Assistance Strategy CEM Country Economic Memorandum CIS Commonwealth of Independent States DAC Development Assistance Committee DFID Department for International Development (UK) EBRD European Bank for Reconstruction and Development ECA Europe and Central Asia ECSSD Environmentally and Socially Sustainable Development EDP Enterprise Development Project ERP Earthquake Reconstruction Project ESW Economic Sector Work FSU Former Soviet Union FIAS Foreign Investment Advisory Service GDP Gross Domestic Product GOA Government of Armenia IBRD International Bank for Reconstruction and Development IDA International Development Agency IFAD International Fund for Agricultural Development IFC International Finance Corporation IFIS International Financial Institutions IMF International Monetary Fund JBIC Japan Bank for International Cooperation Kfw Kreditanstalt fiir Wiederaufbau (German Agency for Reconstruction) LIL Learning and Innovation Lending MDG Millennium Development Goal MTEF Medium Term Expenditure Framework NK Nagorno Karabakh ODA Official Development Assistance OECD Organization for Economic Co-operation and Development OED Operations Evaluation Development OOF Other Official Flows PER Public Expenditure Review PRSP Poverty Reduction Strategy Paper PSD Private Sector Development SAC ' Structural Adjustment Credit SATAC Structural Adjustment Technical Assistance SCADA Supervisory Control and Data Acquisition SIF Social Investment Fund SME Small and Medium Enterprises SOE State Owned Enterprise TA Technical Assistance USAID United States Agency for International Development WB World Bank WTO World Trade Organization ~~ Director-General, Operations Evaluation Mr. Gregory K. Ingram Director, Operations Evaluation Department Mr. Ajay Chhibber Senior Manager, Country Evaluation & Regional Relations Mr. R. Kyle Peters Task Manager Mr. Jorge Garcia-Garcia Primary Author Mr. Elliott Hurwitz Contents Preface ............................................................................................................................................. i Summary ....................................................................................................................................... iu... Purpose and Background 1. .. Descnption.......................................................................................................................... 1 Economic Development ...................................................................................................... 1 Overall Progress and Development Challenges .................................................................. 5 2 . World Bank Assistance to Armenia. 1993-2002 Strategy. Relevance. and Lending ...................................................................................... 7 Analytical and Advisory Services..................................................................................... 12 Partnerships....................................................................................................................... 14 Aid Coordination ............................................................................................... :.............. 14 3 . Assessment of Development Impact of Country Assistance Macroeconomic Stability .................................................................................................. 16 Poverty Alleviation and Human Development ................................................................. 16 Infrastructure and Agriculture .......................................................................................... 17 The Public Sector .............................................................................................................. 19 Private Sector Development and Financial Sector Development ..................................... 20 Overall Outcome of the Country Assistance Program...................................................... 22 Institutional Development Impact .................................................................................... 23 Sustainability .................................................................................................................... 23 4 . Contributionsto Outcomes Borrower Performance ...................................................................................................... 25 Bank Performance ............................................................................................................ 25 Contribution ofOther Partners ......................................................................................... 26 Impact of Exogenous Factors ........................................................................................... 27 5 . Lessons and Recommendations ............................................................................................ 28 Boxes 2.1 Best Practice. “Growth Challenges and Government Policies in Armenia. ” February 2002 ................................................................................................................... 13 Figures 1.1 Fiscal Adjustment Led to a Sharp Drop in Inflation and. combined with Reforms. to a Steady Growth of GDP ....................................................................................................... 2 1.2 Governance Indicators for Armenia. FSU. and Eastern Europe Countries ........................ 3 1.3 Balance ofPayments 1993-2003 ........................................................................................ 4 2.1 Average Annual Commitments to Armenia. by CAS Period ............................................. 8 Contents (cont.) Tables 2.1 Lending (Disbursements). in US$ million. FY93-02. by Sector ........................................ 8 2.2 OED Performance Ratings (by number ofprojects) ........................................................... 9 2.3 Country Strategy Objectives. and Proposed and Actual Lending..................................... 10 3.1 Armenia. GDP and Agricultural Product .......................................................................... 19 Annexes Annex A : Statistical Annexes ..................................................................................................... 29 Annex B : List ofPersons Interviewed........................................................................................ 45 Annex C : Management Action Record....................................................................................... 49 Annex D : Guide to OED’s Country Assistance Evaluation Methodology ................................. 51 Attachments 1. Comments from the Govemment .................................................................................. 55 2 . Chairperson’s Summary ................................................................................................ 61 Preface This evaluation provides an independent assessment ofthe role ofWorld Bank assistance to Armenia during the period 1993-2002. The basis for the Country Assistance Evaluation (CAE) consists of Operations Evaluation Department (OED) project assessments, sectoral reviews, and interviews with past and present Government officials, as well as Bank and International Monetary Fund (IMF) staff at headquarters and in Armenia. Project assessment reports have been completed for six completed loans. In addition, a sectoral review ofinfrastructure and energy was prepared. An OED mission visited Armenia during March 2003, and also met with staff ofEuropean Bank for Reconstruction and Development (EBRD) in London. OED received comments from the World Bank Governor for Armenia, as well as from the Minister ofFinance and Economy, which are in Attachment 1. Additional comments were received from the Central Bank. This report was prepared by Elliott Hurwitz, consultant to OED. Jorge Garcia- Garcia (OEDCR) was the Task Manager. Poonam Gupta (OEDCR) and Luca Barbone (ECCU2) peer-reviewed the report. Comments from Rene Vandendrits are gratefully acknowledged. Maria Claudia Pachon and Danuta Danilova provided research assistance. Tirsit Dinka and Janice Joshi provided administrative support. ... 111 Summary 1. Independence in 199 1 and the dissolution ofthe Soviet Union left Armenia saddled with many distortions from the command economy. In addition, the country engaged in a conflict with neighboring Azerbaijan over Nagomo Karabakh. The loss oftraditional Soviet markets, severe shortages offoreign exchange, an enormous increase in imported energy prices, and a sharp reduction in credit all combined to produce a drop in GDP of more than 50 percent between 1990 and 1993. The collapse ofthe economy precipitated an unprecedented fiscal crisis and hyperinflation. 2. Fortunately, the reform process started early. In 1991-92, prior to Intemational Financial Institution (IFI) involvement, the government began price liberalization and deregulation, as well as land reform. By 1994 a ceasefire was reached with Azerbaijan and a more comprehensive stabilization and reform program was initiated with support from the intemational community. The reforms comprised policy actions on many fronts, including elimination ofwage and price controls, creation of a liberal trade regime, and privatizations, as well as improvements in areas such as the social benefits system, education and energy