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Quasi-Fiscal Activities, Hidden Government Subsidies, and Fiscal Adjustment in Armenia

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  • Lev Freinkman
  • Gohar Gyulumyan
  • Artak Kyurumyan

Abstract

This paper aims to develop a detailed analysis of quasi-fiscal deficits and subsidies, and their impact on Armenia's fiscal performance in the second part of the 1990s. Based on the flow-of-funds approach, we estimate the magnitude of the quasi-fiscal deficits and the incidence of quasi-fiscal subsidies in Armenia, as well as identify main recipients and sources of quasi-fiscal financing. The principal finding of the paper is that while quasi-fiscal deficits in Armenia remain considerable, their recent decline has been a major contributing factor to Armenia's fiscal adjustment. The paper also shows that households remain a major ultimate recipient of quasi-fiscal subsidies. Thus, the main distortive impact of quasi-fiscal subsidies is on social policy and equity, rather than on enterprise restructuring and private sector performance. Still, the current level of public sector deficit in Armenia remains too high, which requires an additional adjustment effort. The paper suggests that to make fiscal adjustment sustainable a further strengthening of financial control, accounting and reporting in the public sector is needed, including through better Government monitoring of debts and other liabilities accumulated by the large state enterprises and phasing out the phenomenon of implicit (hidden subsidies), such as debt-for-equity swaps. The proposed approach to the analysis of quasi-fiscal deficits and subsidies, based on estimates of accumulated debts in the public sector and its main parts, seems to be fully applicable to other economies in transition, especially to those low-income CIS countries, which are heavily dependent on energy imports.

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Bibliographic Info

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This book is provided by The World Bank in its series World Bank Publications with number 15074 and published in 2003-09.

ISBN: 0-8213-5604-6
Handle: RePEc:wbk:wbpubs:15074

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Keywords: Banks and Banking Reform Macroeconomics and Economic Growth - Economic Stabilization Governance - National Governance Urban Development - Municipal Financial Management Public Sector Economics and Finance Finance and Financial Sector Development;

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References

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  1. Freinkman, Lev M. & Starodubrovskaya, Irina, 1996. "Restructuring of enterprise social assets in Russia : trends, problems, possible solutions," Policy Research Working Paper Series, The World Bank 1635, The World Bank.
  2. Easterly, William, 1999. "When is fiscal adjustment an illusion?," Policy Research Working Paper Series, The World Bank 2109, The World Bank.
  3. Alam, Asad & Sundberg, Mark, 2002. "A decade of fiscal transition," Policy Research Working Paper Series, The World Bank 2835, The World Bank.
  4. Balázs Horváth, 1998. "Achieving Stabilization in Armenia," IMF Working Papers, International Monetary Fund 98/38, International Monetary Fund.
  5. Aleh Tsyvinski & Martin Petri & Günther Taube, 2002. "Energy Sector Quasi-Fiscal Activities in the Countries of the Former Soviet Union," IMF Working Papers, International Monetary Fund 02/60, International Monetary Fund.
  6. Pinto, Brian & Drebentsov, Vladimir & Morozov, Alexander, 2000. "Give growth and macroeconomic stability in Russia a chance - harden budgets by eliminating nonpayments," Policy Research Working Paper Series, The World Bank 2324, The World Bank.
  7. Brixi, Hana Polackova & Ghanem, Hafez & Islam, Roumeen, 1999. "Fiscal adjustment and contingent government liabilities : case studies of the Czech Republic and Macedonia," Policy Research Working Paper Series, The World Bank 2177, The World Bank.
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Cited by:
  1. World Bank, 2007. "Armenia - Labor Market Dynamics : Volume 2. Main Report," World Bank Other Operational Studies, The World Bank 7846, The World Bank.
  2. Julian Lampietti, 2004. "Power's Promise : Electricity Reforms in Eastern Europe and Central Asia," World Bank Publications, The World Bank, The World Bank, number 14936, February.
  3. Mali Chivakul & Robert C. York, 2006. "Implications of Quasi-Fiscal Activities in Ghana," IMF Working Papers, International Monetary Fund 06/24, International Monetary Fund.
  4. World Bank, 2005. "Belarus : Window of Opportunity to Enhance Competitiveness and Sustain Economic Growth, A Country Economic Memorandum (CEM) for the Republic of Belarus, Volume 1, Main Report," World Bank Other Operational Studies, The World Bank 8353, The World Bank.

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