Due to the coronavirus epidemic, the economic situation is expected to worsen in 2020 in all countries of the world. With this in mind, international financial institutions are trying their best to help member states overcome the pandemic.
In this context, the World Bank informed about the possibility of revoking the previous decision on the application of the additional interest rate (1.7%) on many of the loans provided to Armenia by the International Development Association (IDA) for a period of one year.
To take advantage of this opportunity, the RA Ministry of Finance applied to the World Bank on May 7, 2020 with an official request.
In a letter dated June 4, 2020, the World Bank stated that the request of the Armenian side had been granted, and that the additional interest rate would not be applied during the 2021 fiscal year of the World Bank (July 1, 2020 to June 30, 2021).
According to the estimates of the World Bank and the RA Ministry of Finance, as a result of the cancellation of the additional 1.7% interest rate for one year, the savings of the state budget of the Republic of Armenia on foreign interest payments will make about USD 13 million. As of May 31, 2020, the balance of the Government's debt on loans to the International Development Association amounted to USD 981 million (14% of the Government debt), of which an additional interest rate is applied to USD 763 million.
It should be reminded that after a proper study of the economic situation in Armenia, the Board of Executive Directors of the International Development Association decided to tighten lending terms for most of the loans previously provided to Armenia, increasing the interest rate stipulated in the loan agreements from July 1, 2014 by an additional 1.7%.
Such a decision was based on the fulfillment of the conditions set out in the provisions of the relevant loan agreements: (1) In terms of gross national income per capita, Armenia has consistently exceeded the threshold set by the International Development Association for three years (according to which it is determined whether a member state is subject to funding from the resources of the International Development Association or not). (2) Armenia was considered creditworthy by the International Bank for Reconstruction and Development in terms of lending from its own resources.