World Bank Highlights Armenia's Shadow Economy

World Bank Highlights Armenia's Shadow Economy

Aristomene Varoudakis, head of the World Bank’s Yerevan office, told a recent press conference that the 'shadow economy' and inadequate tax collection was impeding Armenia’s economic development.

Varoudakis suggested that the shadow economy in Armenia is equal to 35-40% of gross domestic product (GDP), and he stressed the importance of regularizing this informal economy in order to increase tax revenues and finance much needed social services. Greater transparency would also benefit the companies and employees involved, he added.

Varoudakis said government action was especially urgent in Armenia’s export-oriented mining industry. “The mining sector is somewhat undertaxed in Armenia,” he said. “The tax regime in the mining sector falls far short of international best practice.”

The World Bank has agreed a USD25m budgetary loan to finance the reform of public finances and, in particular, measures related to new tax legislation, tax compliance and regulation of mining companies.

The World Bank and the International Monetary Fund have signaled the problem of tax collection for a long time. Although revenues have grown significantly since the late 1990s, the total still only represented about 16.5% of GDP last year.

Varoudakis said there had been a 13% production rise in Armenia’s mining industry from January to April this year. Armenia’s full-year GDP growth may amount to 4-5% for the year as a whole after 7.2% growth in the first four months, thanks to the government's anti-crisis fiscal stimulation, which generated 8.8% growth in the construction sector.