Document of The World Bank Group FOR OFFICIAL USE ONLY Report No. 186451-AM INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP FRAMEWORK FOR THE REPUBLIC OF ARMENIA FOR THE PERIOD FY25-FY29 December 9, 2024 South Caucasus Country Management Unit Europe and Central Asia Region The International Finance Corporation Europe Region The Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization. iii The date of the last Country Partnership Framework (CPF) FY19-FY23 was March 28, 2019, updated through a Performance and Learning Review (PLR) dated May 16, 2022. CURRENCY EQUIVALENTS Exchange rate as of November 30, 2024 US$$1.00=AMD 396 (Currency Unit: Armenian Dram (AMD)) THE ARMENIAN GOVERNMENT’S FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AMD Armenian Dram MLSA Ministry of Labor and Social Affairs ARMEPS Armenia e-Procurement System MoF Ministry of Finance ArmStat Armenia Statistics Committee MSME Micro, Small, and Medium Enterprise ASA Advisory Services and Analytics NCDs Non-Communicable Diseases CBA Central Bank of Armenia OOP Out-of-Pocket CCDR Country Climate and Development Report PBC Performance-Based Condition CEM Country Economic Memorandum PCM Private Capital Mobilization CLR Completion and Learning Review PEFA Public Expenditure and Financial Accountability COVID-19 Coronavirus Disease 2019 PER Public Expenditure Review CPF Country Partnership Framework PFM Public Financial Management CPSD Country Private Sector Diagnostic PforR Program for Results DPO Development Policy Operation PHC Primary Health Care DRM Disaster Risk Management PIU Project Implementation Unit EBRD European Bank for Reconstruction and PLR Performance and Learning Review Development ECA Europe and Central Asia PPP Public-Private Partnership EIP Education Improvement Project PSMP Public Sector Modernization Project ER Evolution Roadmap PSRC Public Services Regulatory Commission EU European Union RESILAND Resilient Landscape Project FBP Family Benefit Program RRA Risk and Resilience Assessment FDI Foreign Direct Investment SCD Systematic Country Diagnostic FY Fiscal Year SDG Sustainable Development Goal GDP Gross Domestic Product SILD Social Investment and Local Development GGF Good Governance Fund SME Small and Medium Enterprise GHG Greenhouse Gas SOE State-Owned Enterprise GoA Government of Armenia SPF State and Peacebuilding Fund GREEN Growth and Recovery to Equip, Empower, and SPI Supplementary Progress Indicator Nurture GRID Green, Resilient, Inclusive Development STEM Science, Technology, Engineering, and Mathematics HLO High Level Outcome TA Technical Assistance IBRD International Bank for Reconstruction and TF Trust Fund Development ICT Information and Communication Technology TPQI Trade Promotion and Quality Infrastructure IDA International Development Association TRIP Tourism and Regional infrastructure Project IFC International Finance Corporation UMIC Upper Middle-Income Country ILCS Integrated Living Conditions Survey US$ United States Dollar IMF International Monetary Fund WB World Bank IPF Investment Project Financing WBG World Bank Group MIGA Multilateral Investment Guarantee Agency WISE Water Irrigation Services Enhancement World Bank IFC MIGA Vice President: Antonella Bassani Alfonso Garcia Mora Ethiopis Tafara Director: Rolande Pryce Ines Rocha Sebnem Erol Madan Task Team Leaders: Carolin Geginat Ivana Fernandes Duarte Gabisile Ndlovu Irina Tevosyan Olga Vybornaia ii FY25-FY29 COUNTRY PARTNERSHIP FRAMEWORK FOR THE REPUBLIC OF ARMENIA TABLE OF CONTENTS I. INTRODUCTION ................................................................................................................................ 1 II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA ........................................................................ 2 II.1 Sociopolitical and Institutional Factors ............................................................................................ 2 II.2 Recent Economic Developments and Outlook................................................................................. 3 2.2.1 Recent Developments ................................................................................................................ 3 2.2.2. Outlook ...................................................................................................................................... 4 II.3 Poverty and Shared Prosperity ........................................................................................................ 6 II.4 Development Agenda ....................................................................................................................... 7 III. WORLD BANK GROUP PARTNERSHIP FRAMEWORK ....................................................................... 9 III.1 Government Program and Medium-Term Strategy ........................................................................ 9 III.2 WBG Country Partnership Framework ........................................................................................... 10 3.2.1. Lessons Learned from the FY19-FY23 CPF .............................................................................. 11 3.2.2. Stakeholder consultations ...................................................................................................... 12 3.2.3. Approach to Selectivity ........................................................................................................... 13 3.2.4. Objectives Supported by Program of Lending and Non-lending Activities. .......................... 13 III.3 Implementing the FY25-FY29 Country Partnership Framework .................................................... 20 3.3.1. Financial Envelope ................................................................................................................... 20 3.3.2. Financial Management, Procurement and Government Systems ......................................... 21 IV. MANAGING RISKS TO THE CPF PROGRAM .................................................................................... 23 ANNEX 1. RESULTS MATRIX .................................................................................................................... 24 ANNEX 2. CPF ALIGNMENT WITH THE CORPORATE SCORECARD ......................................................... 35 ANNEX 3. COMPLETION AND LEARNING REVIEW ................................................................................. 38 ANNEX 4. SELECTED INDICATORS OF BANK PORTFOLIO PERFORMANCE AND MANAGEMENT .......... 95 ANNEX 5. OPERATIONS PORTFOLIO (IBRD/IDA AND GRANTS)............................................................. 96 ANNEX 6. STATEMENT OF IFC’S HELD AND DISBURSED PORTFOLIO .................................................... 97 ANNEX 7. MIGA’S GUARANTEE PORTFOLIO .......................................................................................... 98 ANNEX 8: ARMENIA’S KEY GENDER GAPS AND CPF INTERVENTIONS .................................................. 99 iii iii FY25-FY29 COUNTRY PARTNERSHIP FRAMEWORK FOR THE REPUBLIC OF ARMENIA I. INTRODUCTION 1. Armenia, a landlocked country in the South Caucasus with a population of three million, has registered important achievements over the past two decades. Between 2000–2023, Armenia achieved robust economic growth averaging 6.3 percent, above the average for Europe and Central Asia (excluding high-income countries). Growth has been accompanied by a structural transformation of the economy with a gradual shift from low-productivity agriculture toward industry and services (especially, tourism and Information and Communication Technology (ICT)). The country has achieved near eradication of extreme poverty and has registered important improvements in life expectancy, survival rates, school enrollment rates and other welfare measures, although the incidence of poverty remains high, considering Armenia’s income level, particularly in the rural areas. Armenia has a record of sound macroeconomic management and a stable financial sector. All these factors enabled Armenia to graduate from the International Development Association (IDA) in 2014 and be an upper middle-income country (UMIC) since 2019. Armenia became an IDA donor in 2023 and its Gross National Income per capita stands at US$7,330 in 2023.1 2. To build on these achievements, stem outward migration, and avoid the middle-income trap, Armenia will have to transition towards a growth model with a greater focus on job creation and resilience. Growth in Armenia has historically been reliant on consumption growth, fueled in part by significant remittance flows from the country’s global diaspora. At the same time, repeated waves of outward migration have resulted in a shrinking and aging population, which – together with persistently high unemployment – hinders Armenia’s growth potential. Going forward, Armenia must address the structural impediments to job creation, both from the supply and demand side. From the supply side, low rates of investments in education and health have undermined the competitiveness of the workforce. On the demand side, Armenia needs to redouble its efforts to strengthen the business environment to compensate for the lost economic opportunities associated with two closed borders with Türkiye and Azerbaijan. Long-term structural challenges are exacerbated by climate related risks and institutional bottlenecks. Also, building economic resilience in the face of fragility and conflict is critical, for example through diversifying trade partners and exports, investments in resource security and stronger institutions. 3. The new Country Partnership Framework (CPF) presents the World Bank Group (WBG) strategy to deliver impactful solutions at scale and with a stronger focus on knowledge and results in Armenia over FY25-FY29.2 With its focus on job creation and resilience, the CPF is fully aligned with the WBG mission of ending extreme poverty and promoting shared prosperity on a livable planet and with the Government Strategy for 2021-2026. It leverages the WBG’s comparative advantage as a knowledge bank to ensure impact in selected sectors. The CPF outlines how the WBG will scale up its country engagement with Armenia by adjusting its focus from a predominance of investments in Armenia’s physical capital to increased support for policy and institutional reforms, especially in human capital and resilience. Consistent with this shift in focus, this CPF envisages an increase in the share of results-based financing through Program for Results (PforR) and Investment Project Financing with Performance-Based Conditions (IPF-PBCs). The International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) will jointly scale up their engagement and maximize private capital mobilization in green finance and sectors critical for climate adaptation such as water, agriculture, and energy. 1 In current US Dollar (US$). 2 World Bank Fiscal Year (FY) - July 1 -June 30. 1 4. The CPF is grounded in the analytical findings of the Second Systematic Country Diagnostic (SCD)3 and the lessons learned from the previous CPF; it also aligns with the WBG’s new mission of ending extreme poverty and boosting shared prosperity on a livable planet. The recently completed SCD reconfirmed the development priorities of the last CPF but highlighted a need for a greater focus on resilience and institutional strengthening. A Risk and Resilience Assessment (RRA) undertaken in June 2023 informs the resilience aspect of the CPF (see Box 1). The CPF also builds on the Completion and Learning Review (CLR) of the previous CPF (see Annex 3), which highlighted the need for a greater focus on capacity building to help the government achieve results and support its nascent public administration reform. Under the CPF FY25-29, Armenia will contribute to progress in 7 out of 8 Global Challenges defined by the Evolution Roadmap (ER), namely those of “Enabling digitalization”, “Pandemic preparedness and prevention”, “Fragility and conflict”, “Energy access”, “Water security and access”, “Protecting biodiversity and nature” and “Climate change adaptation and mitigation”. The CPF is gender mainstreamed – it presents Armenia’s key gender gaps, the relevant interventions under the CPF portfolio, and individual and gender disaggregated indicators under the Results Framework. Finally, the CPF emphasizes the importance of partnerships with other donors, promoting co-financing and joint policy dialogue. II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA II.1 Sociopolitical and Institutional Factors 5. Armenia experienced a rapid transformation in 2018, when the Velvet Revolution significantly changed political sentiment in the country. Mass citizen engagement led to a peaceful transition of power boosting the democratic aspirations of the Armenian people. These aspirations were dimmed in 2020, when Armenia faced the twin shocks of the Coronavirus Disease 2019 (COVID-19) pandemic and military conflict with Azerbaijan. On the back of changing political sentiment after the 2020 military conflict, a snap election was held in 2021, which saw the government of Nikol Pashinyan re-elected. In late September 2023, the country received 115,000 ethnic Armenian refugees (equivalent to a 3.7 percent increase in the total population), whose socio-economic inclusion will require significant fiscal resources in the coming years. An additional 25,000 ethnic Armenian refugees came to the country already at the time of the 2020 conflict and require continued support as well. 6. Armenia faces high social expectations from its population as well as global uncertainty externally. Uncertainty about the outcome of the peace process remains a source of insecurity and political polarization. The outcome of a peace deal with neighboring Azerbaijan carries both economic opportunities and political risks. The economic and social inclusion of the refugees represents an additional political, fiscal, and socio-economic challenge. In the medium to long term, it also presents an opportunity for Armenia with its adverse demographics resulting from several past waves of outward migration. On the upside, the influx of people and money transfers from Russia and Ukraine, coupled with a surge in re-exports, have boosted the economy since 2022, but this trend is likely to be transitory. Finally, the 2026 elections may lead to a shift in government priorities. Adjustments in the CPF program born of a difficult geopolitical context, or challenging domestic conditions will be addressed at the time of the Performance and Learning Review (PLR). 7. Institutional reforms are underway in Armenia and will require continued attention and support in the coming years. Since 2018, Armenia has made progress in strengthening the quality of its institutions, especially in the areas of anticorruption and transparency in the public sector. And despite the difficult security priorities for the country, the government has deliberately and consistently pursued important 3 World Bank 2024. Armenia - The Second Systematic Country Diagnostic: Beyond Boundaries - Unlocking Potential for a Sustainable Tomorrow. Washington, D.C.: World Bank Group. 2 policy reforms. However, despite progress, judicial reform and anti-corruption efforts are falling short of public expectations and are perceived to have stalled.4 While significant achievements have been made in domestic revenue mobilization, progress in public financial management (PFM) reforms has been slower, the institutional framework for planning, monitoring, and evaluation is incomplete, and strategic planning is only weakly aligned with budget processes. Box 1. Armenia Risk and Resilience Assessment (RRA) The Risk and Resilience Assessment, finalized in June 2023, identified several resilience factors that could help mitigate Armenia’s fragility and conflict drivers: Armenia is a young but relatively developed democracy, with a homogenous society and a strong sense of national identity. Armenia’s youth and its women, particularly in urban centers, are having an increased sense of agency in the public sphere. Also, Armenia relies on a wide range of external multilateral and bilateral partnerships and benefits from a highly engaged diaspora. The RRA provided the following recommendations to shape and enhance the WBG’s engagement to support mitigation of fragility and conflict risks, and increase resilience, which have been reflected in the thrust of the new CPF: 1. Adapt the country engagement to ensure that the country program can respond to changes in fragility and conflict scenarios. 2. Deepen the understanding of how the WBG can respond to the needs of the conflict-affected provinces, supporting local resilience and collaborating with other multilateral partners. 3. Help reduce Armenia’s economic vulnerability to externally induced shocks, and support increased regional connectivity. 4. Invest in resource security as part of a strategy to mitigate fragility and conflict risks and the impact of conflict in rural communities. 5. Improve the resilience of border communities and develop local institutions and capacity for Disaster Risk Management (DRM) and emergency planning. 6. Invest in women and youth as part of a strategy to leverage factors of resilience to mitigate fragility and conflict risks. 7. Strengthen systems for social service delivery and promote inclusion and resilience to help communities affected by conflict cope with diverse shocks. 8. Strengthen the transparency, accountability, and effectiveness of the provision of security and justice. 9. Increase the focus on governance capacity, including local capacity, at project level. 10. Strengthen access to data on citizen perceptions, impact of shocks and policy changes on households. 11. Underpin WBG engagement in sensitive sectors (e.g., mining, water, energy, private sector) with sectoral political economy analysis. II.2 Recent Economic Developments and Outlook 2.2.1 Recent Developments 8. Armenia has weathered multiple crises since the 2018 Velvet Revolution, thanks to sound macro- economic management. Average annual growth during 2018-23 was robust at 5.4 percent but volatile, compared with the average growth performance of previous decades of 6.3 percent on average (over 2000-23). Due to the twin shocks of the COVID-19 pandemic and military conflict with Azerbaijan, the Armenian economy shrank by 7.2 percent in 2020, one of the largest contractions in Europe and Central Asia (ECA). The economy has recovered since, and notably in 2022, when yearly Gross Domestic Product (GDP) growth surprised on the upside as of 12.6 percent, fueled by an inflow of people and money transfers from Russia, and a re-routing of trade flows. In 2023, while the inflow of money transfers started to gradually taper off, economic growth exceeded expectations and remained robust at 8.3 percent. 4 Citizens’ perception of corruption increased from 33 percent in 2019 to 52 percent in 2022, according to Gallup’s World Poll. 3 9. Armenia’s fiscal policy is progressive and reasonably counter-cyclical but has been less successful at stimulating growth. Estimates indicate that fiscal policy has contributed to reduced poverty incidence and lower inequality, although it has not been as effective at stimulating short-run growth.5 Armenia has managed downturns well, including by adopting a revised fiscal rule in 2017, adhering to it, and actively reacting to implement fiscal response measures, for example to address the twin shocks. Fiscal policy has also been progressive, which has helped safeguard against impoverishment and unemployment during crises. However, a high degree of budget rigidity constrains Armenia’s ability to cut expenditures and scale up growth enhancing investments. Meanwhile, the government’s ambitious plans to improve human capital development and economic infrastructure require further increases in revenue mobilization (Armenia’s revenue to GDP ratio stood at 26 percent in 2023) and increased spending efficiency, whereby fiscal policy will become more growth enhancing. 10. Armenia’s public debt is sustainable but susceptible to shocks which could constrain Armenia’s borrowing space in the coming years. The fiscal rules framework stipulates an upper-bound debt to GDP ratio of 60 percent. This constrained the government’s borrowing potential under the previous CPF. 6 Since then, Armenia’s debt to GDP ratio has fallen to 48.4 percent as of end-2023 due to the strong GDP performance and the dram’s appreciation. While public debt is sustainable, a debt sustainability analysis also reveals high sensitivity of Armenia’s public and external debt to a variety of shocks, with shocks to growth and the exchange rate having the most pronounced impact.7 Climate change risks and contingent liabilities arising from state-owned enterprises (SOEs) such as the Armenian National Interest Fund as well as public-private partnerships are other important sources of fiscal risk that need to be carefully monitored and managed. 11. Armenia’s monetary policy and exchange rate policy have eased inflation and helped the country absorb shocks. In an uncertain global environment with monetary policy normalization coupled with the risk of commodity and food price shocks and given Armenia’s energy dependence, inflation poses a risk to households and firms. Headline average inflation stood at 7.2 percent at end-2021, above the 4 percent inflation target. In anticipation of further inflationary pressures, the Central Bank of Armenia (CBA) raised the policy rate proactively by 125 basis points in March 2022 and continued its tightening policy started at the end of 2020 to reach a policy rate of 10.75 percent by end-2022. This proactive monetary stance allowed inflation to subside quickly to a 2 percent average in 2023. The dram experienced two periods of significant volatility in late 2020–mid 2021 in the post-conflict period and in 2022. In both cases, the CBA implemented episodic interventions to ensure the stable functioning of the exchange rate market, particularly in light of significant capital inflows from Russia in 2022. As such, exchange rate flexibility, with limited interventions by the CBA, has served Armenia well. 2.2.2. Outlook 12. Over the medium-term, the economy is forecast to stabilize growth towards its 4.5 percent potential. The growth momentum is driven by robust domestic demand, particularly high consumption, and investment. Average inflation is forecast to reach the target of 4 percent in the medium term. The current account deficit is expected to widen to 3.3 percent of GDP in 2024, and deteriorate further in the medium term, mainly due to a gradual reversal of large inflows of money transfers and phasing out of the positive impact of re-exports. The current account deficit is expected to remain at a manageable level 5 Armenia Public Expenditure Review: Improving Spending Efficiency. World Bank, 2023. 6 If government debt to GDP ratio exceeds 60 percent of GDP, the fiscal rule requires that growth in current expenditures slows, and that the government presents measures to gradually reduce the government's debt to GDP ratio below 60 percent to the National Assembly. 7 International Monetary Fund (IMF) Staff Report for the Third Review Under the Stand-By Arrangement for the Republic of Armenia, June 2024. 4 around 4.5 percent in the medium term, mostly financed through government borrowing and net Foreign Direct Investment (FDI) inflows. The budget deficit is also forecasted to deteriorate in 2024 as the government incurs spending to address the influx of refugees, prior to returning to a fiscal consolidation path in the medium term. Public debt is expected to reach 55 percent of GDP in 2026 before declining in the medium term. Table 1. Armenia Key Macroeconomic Indicators 2020 2021 2022 2023e 2024p 2025p 2026p 2027p 2028p 2029p Real GDP Growth, percent -7.2 5.8 12.6 8.3 5.5 5.0 4.6 4.5 4.5 4.5 Private Consumption -13.9 2.8 5.6 5.6 6.3 4.9 4.5 4.7 4.2 4.5 Government Consumption 9.2 -6.2 -2.2 28.3 2.1 1.0 4.6 6.9 6.0 6.7 Gross Fixed Investment -1.5 23.6 14.0 10.1 11.6 8.0 8.1 7.3 7.6 6.6 Exports -33.5 18.6 59.9 30.7 29.2 -15.3 1.6 6.9 7.3 11.1 Imports -31.5 12.9 35.0 30.2 29.3 -13.1 3.2 8.3 7.8 11.1 Sectoral contribution to growth           Agriculture (percentage points (ppts) -0.4 -0.1 -0.3 0.3 0.4 0.3 0.3 0.4 0.4 0.4 Industry (ppts) -0.6 0.7 2.6 0.7 1.6 1.4 1.1 1.1 1.1 1.1 Services (ppts) -5.0 4.4 9.4 6.2 2.9 2.8 2.7 2.5 2.6 2.6 GDP Deflator 1.8 6.9 8.0 2.7 3.3 3.3 3.8 4.0 4.0 4.0 CPI (percent yearly average) 1.2 7.2 8.6 2.0 0.6 3.2 4.0 4.0 4.0 4.0 Unemployment Rate (percent, ILO 18.2 15.5 13.5 12.6        Definition) Fiscal Account, percent of GDP           Expenditures 31.1 29.5 27.3 27.9 30.9 31.8 31.1 30.5 30.0 29.8 Revenues 26.0 24.9 25.1 26.0 26.1 26.2 26.5 26.7 26.8 26.8 General Government Balance1/ -5.1 -4.5 -2.2 -1.9 -4.7 -5.5 -4.6 -3.8 -3.5 -3.0 General Government Debt 2/ 63.5 60.2 46.7 48.4 50.3 53.8 55.4 54.2 52.8 51.9 Selected Monetary Accounts         Money Base (annual change) 18.3 17.1 5.0 -4.0       Policy Interest Rate (percent) 5.3 7.8 10.8 9.3 Balance of Payments, percent of GDP, unless indicated otherwise    Current Account Balance -4.0 -3.5 0.3 -2.3 -3.3 -3.8 -4.3 -4.4 -4.5 -4.5 Imports, Goods and Services 40.2 44.1 52.4 60.1 73.3 60.2 58.7 50.7 48.7 46.4 Exports, Goods and Services 30.2 36.1 51.7 59.3 71.7 57.9 55.8 47.6 45.4 42.9 Net Income 6.0 4.5 1.1 -1.5 -1.7 -1.5 -1.5 -1.3 -1.2 -1.0 Net Foreign Direct Investment -0.7 -2.5 -4.9 -2.2 -2.0 -2.0 -2.1 -2.1 -2.2 -2.3 External Government Debt 47.3 42.5 27.3 25.5 26.4 29.1 30.8 30.6 30.2 30.0 Terms of Trade (as ratio) 2.2 4.2 1.0 0.2 -0.8 1.0 0.5 0.5 0.5 0.5 Exchange Rate (per US$, average) 489 504 436 392 Gross Reserves (months of imports) 6.2 6.3 4.8 3.0 2.4 3.2 3.5 3.5 3.6 3.7 Source: Armenian authorities and WB staff estimates (e) and projections (p). 1/ The 2023 fiscal balance registered a deficit of -4.1 percent of GDP. 2/ Debt in 2023 includes AMD 206 billion in 10-year Treasury Bonds issued by the government to finance the portion of the financial liabilities assumed by the government. 13. The medium-term outlook is subject to significant uncertainty, mostly with downside risks. Significant uncertainties for medium-term projections stem from geopolitical factors and potential developments related to security. Downside risks include regional tensions, unresolved border issues, challenges in refugee inclusion, deterioration in trade relations with Russia, and a slowdown in trading partner economies. House prices pose a risk for the banking system. Banks’ mortgage portfolios have more than tripled in the last four years, and the share of loans to the construction sector in banks’ portfolios has almost doubled. There are also signs of overheating in the housing market. 5 14. The International Monetary Fund (IMF) Executive Board approved a three-year Stand-By Arrangement in December 2022, and the third review was completed by the Board in June 2024. The Stand-By Agreement, which the authorities are treating as precautionary, aims to ensure policy continuity, advance structural reforms, and maintain macroeconomic, financial, and fiscal stability amid the ongoing shocks, tightening global financial conditions, and growing economic fragmentation. The World Bank (WB) team remains in close contact with the IMF, and the teams are collaborating in supporting key structural reforms. II.3 Poverty and Shared Prosperity 15. In the last decade, Armenia has seen poverty (as measured by the national poverty line) decrease steadily, but sustainably expanding the middle class remains a challenge.8 Extreme poverty — defined as those with consumption per adult equivalent below the national food poverty line – is close to being eradicated in Armenia at 1.1 percent. Following the global financial crisis of 2008, poverty measured at the national average poverty line decreased uninterruptedly until progress stalled with the onset of the COVID-19 pandemic and the military conflict of 2020. While the impact of recent shocks on poverty has been limited, these have contributed to the shrinkage of the middle class and an increase in the size of the vulnerable population. 16. Considering Armenia’s income level, the incidence of poverty remains high, especially in rural areas. In 2022, Armenia’s poverty level was 51.3 percent against the international UMIC poverty line of US$6.85 per adult a day, more than 20 percentage points higher than the average poverty rate of countries of a similar income level. Rural poverty was 3.5 percentage points higher than in Yerevan in 2022 and rural areas also register consistently higher multi-dimensional poverty (which measures non- monetary poverty). A large urban-rural divide can be seen in access to basic services, access to a centralized sewerage system, 24-hour access to drinkable water, and access to waste disposal services. A gap also exists in heating sources, as a significantly larger share of rural households rely on wood and use less electricity or natural gas. 17. Important improvements in inequality were registered after 2018 but have likely been partially reversed with the onset of the 2020 twin shocks and the recent displacement of people. In the period after 2016, inequality, as measured by the Gini index, improved continuously, dropping below peer countries' levels. While it is difficult to quantify the impacts of the conflict and large influx of people due to data limitations, refugees are at an elevated risk of multidimensional poverty due to the many needs they are facing, especially single women, female-headed households, children, and the elderly. Also, while host communities and the local population across Armenia have welcomed and supported them, experiences from other countries show that the rapid influx of people could strain existing social support services in host communities dispersed in several areas of the country and could lead over time to societal tension. Impacts on the host communities include those of heightened competition in the labor market, food security, housing, accessibility to services, which may negatively impact the well-being of the households in host communities. Sustaining the delivery of public services while at the same time fostering their socio-economic inclusion into the Armenian economy and society will be crucial for their resilience and long-term development as well as those of host communities. 8The national average poverty rate is the midpoint between the lower and upper poverty rates. Poverty lines are adjusted each year using year-on-year (yoy) inflation. Poverty lines in terms of adult equivalent per month in current price to estimate poverty rates were 33,517 AMD (2010), 40,867 AMD (2016), 48,146 AMD (2021). Poverty and inequality measures are not strictly comparable before and after 2019 due to the revisions in the Integrated Living Conditions Survey questionnaire and data collection methods. Poverty measured against the upper poverty line is used prior to 2019-the most comparable rates with the national average poverty since 2019 (Armenia Statistics Committee (ArmStat) 2022a). 6 II.4 Development Agenda 18. Armenia’s key development challenge is to break the past trend of jobless growth to further poverty reduction and expand the middle class. While job creation has improved since 2017, it remains low compared to other upper-middle income countries, and the economy has not generated sufficient good-quality jobs.9 This challenge has been further exacerbated by the recent influx of people. Job creation is critical as jobs are the main driver of poverty reduction in Armenia, and increasingly so since 2016. Unemployment decreased from 15.5 percent to 12.6 percent in the last two years, but remains high, especially among youth and women, and is likely to have increased due to the significant influx of people. The share of women and youth not in education, employment, or training is among the highest in the region. The low participation rate in the labor market, along with an aging and shrinking population, has been a drag on growth and needs to be enhanced. While the level of informal employment has declined significantly in the past decade, it was still 36 percent in 2021, the latest data point available.10 19. Poor human capital in terms of education and health constrains job growth from the supply side and undermines the growth of household income over their lifecycle. In the past decade, human capital has made only a limited contribution to growth. Poor human capital has also undermined wage growth and poverty reduction with a particularly worrisome decline in returns on education.11 In terms of health, Armenians are living longer, but not necessarily productively, as the burden of non-communicable diseases (NCDs) is high, driven by behavioral risks, unhealthy aging, and variable access to quality care.12 Armenia has one of the highest rates of out-of-pocket (OOP) payment rates (around 80 percent) in the world and the incidence of catastrophic and impoverishing health expenditure remains high, especially among vulnerable groups.13 Children in poor households lack opportunities to accumulate high-quality human capital, which may lead to lifelong inequality in opportunity and inequity in health, education, and in the labor market. 20. To fuel job-rich growth from the demand side, Armenia needs to boost the competitiveness and openness of its private sector to attract more investment. Given the small size of its domestic market, Armenian firms must rely on external markets for growth and on knowledge spillovers to stay competitive. Armenia’s IT sector has managed to leverage the networks of the diaspora to transcend borders and offer quality, but other sectors continue to suffer from the physical and non-physical challenges of trade connectivity. FDI inflows as a share of GDP declined significantly during the past decade, and there is a lack of FDI in job-intensive sectors (e.g., tourism and construction). Enforcement of competition policy remains an area for improvement for Armenia compared to peer countries. Firms consider access to finance the most constraining factor to their business. Low corporate governance hampers investments. 21. Investments in Armenia’s energy and water infrastructure need to be prioritized to increase the resilience of the economy and security of supply. Armenia faces major supply security challenges in the power sector in the decades ahead, which makes close regional integration of its power network an urgent priority. About two-fifths of Armenia’s power supply come from the aging Armenia Nuclear Power Plant, currently scheduled to close in 2036, and about half of the remaining share comes from natural gas, 9 The rate of employment creation at a given level of growth in 2000-22 – the employment elasticity of growth – was –0.1, which indicates that a 1 percent rise in GDP was associated with a 0.1 reduction in jobs. 10 IMF Country Report No 21/274 on the Republic of Armenia, December 2021. 11 Within just a decade, returns on education dropped by 4 percentage points. This represents a four-times faster decline than the world average. Worldwide, returns on education have declined by 3.5 percentage points over the last 40 years. 12 NCDs account for an estimated 93 percent of all deaths, higher than the global average of 71 percent and resulting in estimated annual economic losses exceeding AMD300 billion. 13 Kazungu, Jacob, et al. 2022. The burden of catastrophic and impoverishing health expenditure in Armenia: An analysis of ILCSs, 2014–2018. PLOS Global Public Health 2.10: e0000494 7 imported from Russia, which is not compatible with the country’s long-term climate and energy security ambitions. Domestic renewable energy resources represent a substantial alternative source that can be exploited further–albeit requiring accompanying investments in strengthening the transmission and distribution networks. Water resources are declining in quantity and quality, and the availability of water resources and river flows has become uncertain. High water losses are a major issue as more than half of water is lost through poor infrastructure. Modernizing the existing irrigation infrastructure and increasing water storage capacity in Armenia, as well as improving of water and wastewater management will be critical for ensuring future water security and supporting agricultural productivity. 22. Resilience to economic shocks, fragility, conflict, natural hazards, and climate change needs to be strengthened.14 Armenia’s difficult geopolitical position has adverse implications for the country’s ability to attract FDI, maximize its trade potential and stem repeated waves of brain drain. While macroeconomic management has improved substantially over the past decade, including by maintaining exchange rate flexibility and a fiscal rule, Armenia remains highly exposed to economic shocks, given its high dependency on a few economic partners as well as on export commodities. Further, Armenia is one of the most disaster-prone countries in the ECA region, facing major risks from earthquakes, landslides and mudflows, and hydro-meteorological hazards. Such events affect growth adversely as key sectors like agriculture lack climate-smart production methods. Armenia has also been losing forests at an alarming pace and is one of ECA’s least forested countries.15 Prolonged unsustainable mining operations and disposal of mining waste have contributed to soil pollution and degradation of the natural environment. For air quality, Armenia ranks among the worst in Europe and untreated waste and wastewater continue to pollute the environment and represent health risks for the population.16 Moreover, despite some progress, the Disaster Risk Management (DRM) system is not well prepared to safeguard the population and the economy from shocks. 23. Being a landlocked country with closed borders, improving Armenia’s connectivity (both in country and within the region) is key to strengthening Armenia’s competitiveness. For decades, Armenia’s borders with Türkiye in the west and Azerbaijan in the east have been closed, with only three active open border crossing points in the north (on the border with Georgia) and one in the south (on the border with Iran). The ongoing rehabilitation of the North-South Road Corridor, Armenia’s key transportation artery, along with potential opening of the borders with Türkiye and Azerbaijan and the Government’s recently announced “Crossroads of Peace" project (in the context of a potential peace treaty negotiations), and Armenia’s linkages to the regional infrastructure and transport connectivity projects, may redefine the country’s connectivity landscape and unlock vital transportation routes in the country and the region. 24. To achieve inclusive and sustainable growth, Armenia needs to address governance bottlenecks, strengthen institutional quality, and invest in data quality and timeliness to support evidence-based policymaking. Armenia has made progress in strengthening the quality of its institutions since 2016, especially in the areas of anticorruption and transparency of the public sector. Further, the government remains committed to structural reform, despite the ongoing security concerns. However, the institutional framework for planning, implementation, monitoring, and evaluation requires strengthening if Armenia wants to boost investment and improve the efficiency of service delivery to support growth. 14 World Bank 2024. Armenia - The Second Systematic Country Diagnostic: Beyond Boundaries - Unlocking Potential for a Sustainable Tomorrow. Washington, D.C.: World Bank Group 15 Pressure on forest resources have historically come from high dependence on forests for income, fuelwood, and non-timber forest products, shelter, and fodder for livestock, as well as expansion of land cultivation and mining activities. 16 Only 9 percent of wastewater is treated in Armenia. Welfare costs associated with air pollution by fine particles (PM2.5) represent about 11 percent of GDP equivalent, compared to 4 percent on average in ECA (Randall V. Martin ). To fuel wood use, air pollution is caused by fossil fuel combustion in energy, industry, agriculture, transport, buildings, but also by fires, windblown and other dust that account for approximately 50 percent of PM2.5 pollution (Erin E. McDuffie). 8 Greater investments in data collection, management and dissemination, a prerequisite for government functions, are needed to support the implementation of reforms based on evidence-based policy making. 25. Armenia has made important strides in reducing gender disparities in the past five years, but gaps remain for both women and men. The country’s ranking on the Global Gender Gap Index improved by 36 points globally and 13 points in the ECA region from 2017 to 2023.17 This progress reflects marked improvements, especially in women’s political participation.18 However, according to the WBG Country Gender Assessment,19 the female labor force participation averaged only 48.4 percent in 2018-2022 compared with 70.2 percent among males, and many Armenian women continue to be outside the labor market or are employed in part time jobs and activities associated with lower pay, despite their high levels of education compared to men. Family/childcare responsibilities and poor access to childcare services continue to be key obstacles to women’s economic activity. More than 50 percent of women ages 25–29 is neither working nor studying, a strikingly high rate by regional standards. There are also some gender gaps disfavoring men, including in life expectancy and mortality, enrolment in tertiary education, and non- agricultural informal employment and self-employment (see Annex 8 on Armenia’s key gender gaps and CPF interventions). III. WORLD BANK GROUP PARTNERSHIP FRAMEWORK III.1 Government Program and Medium-Term Strategy 26. The Government Program 2021-26 is built on an ambitious vision to redirect Armenia’s growth trajectory gradually from consumption to investment-led growth; it also reflects the security challenges the country faces. The key priorities of the program include: i) strengthening security and foreign policy through reforms and modernization; ii) boosting the economy by at least 7 percent of real GDP annually, productivity growth of 5 percent, an increase in the share of Small and Medium Enterprises (SMEs) from 27 to 55 percent of GDP, and a reduction of unemployment from 17-18 percent to 10 percent; iii) enhancing infrastructure development in all relevant sectors; iv) increasing human capital development; v) strengthening law and justice through anti-corruption, judicial and legal reforms, and human rights; and vi) strengthening institutional development. The CPF is broadly aligned with five of the six priority areas of the Government Program (economic growth, infrastructure development, human capital, justice, and institutional strengthening). 27. The CPF is also aligned with the Transformation Strategy 2050, which envisions a just, inclusive, and citizen-centric Armenia in the medium-term. The objective of the Transformation Strategy is to strengthen Armenia’s society through greater security, equality, freedom, dignity, and progress. To this end, the Strategy aims to tackle poverty, increase wage income, encourage repatriation, and establish a green, knowledge-based, and sustainable economy. 17 World Economic Forum. Global Gender Gap Report 2017, and Global Gender Gap Report 2023. Available at https://www3.weforum.org/docs/WEF_GGGR_2017.pdf, https://www.weforum.org/reports/global-gender-gap-report-2023/. 18 Women’s representation in Parliament increased from 18% in 2017 to 35% in 2023; in local governments’ councils increased from 9% in 2019 to 30% in 2023. Women judges’ share increased from 27 to 33% between 2019 and 2023 (https://court.am/hy; Women and Men in Armenia 2023, ArmStat: https://ArmStat.am/file/article/gender-2023.pdf). 19 26 percent of women vis a vis 13 percent of men are employed part-time. For men, life expectancy is 10 years lower, and mortality is three times higher than for women. Only 52 percent of men vis-a-vis 68 percent of women are enrolled in tertiary education. Country Gender Assessment in Armenia, June 2024, WBG. 9 III.2 WBG Country Partnership Framework 28. This CPF will support the government in transitioning Armenia towards a growth model with greater focus on job creation and resilience. Specifically, the CPF will support the Government in achieving its goals through and beyond 2026 by helping to promote the creation of jobs by improving conditions for private sector development and quality education, developing more resilient human capital, and strengthening the resilience of Armenia’s economy. The CPF is aligned with the Government Program, the SCD, the RRA, considers lessons learned from the previous CPF (CLR, see Annex 3), was refined through stakeholder consultations, and actively addresses regional and global challenges. Building on the success of the One WBG approach in the energy sector under previous CPFs, this CPF will support institutional reforms around water and digital that can pave the way for a broadened One WBG approach in those sectors. 29. The new CPF is aligned with the WBG’s ER in its focus on delivering impact at scale for Armenia, with greater emphasis on leveraging knowledge, fostering partnerships, and mobilizing private capital. The CPF will help deliver impact at scale by supporting the Government of Armenia’s (GoA) transformational reform projects in human capital development through the PforR instrument, thereby leveraging WBG financing to drive results for larger government programs. In the areas of climate adaptation and mitigation, the CPF will favor programming with multiplier effects achievable through parallel and co-financing arrangements with other development partners. The CPF will also aim to deliver impact by using the WBG’s convening power to support Armenia’s opportunities for participating in regional initiatives such as the regional Black Sea Submarine Cable20 and the regional Multiphase Programmatic Approach on energy efficiency. To that end: • The CPF will leverage knowledge to inform the Government’s investment decisions and policy reforms. Examples include planned analytical work on the drivers of private sector productivity and obstacles to market competition under the upcoming Country Economic Memorandum (CEM) and Country Private Sector Diagnostic (CPSD). Additional analytics will help identify Armenia’s opportunities for investing in regional initiatives such as the Black Sea Submarine Cable and the Middle Corridor, including by mobilizing private capital. A new Poverty and Equity Assessment will delve into issues relating to spatial disparities and vulnerability of the population, with a view to informing programs to foster economic opportunities and resilience. • The CPF will foster partnerships in both financing and policy dialogue. Examples in the planned project pipeline include investments in the water sector with the Agence Française de Développement; co-financing of the Armenia-Georgia interconnector with the European Investment Bank, Agence Française de Développement and the The Kreditanstalt für Wiederaufbau; and parallel financing with Asian Development Bank in health and housing. Partnerships will also be leveraged through a coordinated policy dialogue around selected areas of common interest. Building on the positive experience of the Growth and Recovery to Equip, Empower, and Nurture (GREEN) Armenia multi-stakeholder platform described under the lessons learned, the WBG joined in 2024 the Armenia 20The Black Sea Submarine Cable will establish parallel electricity and fiber-optic submarine cable interconnections across the Black Sea and aims to: First-Increase electricity trade through the electricity interconnection, which is expected to reduce the overall costs of meeting energy supply across the region, enhance energy security, improve the reliability of electricity supply, and enable the development of renewable energy in the South Caucasus while contributing to decarbonization on both sides. Countries in the South Caucasus have ambitious plans for the development and export of renewable energy generation, while countries in Southeast Europe have committed to phasing out coal generation and are interested in seeking alternative sources of electricity. Second-Strengthen economic integration though electricity market integration, which will help build economic resilience among participating countries. Third-The digital interconnection through fiber-optic cable, which would reduce internet connection costs, improve bandwidth, and build redundancy for international digital connectivity across the Black Sea. 10 SME Development Council public-private dialogue, established by the European Bank for Reconstruction and Development (EBRD), financed by the UK Good Governance Fund (GGF), and chaired by the Deputy Prime Minister, to advance the policy dialogue on reforms relevant to private sector growth. • The CPF will support private capital mobilization through close collaboration of IBRD, IFC, and MIGA in the priority areas of green finance, digital development, public private partnership (PPPs), and climate mitigation and adaptation. The One WBG approach will be continued and deepened in green finance, where IBRD’s support to the development of a green taxonomy will be supplemented by IFC’s advisory work on sustainable financing and lending to financial institutions for climate projects via their portfolios. IBRD lending will support the strengthening of institutions and promote further reforms in infrastructure, which would allow IFC and MIGA to support via PPPs and advisory work the crowding-in of private capital, with a focus on water, energy, and digital connectivity. Climate mitigation will be supported by IBRD through investments in energy efficiency and a continued reform dialogue, complemented by IFC’s efforts to mobilize finance for renewable energy and e-mobility and provide support for green construction (including through advisory). MIGA will support the mobilization of private investors in support of climate mitigation projects through the full suite of eligible instruments under the new WBG guarantee platform. Climate adaptation will be supported by IBRD through investments in Armenia’s irrigation infrastructure and by strengthening water resource management institutions. IFC will complement this support through potential PPP advisory work and investments in water supply and wastewater sectors and climate-smart agriculture. MIGA will seek opportunities to use its political risk mitigation instrument to support priority projects in sectors that increase access to finance and advance the green agenda. 3.2.1. Lessons Learned from the FY19-FY23 CPF 30. Armenia’s susceptibility to shocks, including geopolitical ones, requires an increased focus on resilience. The impact of the twin shocks of 2020 emphasized the importance of the CPF as a flexible instrument. The WB quickly shifted allocations to address the most acute needs arising from COVID-19 and the military conflict. The additional challenges associated with an influx of 115,000 ethnic Armenian refugees in September 2023 - in addition to the 25,000 who had already arrived in 2020 - and the uncertainties of an unfinished peace process require a greater focus on building resilience in this CPF. Going forward, in High Level Outcomes (HLOs) 2 and 3, the CPF reflects this greater emphasis on strengthening resilience programmatically, e.g., by promoting a more shock-responsive social protection system under HLO2 and by fostering greater resilience in key economic sectors and strengthening institutions under HLO3. 31. Greater efforts must be made to avoid duplication of efforts by different donors and promote continuity of dialogue on key development issues during crises. Lack of formal donor coordination by the government has led in the past to either duplication of efforts (e.g., in agriculture) or an absence of engagement (e.g., in irrigation). Similarly, donors often provide technical assistance (TA) on the same topic without a formal mechanism for joint dialogue on common reform priorities (e.g., PFM). A good example of a successful multi-donor dialogue under the leadership of the government is the WBG collaboration with the European Union (EU), and United Nations Development Programme through the jointly established GREEN Armenia multistakeholder platform to support Armenia’s green and resilient growth. Going forward, the WBG will champion multi-donor dialogues, where possible, to promote coherence in the dialogue and encourage complementarity and synergies. The WBG will seek to provide co-financing with other development partners in sectors with high investment needs to help reduce transaction costs and optimize project structures for the government. 11 32. More effective coordination and approaches among the WBG institutions (IBRD, IFC and MIGA) will be pursued for stronger results. An example of effective WBG joint engagement in the past was the modernization and greening of the energy sector, which also represents an example of successful Private Capital Mobilization (PCM). IBRD supported the liberalization of the sector through analytics, TA, and investments. Subsequent investments by IFC created a strong demonstration effect and mobilized a significant amount of private capital in addition to the IFC’s own resources. MIGA participation strengthened the transactions further by providing political risk insurance, thus contributing to the enhancement of more efficient energy generation and supporting the first independent power plant in the country. Going forward, this CPF will promote more effective joint approaches and strong collaboration across the WBG. Upstream discussions across the WBG have informed this CPF and propose a joint focus on strengthening the conditions for private sector growth, green finance, and private participation in sectors that are key for climate mitigation and adaptation (e.g., energy, agriculture, and water). 33. New project design must consider implementation capacity more carefully and upfront. Due to weak intra-government coordination, multi-sectoral engagements need to be underpinned by a strong and well sequenced theory of change and carefully considered implementation arrangements. TA, training, and capacity building related to WBG procedures are crucial in helping improve government effectiveness and ensure the timely delivery of projects. Projects involving significant amounts of civil works also need to carefully consider the limited capacity of the local construction market. Working with the client to improve contract management can positively contribute to project implementation, better planning, and decision-making cycles. The WB has initiated and will continue regular workshops with Project Implementation Units (PIU) and ministries. Going forward, the CPF will promote more consistent and upfront capacity building through its knowledge work and TA. 34. To avoid delays in investment projects, procurement processes require strengthening. The main driver of procurement delays in WB projects has been assessed to be related to the upstream process (contract identification, feasibility studies, environmental/social, geotechnical, and market assessments). To address procurement delays, there is a need for adequate preparation time, early start of upstream studies/designs, expediting permits, improving cost estimations, attracting more bidders, and reducing the number of failed procurements. Going forward, new projects under the CPF will aim to advance upstream work during preparation, where possible, and avoid the framework contracts used too commonly in the last CPF (with investments still to be identified during implementation). The CPF will also support strengthening procurement regulations and practices through advisory services and analytics (ASA) and trust fund (TF) resources. 3.2.2. Stakeholder consultations 35. The design of the CPF benefitted from a comprehensive consultation process with close to 200 stakeholders, including government counterparts, civil society organizations, development partners, and the private sector. The consultations took place at the end of 2023. IBRD and IFC representatives sought views on the priority areas identified by the SCD, focus of the CPF, and the key development challenges and high-level outcomes mapped against the Government Program 2021-2026. Stakeholders agreed with the findings and pathways proposed, and raised the following priority issues—health, education and skills, social protection, private sector development and infrastructure, as well as climate resilience and green transition. The private sector raised concerns about the predictability of the policy environment, access to finance and skilled labor. 12 36. The feedback received during consultations complemented the findings of the 2023 Armenia Country Opinion Survey, which ranked the WBG as the leading long-term partner in the country.21 The WBG engagement is most valued in supporting the design of ongoing health and education reforms, in social protection and labor market reforms, in strengthening all aspects of PFM, in advancing institutional reforms in the water and energy sectors and in supporting the environmental and climate agenda. Going forward, participants also highlighted several other priorities, notably: (i) prioritizing export diversification in terms of goods and trade partners; (ii) enhancing country resilience through stronger human capital and a more dynamic private sector; and (iii) supporting the use of PPPs and strengthening the enabling environment for investment. Several of these themes are picked up by this CPF. 3.2.3. Approach to Selectivity 37. The WBG will engage selectively in Armenia to ensure impact. Three selectivity filters will guide WBG engagement in Armenia: (i) alignment with the Government strategic priorities; (ii) alignment with the development priorities identified in the SCD and other analytical work undertaken under the previous CPF; and (iii) alignment with the WBG's comparative advantages, and its new mission and vision, including to address the strategic global challenges in the ER. As spelled out above, the CPF aligns with five out of six of the priority areas of the Government’s Program for 2021-2026. It further supports progress on seven out of eight of the Global Challenges identified by the ER, namely those of “Enabling Digitalization”, “Pandemic Prevention and Preparedness, “Fragility and Conflict”, “Energy Access”, “Water Security and Access”, “Protecting biodiversity and nature” and “Climate Change adaptation and mitigation”. Finally, the CPF will also contribute to nine outcome areas of the new WBG Corporate Scorecard. See Figure 1 and Annex 2 for a more detailed mapping to the Corporate Scorecard. 38. Building on the lessons learned from the last CPF and considering the WBG’s comparative advantages, the new program will put greater emphasis on close cooperation with other donors, an integrated WBG approach, and capacity building, including in procurement. Considering its comparative advantage as a knowledge bank, IBRD will have a greater focus on policy and results-based lending in support of structural reforms. A greater emphasis will be placed on coordination with other donors. For example, in education, a Public Expenditure Review (PER) and a potential new engagement in higher education will complement EU budget support to general education and other donors’ engagement in vocational education training (Asian Development Bank and Gesellschaft für Internationale Zusammenarbeit). Similarly, in water, the new Water and Irrigation Services Enhancement (WISE) project will be designed with a focus of crowding in other donors and possibly the private sector. Trust funds and the ASA portfolio will be used to support the capacity of government to implement reforms, including in public procurement and PFM reform. The CPF currently foresees no dedicated roads investment, an area where the EBRD, European Investment Bank, Eurasian Fund for Stabilization and Development, and Asian Development Bank are very active. Nevertheless, the WBG will use its convening power and knowledge work to support Armenia in regional connectivity initiatives, including in the context of the Middle Corridor Initiative. 3.2.4. Objectives Supported by Program of Lending and Non-lending Activities. 39. Drawing from the recent SCD Update, the CPF is structured around three HLOs and six objectives. The CPF continues to focus on the need for ensuring better conditions for private-sector-led growth (Objective 1) and reducing the labor market skills mismatch (Objective 2) under HLO1 (More and Better 21112 stakeholders responded to the country opinion survey 2023. Perceptions have markedly improved since the last survey in FY18, particularly regarding the flexibility of WBG’s work to changing circumstances as well as WBG’s relevance, alignment wi th the country’s priorities, and effectiveness in achieving development results. 13 Jobs); enhanced access to quality health services (Objective 3), as well as improving social protection (Objective 4) under HLO2 (More Resilient Human Capital); and more climate resilient economic activity (Objective 5) and stronger institutions for growth and resilience (Objective 6) under HLO3 (More Resilient Economy). This CPF steps up the focus on institutional strengthening and supporting vulnerable people through policy reforms and specific interventions under HLOs 1 and 2. Gender is mainstreamed in the CPF by presenting the country’s key gender gaps, respective interventions under the CPF portfolio, and individual objectives and gender disaggregated indicators (Annex 1) measuring impact. Figure 1. CPF FY25-FY29 High Level Outcomes, CPF Objectives, and Alignment with Global Challenges and WBG Scorecard 40. In what follows, the CPF program is outlined in greater detail by HLO. The potential for enabling or mobilizing private sector investments through different WBG engagements is marked with PCM in Table 2. HLO1: More and better jobs 41. Job growth in Armenia is constrained by demand and supply side challenges. In the last two decades, unemployment in Armenia has hovered persistently around 17-18 percent and the employment elasticity of growth has been slightly negative, as discussed above, suggesting that structural impediments to job growth continue to exist on the demand and the supply side. To support the demand for jobs, Armenia must strengthen access to finance and develop a more predictable business climate, invest in regulations and standards that support export diversification and strengthen the role of the state as a reliable and efficient provider of public services through streamlining of regulations, removal of red tape, and digitization. Armenia must have ambitious goals in these areas to compensate for the constraints brought about by two closed borders and high geopolitical uncertainty. To support the supply side of the labor market, a greater emphasis on skills and labor market relevance is needed in the education system at all levels; only 71 percent of Armenian children receive some form of early childhood education, total learning adjusted years of schooling amount to only 8.3 out of the 12 years of schooling received, and higher education lacks labor market relevance and a connection to science and innovation. Further, Armenia’s social protection system has to put a greater focus on labor market intermediation. 14 Objective 1: Ensuring Better Conditions for Private-Sector-Led Growth 42. Objective 1 under HLO1 will focus on the provision of better conditions for private-sector-led development to support the demand for jobs. Key areas of support to stimulate the demand for jobs by the private sector include strengthening the business and competition environment, supporting access to finance particularly for SMEs, including women-owned/led SMEs and green finance, encouraging the adoption of ICT and digital solutions by firms beyond Armenia’s already vibrant ICT sector, and building the infrastructure and institutional capacity needed to support a more diversified export base and deepening of local value chains. Closing the access to finance gap through increased MSME financing will be particularly important for spurring the creation of jobs by the private sector. 43. The CPF will deliver core research and stronger partnerships to lay the foundation for a One WBG engagement on the drivers of private-sector-led growth and job creation. A CEM and a CPSD will provide the evidence base for a Development Policy Operation (DPO) Series focused on reforms that could boost private-sector-led growth, as well as unlock investments with potential support from IFC and MIGA. The WBG will also join the government led public-private dialogue with EBRD and the UK GGF under the Armenia SME Development Council to ensure a more sustained policy dialogue on investment climate reforms in the country. 44. To improve the business and competition environment, IBRD will support the reform of the Company Law with the aim of catalyzing entrepreneurship, competition, and stronger corporate governance standards in Armenia. IBRD will also provide TA to the “Commission for Protection of Economic Competition” under a new EU TF focused on business environment reform, supplemented by analytical work on fostering contestability and competition. A streamlined and well-enforced regulatory framework for firm entry and competition is expected to help boost domestic and foreign investment as well as unleash firm productivity, all of which are associated to quality job creation. 45. To support access to finance, the WBG will jointly promote greater access to green finance via IBRD’s support to the development of a “Green Taxonomy” and IFC’s advisory services aimed at financial institutions. IFC will scale up its support for access to finance through its ongoing lending activities to Micro, Small, and Medium Enterprises (MSMEs) via financial intermediaries, including with a focus on climate and sustainable finance. Green finance will also be promoted through anchoring of fitting capital markets transactions (e.g. green and sustainable bonds), bringing innovative products to the market. IBRD will facilitate access to finance through TA to the CBA, including on the regulatory and supervisory framework, digital payments, and green finance. A joint WBG approach will be deployed to continue supporting implementation of the Sustainable Finance Roadmap. MIGA will seek opportunities to deploy its political risk insurance instruments to mobilize foreign investment in support of increasing access to finance with a focus on MSMEs and climate finance. 46. To increase access to digital services and boost the uptake of ICT by firms in Armenia, the ongoing IBRD Fourth Public Sector Modernization Project 4 (PSMP4) will provide incentives for greater ICT adoption by digitizing core public services used by firms such as construction permitting. TA on GovTech under the UK GGF will complement PSMP4 by digitizing municipal services such as construction permitting in Yerevan. A TA on cyber security (Digital Economy) complements the digitization efforts by supporting data security. 47. To support the export diversification of Armenia’s economy, IBRD lending targets investments in support of the fast-growing services sectors of tourism, ICT, and engineering. The ongoing Local Economy and Infrastructure Development Project and upcoming Tourism and Regional Infrastructure Project (TRIP) will support Armenia’s tourism potential in tourism clusters across the country. IFC will pursue 15 strategically aligned opportunities in the real sector of economy with focus on financing of export- oriented companies as well as consider potential clients in tourism, agriculture and retail space. Under the UK GGF financed “Building a more effective and accountable customs administration in Armenia” project, the WBG will continue supporting reforms of the customs administration, with the objective of improving trade facilitation. 48. To boost the resilience and growth potential of Armenia’s successful ICT and High-Tech sector, potential private investments in broadband connectivity and research commercialization are under discussion. IFC will seek to support mobile and fixed broadband rollout in the Armenian market aimed at expanding, upgrading, and densifying the telecom network, to achieve higher quality connectivity and enable acceleration of digitalization. Finally, to strengthen international connectivity, the IBRD Digital Economy analysis will provide governance options for a prospective investment in the Black Sea Submarine cable involving public and private sector stakeholders. IFC will continue supporting banks with preparing digital strategies under its Digilab program. Objective 2: Reducing the Labor Market Skills Mismatch 49. Objective 2 under HLO1 will focus on reducing the labor market skills mismatch and strengthen the supply side of the job market. Key challenges that the CPF will aim to address under this objective include closing the skills mismatch between the educational system and the labor market by improving the quality focus of the educational system and supporting the evolution of the social protection system towards a greater focus on labor market intermediation. Under this objective the CPF will also continue investments in early childhood education to support the labor market activation of women. 50. To raise the quality of education overall, the WBG is investing in core analytics like the PER II (with a focus on education) and a CPSD that will identify core skills that the private sector finds wanting in Armenia. The program will scale up the existing IBRD engagement with a new Higher Education and Research Commercialization Project to support the Government’s reform agenda in higher education and innovation. The project will support the consolidation of higher education institutions, strengthen the financing model and admission policy for universities, as well as mobilize private sector capital through research commercialization. 51. To support the re-orientation of the social protection system towards labor market intermediation, the CPF will support the implementation of the Government’s new Employment Strategy, including under a potential new operation (Jobs and Social Integration PforR) that will tackle the labor market challenge both from the demand and the supply side. A country Gender Assessment provides the basis for an evidence-based policy dialogue on the topic of women’s labor force participation. 52. To increase the availability of early childhood education to lay human capital foundations and increase the labor force participation of women, ongoing operations such as the Social Investment and Local Development (SILD) Project will continue to support the construction of childhood education centers, especially in rural areas. A planned Childcare TF Grant will support the government in advancing reforms on coverage, use, financing needs, and quality standards in childcare services. HLO2: More Resilient Human Capital 53. Improving health care and social protection in Armenia offers important opportunities to further reduce poverty and strengthen the resilience of the Armenian people to shocks. Armenia faces a high burden of NCDs due to an aging population and behavioral risk factors, with adverse effects on labor productivity and increases in health-related welfare spending. High out-of-pocket spending on healthcare 16 contributes to impoverishment and emigration.22 It has also precipitated a gradual shift away from the provision of preventive care towards curative care, which partly explains the high rate of NCDs. While Armenia has a relatively well-developed social protection system, more than half (57 percent) of those who remain in poverty are not reached by any social assistance benefit.23 In addition, the COVID-19 pandemic has raised questions about the ability of the system to be shock-responsive and its capacity to identify and reach out to the most vulnerable families and individuals who are not already enrolled in the system and who need immediate assistance when affected by large-scale shocks. Objective 3: Enhanced Access to Quality Health Services 54. Objective 3 under HLO2 will focus on enhancing the quality of health services and improving access for the more vulnerable groups of the population. Key challenges that the CPF will aim to address under this objective include bringing down the high rate of out-of-pocket expenditures. Raising the quality of care, especially at the primary health care (PHC) level is another focus under this objective, which will also support a decrease in the incidence of non-communicable diseases in Armenia over time. 55. To reduce financial barriers to health care, the government is putting a greater focus on increasing the efficiency of health spending and support the introduction of universal health care coverage by 2027. The Universal Health Coverage Program-for-Results (PforR) will support the Government in realizing efficiency gains in health care spending through reforms around strategic purchasing, medicine procurement and other reforms identified by the PER I of the last CPF. IBRD will also conduct a study on phasing and costing of universal health insurance implementation through the planned Financial Protection, Quality and Efficiency TA. 56. To improve the quality of health care and help reduce the incidence of non-communicable diseases, IBRD will complete several clinical vignettes assessing the quality of care provided by PHC staff, and the upcoming Universal Health Coverage PforR will support health system management, quality of care, financing, and capacity building. A Korean-WBG Partnership Facility Grant will support the achievement of Disbursement-Linked Indicators under the PforR program. IFC will seek ways to support investment in private health care infrastructure, pending the implementation of the new national universal health coverage reform. Objective 4: Improving Social Protection 57. Objective 4 under HLO2 will focus on improving Armenia’s social protection system. This objective will support Armenia’s reforms to improve the targeting and shock responsiveness of social benefits. Under Objective 2 the CPF will also support the planned re-orientation of the social protection system towards a greater focus on labor market monitoring and labor market activation. 58. To improve the targeting of Armenia’s social protection system, the CPF will support the introduction of the new vulnerability assessment that will move Armenia’s social benefits to an income- based (Hybrid Means Test) model under Green, Resilient, Inclusive Development (GRID) DPO II and the Strengthening Social Protection Systems ASA. TA on Pensions will build capacity to analyze the fiscal sustainability of pension programs and the impact of pension system reforms, building on the key reforms identified under PER I of the last CPF. The ongoing SILD Project will continue to support the economic 22 The International Organization for Migration estimates the 30% of outward migration is motivated by health care considerations (CPF consultations 2023). 23 Estimates using ILCS 2021, taken from the Armenia Public Expenditure Review by the World Bank, 2023. 17 development and livelihoods of local communities through micro and subprojects. PSPM4 will also help the Government establish a nation-wide domestic violence hotline. 59. An important focus of Objective 4 will be to respond to the challenge of supporting the inclusion of refugees into the labor market and the Armenian society more broadly by helping to: • integrate teachers, who are predominantly women, into schools through GRID DPO II. • support their labor market inclusion through a potential new operation (Jobs and Social Integration PforR) in line with Government’s new employment strategy. • monitor their inclusion into society over time through a Social Sustainability and Displacement Study and a high frequency phone survey (“Listening To” Series). • support the inclusion of children and adolescents into the Armenian school system and support teachers in providing psycho-emotional support through a State and Peace Building Fund (SPF) Grant – implemented in collaboration with the Ministry of Education and the Teach for Armenia Non-Governmental Organization. • support the immediate challenge of providing jobs through the planned Jobs and Social Integration PforR and of providing housing through a potential Housing Project. • mobilize concessional financing through the Global Concessional Financing Facility, of which Armenia became a member in December 2024. IFC is looking at possible new advisory and investment engagements to complement this support through private sector engagement. HLO3: More Resilient Economy 60. A greater focus on risk prevention and stronger institutions for investment and growth are required to strengthen the resilience of Armenia’s economy. Climate change, environmental risks, conflict, and natural hazards constitute high economic and social risks for Armenia. Inadequate natural resource management has led to environmental degradation, increased vulnerability to climate change and elevated levels of pollution. Armenia also deals with a host of environmental legacies that originate from unsustainable mining practices, the absence of proper waste management, and its history as an industrial heartland during the times of the former Soviet Union. Furthermore, Armenia needs to address supply security challenges related to energy and water and improve the resilience of its infrastructure as it faces a high seismic risk. For many years, public investment in modernizing Armenia’s infrastructure and making it more resilient has been low. Current attempts by the GoA to reverse this trend are hampered by a constrained fiscal space and execution challenges in public investment. Addressing the above challenges requires strengthening the link between strategic planning, budgeting, and monitoring of outcomes for improved spending efficiency, developing stronger public financial management systems, increasing the growth focus of fiscal policy, and strengthening institutions. Given Armenia’s high exposure to external shocks, maintaining adequate economic management (exchange rate flexibility, fiscal and current account buffers) is also paramount to ensure resilience. Objective 5: More Climate Resilient Economic Activity 61. Objective 5 under HLO3 will focus on increasing the resilience of Armenia’s economy by prioritizing climate adaptation in key economic sectors and contributing to the mitigation of climate change through investments in renewable energy and energy efficiency. Furthermore, the objective will support Armenia in the remediation of water, air, and soil pollution, and will contribute to the preservation and restoration of key ecosystems and biodiversity. A Country Climate and Development 18 Report (CCDR) will support various activities under this Objective by analyzing how Armenia’s development goals can be achieved in the context of mitigating and adapting to climate change. 62. To support climate adaptation, the new WISE project will strengthen the institutional governance of the water sector, promote reform dialogue and finance the modernization of key irrigation infrastructure. A potential project on Competitive and Resilient Agriculture could complement these investments in irrigation by mainstreaming climate-smart practices (including on water usage) into agricultural activities. IFC will explore supporting climate-smart agriculture by leveraging its advisory programs via partnership with financial intermediaries. An Agricultural PER will help identify opportunities for a reorientation of agricultural support programs to accommodate climate-smart agriculture knowledge transfer, and technology dissemination. Knowledge work and TA in water (Enhancing Water Secure Investments in Irrigated Agriculture) will strengthen Armenia’s capacity to monitor irrigation performance and provide a roadmap for expanding water supply into the underserved areas of Armenia. As a result of a strengthened WBG policy involvement in the sector, IFC will seek to provide PPP advisory services and investment financing for water supply and wastewater private concessions awards. 63. To support energy security and Armenia’s contribution to climate mitigation, the ongoing Electricity Transmission Network Improvement Project invests in the resilience of the sector through the rehabilitation of substations and transmission lines. The new Enabling the Energy Transition PforR and a potential new investment in the Armenia-Georgia Interconnector will strengthen the commercial viability24 of the energy sector and increase the capacity of Armenia’s power network to absorb variable renewable energy such as wind and solar, for which the government has ambitious targets. IBRD analytical work will focus on energy storage opportunities and the potential for solar and sustainable heating. TA will support the government in preparing an auction for the first privately-owned utility-scale wind power project, a first step towards the government’s target of 500 MW of wind power by 2040. The WBG will jointly support climate mitigation through advisory services that promote green construction and building standards. IFC will also further pursue opportunities for private renewable energy investment with a focus on hydropower and solar energy, and the development of urban electric mobility. Similarly, MIGA will explore opportunities to support sustainable and green infrastructure, while continuing to provide its support for renewable energy generation. 64. To address Armenia’s high rates of pollution and advance the protection of biodiversity, the GRID DPO II is supporting improvements in environmental impact assessments and monitoring of air pollution. A study on Solid Waste Management will inform investments in waste management through tariff and institutional analysis. The new Global Environmental Facility and the Resilient Landscape Project (RESILAND), the latter sponsored by the Swedish International Development Cooperation Agency, support ecosystem restoration (forests and wetlands) and promote knowledge, including among female beneficiaries of the program, on the management of natural resources to address the economic and social drivers of deforestation and destruction of ecosystems. Objective 6: Stronger Institutions for Growth and Resilience 65. Objective 6 under HLO3 will focus on strengthening core aspects of fiscal management in support of growth and resilience. Under this objective, the CPF will support Government efforts to increase the efficiency of public spending in support of increased investments in human capital and resilience. Under 24As part of the actions of the Energy PforR aimed at modernizing High Voltage Electric Network's corporate governance, the Program will support High Voltage Electric Network CJSC in implementing a new Corporate Governance Code, which among other provisions, will mandate a minimum share of female representation on the Board of Directors. 19 this objective, the WBG will also continue to finance public investment and broader PFM reforms to strengthen the execution of Armenia’s ambitious public investment plans. 66. To strengthen the inclusive growth focus of fiscal policy, the WBG will build upon the PERs and invest in new knowledge and advisory work, such as the CEM. The CCDR, already mentioned under Objective 5, will also help identify critical investments that support the Government’s development goals in the context of climate adaptation and mitigation. These will be followed by a Poverty and Equity Assessment that will delve into inequality of opportunities and spatial disparities (in terms of consumption, assets, resilience, etc.). Identified reforms will potentially be supported under the new DPO series. 67. To promote increased efficiency of public sector spending and support the Government’s ability to deliver on its public investment plans, the ongoing GRID DPO II is supporting greater efficiency of spending in health, education, and social protection. Further, IBRD will conduct an additional public expenditure review for agriculture, and leverage trust funds to provide TA for key PFM functions such as procurement and public investment management. A potential multi-donor trust fund could help the Government translate findings from the PERs into reality while also providing for greater donor coordination in this crucial reform area. IFC could offer transaction advisory support for PPPs, concessions, and other types of private sector engagements in the water, waste, toll roads and energy sectors. 68. To support the GoA’s public administration reform and institution building, IBRD will continue its support, through analytical work and TA, in the areas of strategic planning and program-based budgeting. The PSMP4 project will support the establishment of a senior executive cadre in Government, along with its assistance to the re-engineering of business processes for the effective digitalization of government services. A planned project on justice reform will support the efficiency and human resource management of the justice system and will help the authorities deliver as well on their anti-corruption agenda. 69. To support the ability of GoA to respond to emergencies such as earthquakes and floods, the WBG will continue to pursue a dialogue around the disaster risk management agenda and the new crisis toolkit of the ER. III.3 Implementing the FY25-FY29 Country Partnership Framework 3.3.1. Financial Envelope Table 2. Indicative IBRD and IFC Lending FY Project Project Name WBG Instrument Indicative ID Institution Financing US$ million HLO 1: More and Better Jobs FY25 P504282 Tourism and Regional Infrastructure Project IBRD IPF 100.0 (PCM) FY26 Growth DPO I IBRD DPO 150.0 FY27 Growth DPO II IBRD DPO TBC FY26-FY29 Higher Education and Research IBRD PforR 80.0 Commercialization (PCM) FY27-FY29 Broadband Connectivity and Digitization IBRD IPF TBC Project (PCM) 20 FY25-FY29 Armenia MSME and green finance through IFC Loans and 250.0 local banks risk sharing FY25-FY29 Digital & Sustainable Connectivity IFC Loan/bond 15.0 HLO 2: More Resilient Human Capital FY25 P508310 Housing Response Project (PCM) IBRD IPF with 250.0 PBC FY26 Jobs and Social Integration Project IBRD PforR 85.0 HLO 3: More Resilient Economy FY25 Water and Irrigation Services Enhancement IBRD IPF with 100.0 Project (PCM) PBC FY26 Justice Reform Project IBRD IPF 62.5 FY26-FY29 Armenia-Georgia Interconnector (PCM) IBRD IPF TBC FY26-FY29 Competitive and Resilient Agriculture (PCM) IBRD IPF 30.0 FY25-FY29 Renewable Energy and Adaptation IFC 150.0 Investment 70. The indicative IBRD lending program for the CPF five-year period is expected to be around US$ 700 million to US$1 billion (Table 2).25 Together with continued effective implementation of the current portfolio of 8 operations amounting to approximately US$ 470 million in commitments, new lending will be crucial in achieving the CPF objectives and HLOs. The ongoing portfolio aligns with these objectives. Operations totaling approximately US$ 450 million in financing are scheduled to be delivered during the first year of the CPF alone. The analytical activities and TA will continue to serve as gateway tools for informed decision-making in achieving the envisaged results under the proposed three HLOs. 71. Through strategic deployment of its investment and advisory services, IFC and MIGA will support key strategic objectives identified in the CPF over the FY25-FY29 period. Estimated IFC investment volumes are expected to range from US$ 500 million to US$ 700 million, depending on market opportunities and progress on priority reforms that enable private sector investment through improvements in pro-competition policies, institutional reforms in the water and energy sectors and progress on the environmental and climate agenda. IFC aims to expand its operations beyond ongoing activities in the infrastructure sector and the real sector including through usage of PPP structures. Specifically, IFC will pursue engagements in infrastructure, focusing on sustainability, connectivity and green energy and water, and opportunities to support electric mobility as part of greener transport. It will also aim to widen its engagement with financial institutions on expanding their product range focusing on climate and sustainable finance, as well as capital markets development through anchoring sustainable bonds and accelerating digital transformation. MIGA will explore various guarantee schemes in sectors supported under this CPF. 3.3.2. Financial Management, Procurement and Government Systems 72. Over the past two decades, Armenia has made considerable efforts in improving its public procurement environment to become more conducive to competitive, transparent, and efficient processes leading to increasing value for money and effective public expenditure. The procurement system is regulated by the Law on Procurements (2017) and several secondary legislations. Public procurement expenditures are an important share of public spending, which have increased in recent years (AMD 295 bn. contracts in 2022 (around 9 percent of GDP) versus AMD 241 bn. in 2021). 25Actual IBRD lending volumes will depend on country demand, overall performance, as well as global economic/financial developments which affect IBRD’s financial capacity, and demand by other Bank borrowers. 21 73. The government is in the process of developing its public procurement system. The Ministry of Finance (MoF), as the “Authorized Body” defined in the Public Procurement Law, has the Regulation and Co-ordination responsibility of the procurement process in Armenia. Since 2012, the government, through the MoF, has been implementing a centralized e-procurement system (ARMEPS). ARMEPS serves as a primary e-procurement system along with the e-auction portal and the procurement planning and contract management system. The transition to a new e-system is recommended and foreseen for 2025 in the Government Program 2021-26. Some of the current procurement challenges in Armenia relate to poor procurement planning, which adversely affects the achievement of value for money and inadequate cost estimations, which result in frequent rejections of tenders. The government has recently approved the concept on improvement/development of the procurement system as defined in its Action Plan 2022- 24. The IBRD is engaged with the government to support implementation of the concept, including strategic procurement, capacity building, standardization, and green/sustainable procurement. 74. Use of National Procurement Procedures under IBRD financed Projects. The PforR Projects use the existing National Procurement Procedures, and the ARMEPS is used for national procurement of works, goods, and non-consulting services under IBRD-financed IPF projects for advertising the tenders, obtaining and opening the bids. 75. Institutional and strategic frameworks for advancing PFM reform are in place. The government’s most recent Public Expenditure and Financial Accountability (PEFA) self-assessment was conducted in 2023 (published in 2024). According to the 2023/24 PEFA assessment, the PFM system obtained scores of at least B in 22 out of the 31 performance indicators, including in the areas of transparency of public finances, policy-based fiscal strategy and budgeting, predictability and control in budget execution, and accounting and reporting. Some critical PFM system elements, including information on the planned tax revenue composition; the connection between strategic planning and budget preparation; systems for capital investment appraisal, implementation and monitoring; internal audit arrangements and independent evaluation of government service delivery programs remain weak. 76. The government has updated the 2019–2023 Strategy for reforming the PFM System and the accompanying Action Plan. Government budgets are published on the MoF’s website and are also made available in printed form. The Treasury has a robust system in place and all IBRD financed project accounts were transferred into the Treasury in 2010 and have been satisfactorily maintained. Starting from 2019, the Treasury introduced ex-ante commitment controls, including for donor-financed projects, for payments processed through the Treasury system. In 2019, the government outsourced the public sector internal audit function to the private sector but is now revisiting the role of internal audit with a view to re-establishing a functional and effective internal audit framework. The government has developed the Armenian Public Sector Accounting Standards based on International Public Sector Accounting Standards, a chart of accounts, and adopted a law on public sector accounting with the WB’s support. A full transition to Armenian Public Sector Accounting Standards was planned in 2018 yet postponed with a new timeframe, and consolidation of the whole of government financial statements remains a key challenge. The law on Audit Chamber adopted in 2018 elevated the Chamber of Control mandate as the country’s supreme audit institution. 22 IV. MANAGING RISKS TO THE CPF PROGRAM 77. The Overall risk rating for the CPF program is Moderate. The level of risks varies across various aspects of the program from low to substantial (Table 3). The CPF is assessed as having greater risks related to Political and Governance and Institutional Capacity for Implementation and Sustainability. The Other risk category is also assessed as Substantial, considering unresolved security issues with Azerbaijan. As an Overall risk mitigation measure, relying on continuous dialogue with the government, the CPF is designed with flexible elements, allowing for adaptation and responsiveness. 78. Political and Governance risks are assessed as Substantial. Risks are newly elevated due to the influx of 115,000 ethnic Armenian refugees in the fall of 2023. Integrating an additional 3.7 percent of the population into society and the economy carries the risk of diverting fiscal resources and taking the attention of policymakers away from other investment and reform programs. Similarly, the planned elections in 2026 increase the risk of a shift in strategic direction in the event of a change in government. The WBG will mitigate the risk by supporting the integration of these people and by investing in core knowledge products and TA for informed decision making. Partnerships with other donors will also be a priority to ensure a coordinated policy dialogue and leverage financing across donors. 79. The Institutional Capacity for Implementation and Sustainability risk is Substantial. The frequent turnover of decision makers and a pending public administration reform result in a lack of continuity in the dialogue and insufficient capacity in key areas. Additionally, weak contract management practices result in implementation constraints for investment projects. The risk will be mitigated through continuous and repeated capacity building activities and instrument diversification within the portfolio. 80. The Other risk category is associated with security issues and rated as Substantial . While peace negotiations are ongoing, sporadic skirmishes at the border with loss of lives continue to occur, and some risks of escalation remains. This could lead to a re-focusing of government resources and strategy. To mitigate this risk, the program will be designed to ensure flexible adjustments during potential shocks through lending instruments and mechanisms. Table 3: Risk Ratings for CPF Implementation: Systematic Operations Risk-Rating Tool Risk Categories Risk Rating 1. Political and governance Substantial 2. Macroeconomic Moderate 3. Sector strategies and policies Moderate 4. Technical design of project or program Moderate 5. Institutional capacity for Substantial implementation and sustainability 6. Fiduciary Moderate 7. Environmental and social Moderate 8. Stakeholders Low 9. Other Substantial OVERALL Moderate 23 ANNEX 1. RESULTS MATRIX26 HLO 1 – More and Better Jobs A critical priority for Armenia is to create more and better jobs by (i) boosting the demand side, through interventions to facilitate private-sector-led growth (CPF Objective 1); and (ii) reducing the labor market skills mismatch by strengthening the quality of education and improving active labor market programs and intermediation (CPF Objective 2). The Focus Area 1 in the previous CPF was on “Export Enablers and Firm Competitiveness”. HLO1 is consistent with it, but bro ader in its reach, as it emphasizes tackling cross-cutting constraints to diversification and considers the role of education in increasing the competitiveness of the workforce and labor market intermediation by social services. High-level Outcome Indicators Data source Current value27 Indicator HLO1.1.: Proportion of informal employment in International Labor Organization Baseline: 52.2 percent (2021) total employment by sex and sector (%), female https://www.ilo.org/shinyapps/bulkexplorer20/?l Baseline: 65.4 percent (2021), women 64.3 percent ang=en&id=SDG_0831_SEX_ECO_RT_A Indicator HLO1.2.: “Waged employment share of working age population, of which (%) are women” High Level Outcome description: Rationale: While job creation has improved since 2017, it remains low, and the economy has not generated sufficient good-quality jobs. Unemployment has remained high, especially among youth. Most women continue to be outside the labor market or are employed in poor quality jobs. The number of decent quality jobs is also substantially lower than in other countries in the region, which increases the vulnerability of households to shocks. Some of the obstacles that hamper stronger growth and quality job creation include (1) constraints to private sector development and investment; and (2) a disconnect between the skills acquired in the education system and the labor market. Associated Sustainable Development Goals (SDGs): SDG 1. End poverty in all its forms everywhere, SDG 4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all, SDG 5. Achieve gender equality and empower all women and girls. SDG 8. Promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. SDG 9. Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation. CPF Objective 1: Ensuring better conditions for private-sector-led growth. This Objective combines aspects of the first three objectives under the previous CPF, including on improving the business environment to support investor confidence and enhancing connectivity. Economic diversification is expected to result from these cross-cutting interventions and investments, while direct export promotion is de- emphasized. Intervention Logic: This objective supports the fundamentals of private-sector-led growth. Armenia is a landlocked country featuring a low-complexity export basket and limited participation in Global Value Chains. Bottlenecks in terms of trade facilitation (including customs performance), institutional capacity, logistics, and physical connectivity prevent Armenia from fulfilling its trade and growth potential. In addition, Armenia needs to continue improving its business environment to promote higher levels of domestic investment and FDI to support private sector activity and job creation. As highlighted in the SCD, there is a need to improve the investment climate, including by strengthening competition and updating business regulations, and enhance access to finance, particularly for SMEs, including women-owned/led SMEs. Increased access to digital services would support the business environment and support the adoption of ICT by SMEs. WBG Engagement ongoing and planned: 26 It is also worth noting that, as many projects in the existing IBRD lending portfolio are closing in the first two years of the CPF and the new pipeline is still under development, results indicators for CPF objectives may need to be revised or augmented at the PLR stage of the CPF. 27 CPFs track the trajectories of HLO indicators but target values are formulated. 24 • Improve access to finance. • Strengthen the business environment including for competition. • Increase access to digital services. • Support export diversification. Lessons learned and new knowledge at the program level: While better conditions for private-sector-led growth has been identified as a critical challenge, in-depth analysis of the drivers of firm productivity and growth was missing at the SCD stage. The upcoming Country Economic Memorandum will be key for filling this knowledge gap and for identifying the most important structural constraints to job creation by the private sector. Key risks and mitigation: One potential risk relates to the accessibility and the quality of the data, which could limit the analysis. Close engagement with the statistical agency around a recent WB-led survey coupled with the WB joining the public private dialogue under the SME Development Council are expected to be mitigating factors. CPF Objective Indicators Supplementary Progress Indicators (SPIs) WBG Program Indicator 1.1 (Access to finance): IFC’s lending to MSMEs SPI 1.1: Revised Company Law approved. Ongoing Financing: via financial intermediaries. Baseline [2023]: No - Local Economy and Infrastructure Development Baseline [2023]: 0 Target [2026]: Yes Project (P150327) Target [2028]: US$ 250 million Source: https://www.arlis.am/ - Fourth Public sector Modernization Project (P176803) Source: IFC investment and advisory services - Enabling the Energy Transition PforR (P179336) SPI 1.2: Percentage of public services available - IFC lending to MSMEs via financial intermediaries. Indicator 1.2 (Business climate): Decrease in time to digitally at the central government. Financing Pipeline: obtain a construction permit (online) in Yerevan. Baseline [2023]: 20% - Tourism and Regional Infrastructure Improvement Baseline: ongoing-survey – baseline to be added at PLR Target [2026]: 50% Project (P504282) stage Source: E-Governance Infrastructure - Programmatic Growth Development Policy Financing Target [2028]: 50% improvement Implementation Unit - Broadband Connectivity and Digitization Project (tbc) Source: Baseline and target surveys prepared under - Access to finance for SMEs and startups project (tbc.) PSMP4 project SPI1.3: Policy framework to improve digital resilience for critical Information Infrastructure - IFC investments via financial intermediaries – on- Indicator 1.3. (Business climate): Percentage of taxpayers Protection policy and standards adopted. lending to MSMEs, including green finance (disaggregated by gender) accessing tax service electronic Baseline [2023]: No - IFC investments to enable digitalization systems via mobile. Target [2026]: Yes Ongoing ASA: Baseline [2023]: 0% Source: Information Systems Management - Enabling Digitization in the South Caucasus Digital Target [2028]: 20% Agency, E-Governance Infrastructure Economy (P506865) Source: State Revenue Committee system generated Implementation Unit - Economic Governance, Business Environment and reports Firm Productivity (P172969) SPI 1.4 Fiber Fast Broadband passed households - TA to the CBA on digital payments (P500602) Indicator 1.4. (Competition): The electricity market Baseline [2023]: 225,000 - TA to the CBA on regulatory and supervisory liberalization reforms are successful, measured by the Target [2027]: 500,000 framework, and green finance (P500602) percentage of electricity traded in the liberalized Source: IFC investment ASA Pipeline: wholesale market. - Country Economic Memorandum (P500973) Baseline [2023]: 20% - South Caucasus Financial and Private Sector Target [2029]: 25% (P500602) Source: Electricity Power System Operator, Market Operator, Public Services Regulatory Commission (PSRC) - Country Private Sector Diagnostic. 25 - EU TF on Business Climate reform (tbc). Indicator 1.5. (Digital Services): Number of people (18-64 - IFC Advisory to client banks on green finance age group) using digitally enabled services. Baseline [2022]: 0.092million Target [2028]: 0.500 million Women: Baseline [2022]: 0.036 million Target [2028]: 0.185 million Source: PSMP4 project Indicator 1.6. (Export Diversification): Increased tourism spending in selected clusters (US$ per day). Baseline: to be determined during PLR Target [2028]: to be determined during PLR. Source: TRIP project M&E component CPF Objective 2: Reducing the Labor Market Skills Mismatch. Objective 5 in the previous CPF was similar to this new Objective: “Enhanced access to good -quality education services for skills development and employability”. Intervention Logic: Armenia’s education system faces challenges at all levels. Early childhood education only reaches a third of all children. Ac cess to basic education in Armenia has improved in recent years, but quality is low and does not prepare youth well for the labor market. The revision and adoption of a competency-based curriculum covering Grades 1 through 12 is expected to generate improvements in the quality of education and equip the next generation with stronger skills to meet labor market needs. Access to higher education in Armenia is inequitable, inefficient, and its quality is low, resulting in an incentive for outward migration. Women tend to be under- represented in Science, Technology, Engineering, and Mathematics (STEM) fields of study and jobs. Reforming higher education - through consolidation of higher education institutions, reformed financing, and management - has the potential of significantly improving access, quality, and relevance of higher education and innovation. Armenia also has to strengthen labor market activation programs and case management. WBG Engagement: • Improve the quality of education. • Expand provision of early childhood education, including to boost the labor force participation of women. • Strengthen labor market monitoring, intermediation, and activation programs including for women. Lessons learned and new knowledge at the program level: An evaluation of a pilot for the new STEM curriculum under the EU4Innovation TF showed significant learning gains. A complete roll-out of the curriculum across the country is now underway. As this reform for general education seems to be broadly on track, the CPF proposes to focus as a next step on supporting improvements in the quality of higher education. An IBRD evaluation of Armenia’s active la bor market programs showed a weak impact on job creation. The newly adopted Employment Strategy reflects these findings and puts a greater emphasis on case management and more targeted programs. Key risks and mitigation: Potential delays in the overhaul of the higher education system and institutions can arise from political pressures and varying stakeholder priorities. To address this, the WB's team will engage in consultations with key stakeholders to foster clarity, dispel misunderstandings, and garner support for the envisaged reforms. CPF Objective Indicators Supplementary Progress Indicators WBG Program Indicator 2.1. (Quality of Education): Share of all schools SPI 2.1: Number of schools equipped with Ongoing Financing: implementing the revised curriculum in targeted grades laboratory equipment, infrastructure in - Education Improvement Project (P130182) (2nd, 5th, 7th, and 10th grades) accordance with the new standard, and subject - Armenia Social Investment and Local Development Baseline [2022]: 6% curricula on STEM (Armavir, Aragatsotn) Project (P148836) 26 Target [2028]: 100%. Baseline [2023]: 88 - Development Policy Financing 2 (P179849) Source: DPO II Target [2026]: 200 Financing Pipeline: Source: EIP - Higher Education and Research Commercialization Indicator 2.2. (Access to early childhood education): Project PforR (tbc.) Number of new pre-school (4-6 ages) places in regions. SPI 2.2: Gender parity index in STEM-related - Jobs and Economic Integration Project (tbc.) Baseline [2022]: 0 tracks in upper secondary schools (Grades 10, 11, Ongoing ASA: Target [2028]: 3,500 12) - Human Development Assessments in Eastern Source: EIP, SILD Baseline: [2023] 0.76 Neighborhood Countries (P173530) Target: [2025] 0.78 - Supporting Basic Education Quality Enhancement in Source: EMIS (Education Management the Sought Caucasus (P507130) Information System) - Strengthening Higher Education and Research in South Caucasus (P500971) SPI 2.3: Crisis-related: Number of eligible ASA Pipeline: refugees benefitting from at least one Active - Childcare TF Grant (tbc.) Labor Market Program Baseline [2023]: 0 Target [2026]: 2,000 Source: MLSA reporting (NORK, Unified Social Service) HLO 2 – More Resilient Human Capital Description: The Focus Area 2 in the previous CPF was on “Human Capital Development and Equity”. Armenia has made progress i n education and health, but human capital disparities continue to exist across regions, social strata, and gender. To improve human capital, HLO 2 will focus on enhanced access and quality of health services and a more targeted and shock responsive social protection system. High-level Outcome Indicators Data source Current value https://data.worldbank.org/indicator/HD.HCI.OVR HCI: 0.58 (2020); HCI Female: 0.6 (2020) Indicator HLO2.1.: Human Capital Index (HCI) L.MA?locations=AM UHC: 68% (2021) https://www.ghsindex.org/ Indicator HLO2.2.: Percentage of people receiving https://www.who.int/data/gho/data/indicators/in essential health services28 dicator-details/GHO/uhc-index-of-service- coverage High Level Outcome description: Armenia has underinvested in education and health care for decades and is now implementing crucial reforms to address a) its high share of out-of-pocket payments and related weak health outcomes, and b) to improve the quality of education to stem outward migration and close important skills gaps in the labor market. Strengthening health and education outcomes is also important for improving productivity and furthering social inclusion. Fiscal policy has been reducing poverty and enhancing equity, but the targeting and shock responsiveness of social protection benefits can be improved. Active labor market policies and labor market 28 Coverage of essential health services is defined as the average coverage of essential services based on tracer interventions that include reproductive, maternal, newborn and child health, infectious diseases, non-communicable diseases and service capacity and access, among the general and the most disadvantaged population. The indicator is measured as an index reported on a unitless scale of 0 to 100, which is computed as the geometric mean of 14 tracer indicators of health service coverage. These indicators are meant to be indicative of service coverage and should not be interpreted as a complete or exhaustive list of the health services or interventions that are required to achieve universal health coverage. 27 intermediation need to be improved. Associated SDGs. SDG 1. End poverty in all its forms everywhere. SDG 3. Ensure healthy lives and promote well-being for all at all ages. SDG 8. Promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. SDG 10. Reduce inequality within and among countries. CPF Objective 3: Enhanced access to quality health services. Objective 6 in the previous CPF was similar: “Improved access to health care services”. This new Objective introduces the con cept of quality in health services, in addition to access. Intervention Logic: Armenia has the highest OOP expenditure share (79%) of total health expenditures among its peers in the region – almost double of the Upper Middle- Income average of 44.1 percent. Low public expenditures on health and limited investments in PHC have contributed to a health system focused on curative and emergency care. As a result, Armenians experience the challenge of an increase in non-communicable diseases (NCDs) – a situation which could have been avoided by a greater focus on quality preventive care. Also, the share of women dying from NCDs is higher than that of men, while NCD-related behavioral risk factors are higher among men ․ Armenia will introduce universal health care coverage in 2025 to provide financial protection to its citizen for health-related expenditures. Part of the reform is to create greater incentives to prioritize PHC, which is more cost effective than curative care. Efforts will also be made to improve the quality and uptake of preventive services for men and women. WBG Engagement: • Reduce financial barriers to health care. • Increase efficiency of health care spending. • Improve quality of care at the PHC level. • Increase uptake of preventive services for non-communicable diseases by women and men. Lessons learned and new knowledge at the program level: The dialogue on the Universal Health Care coverage reform has made it clearer to all stakeholders that financing arrangements and quality improvements in health care are interrelated and just targeting quality improvements in a country with such a high share of OOPs is unlikely to be effective. A combination of quality reforms and financing reforms is needed to re-direct the Armenian health care system towards a greater use of preventive care. Key risks and mitigation: Supply-side and system-wide policy reforms need to be combined with demand-side interventions addressing the health-seeking behavior of patients. Adequately informing and consulting with key national stakeholders such as the private sector, medical and health workers associations, and civil society organizations will be key for the success of the Universal Health Coverage reform. CPF Objective Indicators Supplementary Progress Indicators WBG Program Indicator 3.1 (Financial Barriers reduced) : Share of OOP payments as a proportion of current health expenditure. Ongoing Financing: Baseline [2023]: 81.4% - Enabling Universal Health Coverage Program PforR Target [2028]: 66.4% (P179482) Source: National Health Accounts/National Institute of Financing Pipeline: Health Ongoing ASA: - Technical Support for Universal Health Coverage Indicator 3.2 (Efficiency of Spending): Inpatient care and SPI 3.1: Percentage of nurses and family physicians Reforms (P181001) outpatient care use in hospitals reduced for ambulatory in PHC facilities who have been trained based on - South Caucasus: Improving Financial Protection, sensitive conditions for selected NCDs. the updated in-service curriculum. Quality, and Efficiency in the Health Sector (P500774) Baseline [annual average]: 113,248 Baseline [2023]: 0 ASA Pipeline: Target [2028]: 10% reduction in annual number of Target [2027]: 50% - Service Delivery Indicators Health Survey Report hospitalizations for the I10, I20, I50, J44 ambulatory Source: ARMED/Ministry of Health Training data under SC Health Sector ASA (P500774) sensitive conditions relative to baseline. 28 Source: ArMed Indicator 3.3 (Quality of Care): Percentage of Type 2 Diabetes cases that are diagnosed and treated based on clinical protocols by Primary Health Care Center (PHCC) providers who have completed in-service training on the updated curriculum. Baseline [2023]: 0% Target [2028]: 60% Source: ArMed; National Institute of Health; Independent Public Purchasing Entity (IPPE) Indicator 3.4. (Uptake of preventive services): Percentage of insured population of ages 35-68 who have visited a PHC facility for preventive purposes. Baseline: [2023] 0 Target: [2028] 60% Source: ArMed Men: Baseline: [2023] 0 Target: [2028] 40% Source: Armed health information system Women: Baseline: [2023] 0 Target: [2028] 70% Source: Armed health information system CPF Objective 4: Improving social protection. Objective 5 in the previous CPF was similar: “Improved access to social protection services and economic opportunities for poor and vulnerable populations”. This new Objective, however, introduces the concept of improved efficiency and effectiveness of programs and increases the focus on labor market intermediation. Intervention Logic: Armenia has a well-developed social protection system, which has gone through significant reforms in the last decade especially in pensions (social insurance) and, to a lesser extent, in the realm of social assistance and social services. COVID-19 revealed the system's limited capacity for shock response. To address these challenges, Armenia plans to expand coverage, improve efficiency, and redirect social protection spending towards vulnerable populations and employability. The goal is to integrate various aspects of social protection, enhance service delivery, and make the system more shock responsive. A second round of pension reforms is needed to address the challenge of a rapidly aging society to continue to balance considerations of coverage and benefits adequacy, incentives of workers to participate and long-run fiscal sustainability. Indicators related to labor market and youth may be added at the PLR stage as corresponding projects are in the pipeline. WBG Engagement: • Improve targeting, scalability, and governing principles of social benefit system. • Support socio-economic inclusion of refugees, including women. Lessons learned and new knowledge at the program level: Although there is will and commitment supported by legislative reforms in many cases, there are still gaps in 29 technical capacity at the Ministry of Labor and Social Affairs (MLSA) to implement. Having a continuous ASA/TA facility over several years under the previous CPF allowed the WB to support MLSA to close critical knowledge gaps in partnership with other development partners as well as to produce critical inputs for policy reforms. Key risks and mitigation: Capacity constraints at MLSA and Unified Social Service may limit their ability to roll out programs and implement multiple reforms simultaneously. MLSA has an ambitious reform agenda for the next 3-4 years which spreads across social services, pensions, social assistance, and labor. It will be difficult to manage all the reforms. MLSA has plans to outsource some services to the private sector. This could help ease the capacity constraints for service delivery and program implementation. In the same vein, the new social protection and job loan is proposed as a PforR. The use of this instrument which relies on country systems e should help mitigate implementation delays. CPF Objective Indicators Supplementary Progress Indicators WBG Program Indicator 4.1 (Targeting of social benefits): Increased Ongoing Financing: share of the poorest 20 percent (consumption-based) of - Development Policy Financing II (P179849) the population among the Family Benefit Program (FBP) - Armenia Social Investment and Local Development beneficiaries. Project (P148836) Baseline [2022]: 52% Financing Pipeline: Target [2028]: 65% - Housing Project (tbc.) Source: ILCS (Integrated Living Conditions Survey) Ongoing ASA: - Human Development Assessments in Eastern Indicator 4.2. (Social inclusion of refugees): Percentage SPI 4.1: Crisis-related: Number of refugee Neighborhood Countries (P173530) of children and adolescents who report improved mental teachers who have found employment in the - South Caucasus Social Protection Systems health in participating schools, disaggregated by gender, Armenian education system, of which female. Strengthening ASA (P500453) age, and refugee/non-refugee status. Baseline [2023]: 0 - South Caucasus Social Sustainability and Baseline [2023]: 0% Target [2026]: 550, of which 85% female Displacement Analytics (P500671) ASA Target [2028]: 50% Source: MoESCS, DPO II - “Listening To South Caucasus” (P181288) ASA Source: data collection through the SPF funded project - South Caucasus Poverty, Equity and Gender Program (P179877) - SPF TF: Mental health and psychosocial support in Armenian schools (P504701) HLO 3 – More Resilient Economy Description: The Focus Area 3 in the previous CPF was on “Sustainable Management of Environment and Natural Resources”. HLO3 includes the topics from the previous Focus Area 3 but adds the broader notion of resilience to climate-related shocks, which goes beyond the management of the environment and natural resources. HLO3 will also focus on public sector modernization. High-level Outcome Indicators Data source Current value Indicator HLO3.1 Climate Change Vulnerability and ND-GAIN Country Index, https://gain.nd.edu/our- Rank: 52 / 181 countries (2022) Readiness (Resilience) Indicator29 work/country-index// Score: 55.6 (2022) 29 A country's ND-GAIN index score is composed of a Vulnerability score and a Readiness score. Vulnerability measures a country's exposure, sensitivity, and ability to adapt to the negative impact of climate change. ND-GAIN measures the overall vulnerability by considering vulnerability in six life-supporting sectors – food, water, health, ecosystem service, human habitat, and infrastructure. Readiness measures a country’s ability to leverage investments and convert them to adaptation actions. ND-GAIN measures overall readiness by considering three components: economic readiness, governance readiness and social readiness. Annual updates. See: https://gain.nd.edu/our-work/country-index/, https://gain.nd.edu/assets/254377/nd_gain_technical_document_2015.pdf 30 High Level Outcome description: Climate change, environmental risks, and natural hazards pose high economic and social costs for Armenia. Inadequate natural resource management has led to environmental degradation and increased vulnerability to climate change. According to the ND-Gain Index, Armenia is the 114th most vulnerable country in the world (out of 181 countries) and the 55 th most ready country). Armenia also needs to address supply security challenges related to energy and water and improve the resilience of its infrastructure. The social protection system is under reform to enhance its ability to respond to shocks. Armenia faces a high seismic risk, especially driven by the high vulnerability of the old housing stock in Yerevan and other urban settlements constructed prior to modern building codes. Associated SDGs. SDG 2. End hunger, achieve food security, improve nutrition, and promote sustainable agriculture. SDG 6. Ensure availability and sustainable management of water and sanitation for all. SDG 7. Ensure access to affordable, reliable, sustainable, and modern energy for all. SDG 9. Build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation. SDG 13. Take urgent action to combat climate change and its impacts. SDG 15. Protect, restore, and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss. SDG 16. Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable, and inclusive institutions at all levels. Objective 5: More climate resilient economic activity Objective 6 in the previous CPF was on “Improved management of natural resources”. This new Objective is broader than only na tural resources management and wants to promote any economic activity to be climate smart as agriculture, urban development, resilient water and energy, landscape management, etc.). New lending is being prepared to enhance water and irrigation services, as well as energy security. Intervention Logic: Water losses in Armenia’s irrigation systems range from 50 -70 percent due to leakage and seepage from the aging water infrastructure dating back to the Soviet Union time. In addition, only 87 percent of the population is connected to drinking water supply. Armenia also faces major risks from earthquakes and is increasingly vulnerable to the impacts of climate vulnerability and change. The agriculture sector is vulnerable to the effects of climate change, with increasing temperatures, changing rainfall patterns, increasing frequency of droughts and floods, and an overall predicted decrease in water availability. Climate change, environmental risks, conflict, and natural hazards constitute high economic and social risks for Armenia. Inadequate natural resource management has led to environmental degradation of ecosystems, increased vulnerability to climate change and elevated levels of pollution. Armenia also deals with a host of environmental legacies that originate from unsustainable mining practices, the absence of proper waste management, and its history as an industrial heartland during the times of the former Soviet Union. Armenia needs to address supply security challenges related to energy and water. Investing in renewable energy and green technologies will open new markets and create jobs, contributing to a more sustainable economic model that aligns with global efforts to combat climate change. WBG Engagement: • Support climate adaptation in key economic sectors. • Increase availability of climate finance products. • Bolster energy security and energy efficiency for climate mitigation. • Support remediation of air, soil, and water pollution. • Strengthen conservation of ecosystems and biodiversity protection. Lessons learned and new knowledge at the program level: Adequate attention should be given to building and maintaining well-functioning institutions alongside the new and upgraded infrastructure investments. Policy interventions should also cascade into an appropriate regulatory framework that allows utility providers and water user associations to provide adequate capital expenditures and maintenance while also ensuring an adequate level of consumer tariff. Key risks and mitigation: Efforts to reduce risk and improve resilience will require strong commitment and adequate resources from the government, in addition to sufficient implementation capacities. The CPF will try to mitigate these risks by placing an emphasis on institution building in new investment projects, creating a coalition for sector support by co-financing with other donors and leveraging development policy lending and trust funds, where possible, to support a continued emphasis on policy reform and capacity building. 31 CPF Objective Indicators Supplementary Progress Indicators WBG Program Indicator 5.1. (Irrigation and Climate adaptation): Area SPI 5.1: Share of renovation loans (by value) Ongoing Financing provided with new/improved irrigation or drainage provided through commercial banks to - Electricity Transmission Network Improvement services, measured in Hectares. households targeting energy efficient renovations. Project (P146199) Baseline [2023]: 21,470 Ha Baseline [2023]: 7% - Enabling the Energy Transition PforR (P179336) Target [2028]: 40,000 Ha Target [2026]: 20% - RESILAND: Armenia Resilient Landscapes Project Source: WISE; Ministry of Territorial Administration and Source: DPO II (P179988) Infrastructure - Development Policy Financing II (P179849) SPI 5.2.: Levels of main pollutants and greenhouse - IFC Investments in Vorotan Cascade, ArmPower, Indicator 5.2. (Climate mitigation): Annual green gas (GHG) (PM2.5, PM10, SO2, CO, NOX, Hg, Ar, Masrik Solar, ENA (37652, 39630, 41106, 41216) electricity production (MWh), measured by the absolute Cu, Mo, NH3) - MIGA ArmPower (Id. 14085) amount of generation or portion in the generation mix. from at least 5 data collection points are publicly Financing Pipeline: Baseline [2022]: 25%/1940 million kWh (including hydro), disclosed on a real-time basis. - Water and Irrigation Services Enhancement Project and 2.73%/243 million kWh (solar and wind only) Baseline [2023]: not disclosed (P180733) Target [2028]: above 1/3, including hydro, and above 8% Target [2026]: disclosed - Armenia-Georgia Interconnector (tbc.) for solar and wind only. Source: DPO II - Competitive and Resilient Agriculture (tbc.) Source: Electricity Power System Operator; Public Services - IFC Sustainable/green investments and advisory Regulatory Commission (PSRC), IFC client (investment) SPI 5.3: Adoption of Green Finance Taxonomy projects Baseline [2023] n/a - IFC private mobilization in renewable energy, Indicator 5.3. (Conservation): New businesses with Target: [2027} adopted. transport (incl. logistics, roads, e-mobility), water sustainable economic activities developed/established in Source and waste management sectors targeted landscapes in Armenia. - IFC climate finance investment to financial sector Baseline [2024]: 0 to be further channeled to local enterprises and Target [2028]: 16, of which 40% female headed. individuals Source: RESILAND - IFC green buildings investments Ongoing ASA: Indicator 5.4: (Climate Adaptation): Increased area under - Extractives Industries Transparency Initiative TF sustainable landscape management in selected locations (P166274) Baseline [2024]: 0 - SC Climate Action Support (P180447) Target [2028]: 25,800 ha - EU4Environment program (P170428) Source: RESILAND - SC Optimizing Public Spending for Competitive and Resilient Agriculture (P501967) Indicator 5.5: (Climate Mitigation): Net greenhouse gas - Country Climate Development Report (P180764) (GHG) emissions (Climate Risk Index (CRI), metric - Water Supply and Sanitation Policy Papers tons/year) (P502569) Baseline [2024]: 0 - South Caucasus Energy Engagement (P174666) Target [2028]: 178,000 - Solid Waste management and sustainability of Source: RESILAND Yerevan and Gyumri (P501643) - Green, Resilient, and Clean South Caucasus (P500688) 32 ASA Pipeline: - Promoting Regional Energy Transition and Transport Connectivity for a Sustainable South Caucasus (P505225) - IFC Green assets advisory work with banks CPF Objective 6: Stronger Institutions for Growth and Resilience. Objective 4 in the previous CPF “Improved public sector performance and increased private financing for development” included private financing, which is now covered under Objective 1. The new Objective 6 focuses on public sector modernization for improved service delivery, including through digitization of services, and other institution-building efforts in the areas of public financial management, strategic planning, justice system, and fiscal policy. Intervention Logic: This objective focuses on strengthening core aspects of public sector management that support investment-led growth and the resilience of the economy. Macro-economic management is sound, but reforms are needed to improve the quality and outcomes of public spending, and to increase fiscal space for needed investments in human and physical capital. This requires improvements in planning, execution, and monitoring of expenses as well as strengthened public investment management to avoid an escalation of maintenance costs and unnecessary repeat investments. Better informing public spending decisions with climate change and gender considerations is also key. Armenia has made progress in strengthening the quality of its institutions since 2016, especially in the areas of anticorruption and transparency in the public sector. However, government effectiveness could be improved. In general, the public service system faces issues due to inefficient regulations, an absence of smart policies for human resource management, merit-based recruitment, promotion, and performance evaluation, which in turn contribute to delays and a lack of accountability that leads to poor service delivery. To address these challenges, the GoA through the Civil Service Office (CSO) plans to establish a Senior Executive Service (SES), which will recruit and promote a team of high caliber civil servants to lead key public sector entities. WBG Engagement ongoing and planned: • Support increased public spending efficiency. • Strengthen the growth focus of fiscal policy. • Support public administration reform and good governance. Lessons learned and new knowledge at the program level. The Public Expenditure Review done during the last CPF clearly identified the strengths and weaknesses of Armenia’s fiscal policy. It is poverty reducing and equity enhancing, but efficiency can be improved, and it does not suffici ently stimulate growth. The 2021-2026 Government Strategy already acknowledges the need for fostering growth more by prioritizing investments in human capital and key physical infrastructure such as roads, electricity, and irrigation systems. However, fiscal space and the execution capacity of the government are constrained. Strengthening strategic planning capacities, public financial management and accelerating the public administration reform agenda are hence priorities. While the digitization of government was a priority under the last CPF, this CPF puts a greater emphasis on public spending efficiency and public sector management in support of investment-led growth. Key risks and mitigation: Armenia’s sound macroeconomic policies have helped the country navigate severe shocks, such as the commodity price bust in 20 16 and the twin shocks in 2020. The economy is currently riding high on the back of extraordinary money inflows. While the boon lasts, there may be less urgency to improve the quality of public spending and implement structural reforms. In this regard, exchange rate flexibility together with maintaining a prudent macroeconomic stance will be key to mitigate risks and build the needed buffers. The findings of the Public Expenditure Review provide suggestions on how to increase the quality of public spending while maintaining fiscal prudence. The ongoing precautionary Stand-By Agreement with the IMF serves also as a mitigating factor. CPF Objective Indicators Supplementary Progress Indicators WBG Program Indicator 6.1 (Growth and Resilience): Share of SPI 6.1. Ministry of Health has adopted reference Investment Committee newly approved projects that pricing for publicly financed medicines. have undergone climate screening. Baseline [2023] No reference pricing Ongoing Financing: Baseline [2022]: 0% Target [2026]: Approved government decree on 33 Target [2028]: 100% reference pricing - Fourth Public Sector Modernization Project Source: DPO II Source: Government documents Arlis.am (P176803) - Development Policy Financing II (P179849) Indicator 6.2. (Efficiency of Spending): Spending on - Enabling Universal Health Coverage Program PforR medicine spending as a share of current health (P179482) expenditures. Financing Pipeline: Baseline [2023]: 31.9% - Justice Project – Smart Courts (tbc.) Target [2028]: 20% - Ongoing ASA: Source: Health P4R - Strengthening Public Sector by Supporting DRM, PSA, and Digital Infrastructure Reforms (P174607) Indicator 6.3. (Public Administration): Number of Senior - Supporting Public Administration Reforms Executive Service Positions filled. (P180297) Baseline [2023]: 0 - SC Advancing Governance Reforms (P179503) Target [2028]: 20 - SC Poverty, Equity and Gender program FY23-25 Source: PSMP4 (P179877) - Public Expenditure Review 2 (P179850) Indicator 6.4. (Governance): Share of gift declarations ASA Pipeline: registered in the gift register that are reviewed by the - Advancing Governance Reforms in Sought Corruption Prevention Commission. Caucasus (P506706) Baseline [2023]: 0% - Poverty and Equity Assessment Target [2028]: 30% Source: DPO II Indicator 6.5 (Gender): Number of calls effectively handled through the newly established domestic violence hotline (per the protocol) Baseline: [2023] 0 Target: [2028] 500 Source: PMO/PMG in coordination with Ministry of Labor and Social Affairs (MLSA) 34 ANNEX 2. CPF ALIGNMENT WITH THE CORPORATE SCORECARD Selected WBG Results supported by the CPF Contributing CPF Alignment CPF Indicator Vision Indicators • Poverty HLO1, HLO2, HLO3 • Prosperity HLO1, HLO2, HLO3 • Planet HLO3 Client Context HLO 1.1 HLO 1.2 1.1 Better conditions for HLO 2.2 private-sector-led growth OI 1.1 1.2 Enhanced access to OI 2.2 quality education services OI 3.1 Millions of beneficiaries of social safety net Protection of the poorest OI 3.2 2.1 Enhanced access to programs OI 3.3 quality health services OI 3.4 2.2 Improved social OI 4.1 protection and labor OI 4.2 programs SPI 2.3 SPI 4.2 People HLO 2.1 1.2 Enhanced access to OI 2.1 Millions of students supported with better No Learning Poverty quality education services OI 2.2 education SPI 2.1 SPI 2.2 Millions of people receiving health, nutrition and HLO 2.1 population services HLO 2.2 OI 3.1 Millions of people benefitting from strengthened OI 3.2 2.1 Enhanced access to Healthier Lives capacity to prevent, detect, and respond to health OI 3.3 quality health services emergencies OI 3.4 OI 6.2 SPI 3.1 SPI 6.1 35 OI 1.2 Countries with tax revenue-to-GDP below 15% OI 4.1 Effective macroeconomic 3.2 Stronger Institutions Prosperity that have increased collections, considering equity OI 6.1 and fiscal management for Growth and Resilience implications OI 6.2 SPI 6.1 Net GHG emissions per year HLO 3.1 OI 5.1 3.1 More climate resilient Millions of people with enhanced resilience to OI 5.2 Greener planet and climate risks OI 5.3 economic activity resilient populations OI 5.4: Millions of hectares of terrestrial and aquatic areas OI 5.5: Planet under enhanced conservation and management SPI 5.1 SPI 5.2 Inclusive and Equitable 3.1 More climate resilient Millions of people provided with water, sanitation, HLO 3.1 Water and Sanitation economic activity and hygiene of which (%) is safely managed OI 5.1 3.1 More climate resilient Millions of people with strengthened food and HLO 3.1 Sustainable food systems economic activity nutrition security OI 5.1 Millions of people that benefit from improved OI 1.2 1.1 Better conditions for access to sustainable infrastructure and services OI 1.3 private-sector-led growth Connected communities OI 1.5 3.1 More climate resilient OI 6.4 Infrastructure economic activity OI 6.5 3.1 More climate resilient HLO 3.1 Sustainable energy for all GW of renewable energy capacity enabled economic activity OI 5.2 Millions of people and businesses using broadband OI 1.2 internet services OI 1.3 1.1 Better conditions for Digital connectivity OI 1.5 private-sector-led growth SPI 1.2 SPI1.3 Digital OI 1.2 OI 1.3 1.1 Better conditions for Millions of people and businesses using digitally Digital Services OI 1.5 private-sector-led growth enabled services and transfers SPI 1.2 SPI1.3 36 OI 6.5 HLO 1.1 HLO 1.2 HLO 2.1 OI 1.3 OI 1.5 OI 3.1 OI 3.2 Women and youth Millions of people benefitting from actions that OI 3.3 HLO1/HLO2/HLO3 inclusion advance gender equality OI 3.4 OI 4.1 OI 4.2 OI 5.3 OI 6.5 SPI 2.2 Scorecard SPI 2.3 Cross-cutting SPI 4.2 themes HLO 1.1 Well-being for people in 3.2 Improved social Millions of displaced people and people in host HLO 1.2 fragility, conflict and protection and labor communities provided with services and OI 4.2 violence programs. livelihoods SPI 2.3 SPI 4.2 HLO 1.1 HLO 1.2 OI 2.2 More and better jobs HLO1 Millions of new and better jobs OI 5.3 OI 6.1 OI 6.3. SPI 4.2 $ billions in total private capital enabled. OI 6.1 More private investments HLO1, HLO3 $ billions in total private capital mobilized. OI 1.6 37 ANNEX 3. COMPLETION AND LEARNING REVIEW CPF Board Discussion: March 28, 2019 CPF Performance and Learning Review: May 22, 2022 Period covered by the Completion Learning Review: FY19-FY23 I. INTRODUCTION 1. This Completion and Learning Review (CLR) assesses the performance of the World Bank Group (WBG) FY19-FY23 Country Partnership Framework (CPF) with Armenia. The CPF was discussed by the WBG Board on March 28, 2019 (Report 123902-AM) and updated through the Performance and Learning Review (PLR) of May 16, 2022 (Report 168425-AM). The PLR preparation was delayed due to the 2020 twin shocks of the coronavirus disease 2019 (COVID-19) and the Armenia-Azerbaijan conflict, which stalled the reform momentum and somewhat delayed the WBG program implementation. The CLR assesses the WBG performance since FY19 to FY23. This review: (a) assesses the achievements of the CPF program outcomes as measured by the Results Framework (as updated in the PLR), (b) evaluates the WBG performance in designing and implementing the CPF program, while discussing its alignment with the WBG twin goals; and (c) describes lessons learned to inform the design of the next FY24-FY28 CPF. 2. The FY19-FY23 CPF was implemented in a very challenging and volatile external environment . The CPF was endorsed in the wake of Armenia’s 2018 “Velvet Revolution” and was reflective of fresh political will to overcome Armenia’s development constraints and deepen reforms. The CPF was developed at the same time as the new Government of Nikol Pashinyan – a former journalist and opposition leader who led the “Velvet Revolution”– became Prime Minister following the Parliamentary elections of December 2018. Two years later, Armenia faced the twin shocks. The conflict with Azerbaijan ended in a ceasefire agreement that still has to translate into a permanent peace deal. Armenia’s losses30 in the 2020 conflict, coupled with further escalations of fighting in 2022-23, including within Armenia’s international borders, have led to a paradigm shift in Armenian politics and society, as public opinion priorities moved away from economic and governance ones to security.31 3. Despite this challenging external environment, the Government has continued to pursue the ambitious economic reform program set out at the beginning of the CPF, albeit at a slower pace. The ruling party was confirmed in snap parliamentary elections that took place in 2021 in response to increased political tensions due to the conflict. Although political protests and tensions were ongoing through 2022, the Government was able to continue implementing important reforms in diverse sectors such as governance and anti- corruption, justice, business environment, fiscal policy, labor and social protection, energy, and environment. In addition, based on the increase of the national income, Armenia became an upper-middle-income country (UMIC) in 2019, and an International Development Association (IDA) donor in 2023. 4. Growth was volatile during the CPF period but is on the rebound, despite the unfavorable geopolitical context.32 Between 2017 and 2019, economic expansion was rapid, and macroeconomic stability was strengthened, aided by effective fiscal policies, an active inflation-targeting regime, and sound financial sector oversight. Monetary and exchange rate policies supported price stability and external adjustment. However, the twin shocks derailed the growth performance (6.8 percent annually between 2017-2019) in 2020. The country recorded one of the sharpest contractions of GDP (-7.2 percent) in the Europe and Central Asia (ECA) region, but growth rebounded to 5.8 percent in 2021 owing to the recovery of the industry and service sectors. In early 2022, Armenia was expected to be negatively impacted by the sanctions regime applied to its main trade partner Russia. Ultimately, the economy performed better than anticipated with real GDP growing by 12.6 percent in 2022, supported by increases in services and private consumption, fueled 30 Official losses are: 3,825 troops and 187 servicemen missing in action 31 Caucasus Research Resource Center Armenia Foundation – “Caucasus Barometer 2021/2022”. 32 Landlocked country, two large borders closed (with Türkiye, Azerbaijan), border with Iran (a country under international sanctions), border with Georgia to Russia (also country under sanctions). 38 by strong inflows of migrants and capital from Russia. However, growth is expected to ease to about 6.6 percent in 2023, due to the high base of 2022 and a slowdown among trading partners. In addition, despite a slight increase due to the 2020 twin shocks, overall poverty in Armenia dropped from 52.3 percent in 2019 to 43.1 percent in 2022 and is forecasted to further decrease to 39.7 percent in 2023.33 5. The CPF program is in line with the previous Government program from 2019 and the new Government Program 2021-2026. The CPF’s focus areas are enabling exports and competitiveness, enhancing human capital and equity, managing environmental and natural resources, investing in physical capital, and addressing long-standing governance gaps. The new Government Program places a strong emphasis on public investment to support growth; strategic planning; digital service delivery; stronger measures to fight corruption and improve the legal system; and activities that exemplify Green, Resilient, and Inclusive Development (GRID). Institutional development is one of the Government priorities. While not included as a focus area or a CPF objective, the WBG supported a wide range of reforms linked to institutional development, including general governance reforms, and sectoral reforms in areas such as digital, energy and climate. 6. The overall CPF program performance is rated Satisfactory. The CPF was designed to support an ambitious agenda of rebalancing Armenia’s economy toward a new growth model towards boosting exports, investing in human capital, and sustainably managing natural resources and the environment. The program faced challenges during the CPF period, including the twin shocks in 2020 and Government’s cautious approach to new borrowing until mid-2021 following the objectives of maintaining fiscal sustainability. Hence, the WBG readjusted its ambitions and made course corrections that helped deliver a satisfactory program. All three CPF focus areas are rated Satisfactory. The program mostly exceeded the CPF targets: 23 indicators out of 29 (79 percent) achieved their target, with 15 indicators (52 percent) exceeding it. The program considered many of the previous country strategy lessons, including citizens engagement, co- partnering with development partners, policy dialogue through analytical knowledge, and strengthening corporate governance. The ambitions of the CPF were largely upscaled at the PLR stage, despite the serious consequences of the twin shocks as well as implementation constraints from the Government side. Key lessons identified in this CLR inform the next CPF to enhance the country’s resilience to potential shocks. During FY19-FY23, the International Finance Corporation (IFC) significantly increased its program in Armenia and supported new projects in renewable energy, energy efficiency and access to finance for Micro, Small and Medium Enterprises (MSMEs). Multilateral Investment Guarantee Agency (MIGA), alongside IFC, focused on the energy sector, and on increasing efficient energy generation. Table 1. Summary of CPF Development Outcomes and Outcome Indicator Rating Overall CPF Outcome Outcome Ratings Focus Area 1. Export Enablers and Firm Competitiveness: Satisfactory Objective 1. Improved performance in export-enabling sectors Mostly Achieved Objective 2. Improved business environment to support investor confidence Achieved Objective 3. Enhanced connectivity and access to reliable infrastructure (transport & Achieved energy) Objective 4. Improved public sector performance and increased private financing for Mostly devpmt. Achieved Focus Area 2. Human Capital Development and Equity: Satisfactory Objective 5. Enhanced access to good-quality educational services for skills Achieved development and employability Objective 6. Improved access to health care services Achieved Objective 7. Improved access to social protection services and economic opportunities Mostly for poor and vulnerable populations Achieved Focus Area 3. Sustainable Management of Environmental and Natural Resources: Satisfactory 33 Upper-middle-income international poverty line of US$6.85 (in 2017 PPP US dollars). Source: WB calculations. 39 Objective 8: Improved management of natural resources Mostly Achieved Objective 9: Enhanced energy sustainability and renewable energy resources Achieved 7. The performance of the WBG in designing and implementing the CPF is rated Good. The program was designed by the WBG, building on the comparative advantages of each organization. Despite some weaknesses in the design,34 implementation was flexible, enabling the WBG to respond to the country’s emerging priorities and increased needs arising from the global pandemic. In FY20-FY21, the program was adjusted to provide urgent support in health and social protection due to the twin shocks, while also aligning with the four pillars of the WBG’s crisis response (saving lives; protecting the poor and vulnerable; ensuring sustainable business growth and job creation; and strengthening policies, institutions, and investments for rebuilding better). During the FY19-FY23, total WB lending reached US$247.3 million, while IFC’s program reached US$384.6 million (including mobilization and annual trade finance). MIGA issued a guarantee of US$39.2 million for a 15-year period to support the financing, construction, operation, and maintenance of a greenfield 250 megawatt (MW) combined-cycle gas-fired thermal power plant in Yerevan. II. PROGRESS TOWARDS CPF DEVELOPMENT OUTCOMES 8. The overall CPF development outcome is Satisfactory as five of its nine objectives are achieved, and the remaining four are mostly achieved (Table 1). Additional results, not reported by objective indicators, are presented in the results matrix. Overall CPF performance is evaluated below, based on the outcomes and results matrix as revised in the PLR. This is not an assessment of Armenia’s progress toward its development goals, but rather of program achievements directly supported by WBG in FY19-FY23 CPF period. Focus Area 1: Export Enablers and Firm Competitiveness 9. Focus Area 1 is rated Satisfactory with two objectives achieved and another two mostly achieved. Three sectors—agriculture, ICT/high tech, and tourism—were identified in the CPF as having the best potential for export growth and characterized by significant opportunities for new entrants and market contestability. This Focus Area was mainly supported by two Development Policy Operations (DPOs; P169624 and P176278), three energy sector operations (P116748, P146199, P157571), the Local Economy and Infrastructure Development Project (LEIDP; P150327), the Trade Promotion and Quality Infrastructure Project (TPQI; P146994), the Second Community Agriculture Resource Management and Competitiveness Project (CARMAC2; P133705), the Lifeline Roads Network Improvement Project (LRNIP; P126782), the Third and Fourth Public Sector Modernization Project (PSMP3; P149913; PSMP4; P176803), as well as IFC’s Economic Growth Advisory Project and Women Entrepreneurship Project (WEP). Objective 1. Improved performance in export-enabling sectors – Mostly Achieved 10. Two out of four indicators were achieved, in some cases exceeding targets, and two were mostly achieved, contributing to Armenia’s economic recovery through export-enabling sectors. In the tourism sector, despite implementation challenges and delays due to the twin shocks, nine tourism facilities, contributing to the tourism value chain were rehabilitated and are functional (indicator 1.1. – target of 10 facilities), and 48 jobs linked to these facilities were created (indicator 1.2. – target of 55 jobs). The jobs created support economic development of local communities, providing people with new sources of income and job skills, as well as providing a more organized experience for visitors to local tourist attractions. The LEIDP is still ongoing with an end target of creating 350 jobs. The quantitative impact analysis across all completed tourism sites will be undertaken as part of the Implementation Completion Report (ICR). The Advisory Services and Analytics (ASA) on Strengthening competitiveness in tourism – responding to the crises of 2020 (completed in June 2021) identified policy interventions for firms to build back better following the twin shocks and is informing the design of a new lending operation in local economy and infrastructure development. 34 E.g., in the RF results chain could have been stronger, and some indicators could have been more relevant to the CPF Objectives. 40 11. In agriculture, activities focusing on developing value chains and enabling market access for agricultural exports had good results. The annual value of marketed production from selected livestock and high value agri-food value chains with the support from the CARMAC2 increased from AMD 2,450 million in 2018 to AMD 4,499 million in 2022 (indicator 1.3.), exceeding the target of AMD 3,850 million. Regarding the support from the TPQI to innovation in constructing the Engineering City (EC), the sales and transaction volumes of EC resident companies reached an aggregate value of US$31 million for 2019-2022, against a target of US$28 million (indicator 1.4.). EC has 20 companies now, with 15 generating commercial sales (70 percent of sales are export-oriented). The Realizing Armenia’s High-Tech Potential report (2019) informed the Government’s approach toward leveraging the potential of high-tech digital exports and identified strategic options to retain a greater share of value-added from global industries. Also, IFC’s Digilab program provided training in digitization of financial services to one Armenian bank and one non-bank financial institution. Objective 2. Improved business environment to support investor confidence – Achieved 12. Both indicators under this objective were achieved. Key achievements in improving the business environment in Armenia include a new legal framework for corporate financial reporting and a revamped insolvency legislation, as well as improvements in the institutional and organizational capacity of the tax administration. Under the FY20 DPO (P169624) and the European Union (EU) Trust Fund (TF) on Economic Governance, Business Environment and Firm Productivity (P172969), the WBG supported the Government to enforce pro-competition rules and address the challenges related to restricted entry, collusion, and to create a level playing field for firms. Indicator 2.1. on the adoption of insolvency framework was achieved with implementation of Insolvency and Creditor Rights (ICR) Principles, such as continuation of contracts supplying essential goods and services to the debtor; ability of the insolvency administrator to reject overly burdensome contracts; and assigning insolvency cases to specialized bankruptcy judges. Indicator 2.2. on improved corporate financial reporting was also achieved: the Law on Public Oversight was adopted, and the Public Oversight Board was established and is operational. The Chamber of Accountants and Auditors was also established and is operational. It is sustainable and generates a solid revenue stream, offers training and a qualification program, and provides quality control over the audit. The WB (i) drafted a legislative package for the Public Oversight Board and the Chamber establishment, (ii) developed regulations for the Chamber operation, (iii) supported the development of the accountants’ qualification program. 13. IFC Economic Growth Advisory Project supported the Government to improve the business environment and investor confidence, attract and retain Foreign Direct Investment (FDI) in competitive sectors (ICT, agriculture, tourism) through targeted investment promotion and investor services. This project assisted the Government in reorganizing the investment promotion agency Enterprise Armenia (EA) in December 2019, as well as provided capacity building to EA by supporting the launch of the investor aftercare services and promoting the “Made in Armenia” brand overseas. A rapid investor survey was conducted in fall 2022 among 10 foreign investors in Armenia. The project attributed investments were found to amount to US$84m, and surveyed investors were highly satisfied with the aftercare services offered by EA. IFC’s WEP (P603670) also helped improve the economic outcomes of women entrepreneurs in Armenia by enhancing their business competencies and access to networks. In 2020-22, the project supported the capacity building of over 1,370 women entrepreneurs (including 517 participants in IFC’s Tech for Non-Tech acceleration programs) and creation of 352 jobs. 14. The Government is committed to improving the Regulatory Impact Assessment (RIA) system to support evidence-based policymaking and improved investor confidence, by establishing an institutional and legal framework for the RIA. The WB supported the strengthening of the RIA system (Economic Governance and Business Environment ASA (P172969) and produced a methodology report with compendium on international best practices. The Government used it to produce RIA guidelines for the line ministries. Objective 3. Enhanced connectivity and access to reliable infrastructure – Achieved 15. All achieved indicators reflect a better access for rural population to all-season roads and a greater efficiency of power supply. Following the rehabilitation of 453 km of lifeline roads under the LRNIP during the CPF period, the share of rural population with access to all-season roads increased from 67.7 percent in 2018 to 77.7 percent in 2022 (target reached), representing 913,000 persons in total (indicator 3.1.). The WB 41 also supported the development of the road asset management system put in place in 2021, covering the country’s full road network. In energy sector, access to electricity is 100 percent for businesses and households and nearly all communities in the country have access to the gas grid. The WB financing and TA focused on improving the reliability of energy infrastructure, which is critical for doing business in Armenia, especially amid the external shocks, and for all services requiring uninterrupted electricity supply (food cold chain or hospitals). The WB financed the rehabilitation of transmission grid infrastructure (high-voltage grid), reducing the number of technical failures in transmission substations from 39 in 2018 to 3 in 2022, exceeding the target of 7 (indicator 3.2.). In the distribution sector (low and medium-voltage grid), investments in the network had long been insufficient, reflected in increased frequency of power interruptions from 2015 to 2018 (reliability deteriorated). However, the Public Sector Financial Recovery (PSFR) PforR (P157571) and the two IPFs in the power sector (P116748 and P146199), helped contain and eventually reverse the deterioration of the reliability of Armenia’s electricity supply improved the grid potential to accommodate new renewable energy capacity investments. 16. During the CPF period, IFC and MIGA effectively supported the Armenia infrastructure sector. In December 2020, IFC provided US$60 million long-term finance for modernization of Armenian electricity distribution networks by Electric Networks of Armenia (ENA). IFC also facilitated long-term financing for the 250MW Yerevan greenfield combined cycle gas thermal plant (Yerevan CCGT), which has been in commercial operation since November 2021.35 In February 2019, MIGA issued a guarantee of US$39.2 million to mobilize foreign financing for Yerevan CCGT. The guarantee covered the risks on currency inconvertibility and transfer restriction, expropriation, war and civil disturbance, and breach of contract. This project contributed to Armenia’s strategic objective of replacing aging and inefficient power generators and is the first greenfield independent power plant financed as a project, providing a positive demonstration effect to private sector investors in the energy generation sector. In 2021, IFC provided a US$9 million loan to Fotowatio Renewable Ventures (FRV) Masrik, the first utility scale solar photovoltaic (PV) powerplant to be built in Armenia. In its advisory capacity, IFC supported the study of possible rehabilitation options for Sevan Hrazdan hydropower cascade - the largest in Armenia. As such, 100 percent of the energy sector capacity in Armenia is supported by WBG policy advice on tariff methodology, public regulation, electricity distribution and transmission. In 2022, IFC provided long-term financing to Telecom Armenia (US$20 million) for the development of telecommunications infrastructure and expansion of high-speed fiber optic internet supply networks. 17. A series of energy related ASAs directly impacted sector policies and outcomes, including enabling the rapid increase in small-scale renewable energy installations. Through the Preparation of Model Power Purchase Agreement (PPA) for Small Renewable Energy Projects (P165786), the WB supported the Public Services Regulatory Commission (PSRC) with the development of a new model PPA for small renewable energy projects. It enabled almost 100-fold increase of small-scale renewable energy installations in the country (from 6 MW in 2018 to 402 MW in 2022, seven times the CPF target value). The Maximizing Finance for Development (MFD) in the Armenian Power Sector ASA (P170474) supported the Government to identify constraints and develop a financing roadmap for mobilization of private and commercial finance in electricity generation and transmission. In the Government Program 2021-26 and its Energy Sector Strategy the Government recognized the need for preparing the power sector State-Owned Enterprises (SOEs) to accessing the capital markets for commercial financing pinpointing the relevance of obtaining relevant International Organization for Standardization ratings as an improvement to the management system. The Improvement of Power-Tariff Setting and Addressing of Social Impacts of Tariff Increases ASA (P160031) provided advice to PSRC on improving the tariff-setting methodology, the distributional implications of rising electricity tariffs, and simulation of the impact of select mitigation strategies. These recommendations were reflected in a series of tariff decisions by the PSRC since 2018 and supported the development of a least-cost generation plan for Armenia. The Variable Renewable Energy (VRE) Grid Integration Support Phase 2 (P170405) supported the finalization of the draft Distribution Grid Code and analyzed the potential technical and economic impacts of VRE integration into the national grid. The South Caucasus Energy Engagement ASA (P174666) contributed to accelerating the clean energy transition and investment in energy efficiency, including by preparing the power sector SOEs for investment in clean energy, developing roadmaps for energy storage and solar investments. 35 IFC provided for Yerevan CCGT plant a total of US$41 million from its own account and mobilized US$122 million. 42 Objective 4. Improved public sector performance and increased private financing for development – Mostly Achieved 18. Four out of five indicators under this objective exceeded the targets, while one was partially achieved. The PSMP3 developed a system for electronic declarations of asset, expenditures, income, and interests for the Corruption Prevention Commission (CPC) and helped improve the institutional framework and capacity to combat corruption. The focus of PSMP4 is to scale up the digitalization of public services and deliver services directly to the citizens and businesses, promoting greater inclusion and accessibility. These efforts were supplemented by a UK-funded Technical Assistance (TA) in support of customs administration. The fight against corruption was measured by indicator 4.3. on the share of income declarations covered by risk analytics. It was partially achieved with the first module of upgraded asset declaration e-system operational since early 2023 and enabling automatization of data collection and basic risk analytics for 100 percent of declarations. In addition, 20 percent of declarations were covered by a manual deep risk analysis (December 2022). However, only upon the development of the second module (not supported by PSMP4), the CPC will be able to automate deep risk analytics for 100 percent of income declarations. Indicators 4.1. and 4.5. on upgraded Public Investment Management (PIM) framework-supported by the EU TF on Economic Governance-were achieved as all significant investment projects in the 2021-22 budgets were appraised and prioritized according to PIM methodology. Public procurement efficiency increased following the implementation of the Public Procurement Law; the difference between cost estimates and signed public procurement contracts decreased from 10.4 percent in 2017 to 3.37 percent in 2022, against a target of 5 percent (indicator 4.2.). IFC supported the private sector by increasing the private finance mobilized for energy infrastructure to reach US$271m in 2023 (indicator 4.4.) - while the target was US$110 million. IFC provided a US$60m loan to ENA, a US$202 million loan to Yerevan CCGT, and a US$9 million loan to FRV Masrik solar. MIGA’s direct private capital mobilization (PCM) for ArmPower is estimated at US$43.5 million. After adding private indirect mobilization, MIGA’s total PCM is estimated at US$59 million. 19. The Bank team further supported public sector reform and policy making through analytical work and TA. A Public Expenditure Review (PER-P177887) was produced in 2023, which informed policymakers on the fiscal and institutional policy options to improve the efficiency and effectiveness of public spending, while maintaining macro-fiscal stability. The PER included analysis of health and social protection expenditures, to address the key challenges that Armenia faces in human capital accumulation. The Green, Resilient and Inclusive (GRI) DPO (P176278) approved in March 2023 included several public sector reforms as prior actions, e.g., strengthening and streamlining the PIM Framework and upgrading the family benefit vulnerability assessment tool to better target the poorest quantile. A Debt Management Performance Assessment (DEMPA-P179675) TA-finalized at the end of FY23 looked at the current state of systems, institutions, and operational environment, did the system assessment and provided recommendations to continue to improve the debt management system and the regulatory base. A Trade and Transport Impact Assessment (P179897), under the EU TF, supported customs officials in the State Revenue Committee and reviewed the procedures to improve the Post Clearance Audit. The Supporting to Governance and Justice in Armenia ASA (P171928) increased WB and client knowledge on the value of a data-driven approach to support anti-corruption efforts. This ASA provides inputs for a corruption risk framework development, supported by data analytics, and tailored to Armenia, using publicly available procurement and asset declaration data to be used by the Government to monitor corruption risks and inform policy decisions. The work served as a basis for a wider analytical work ongoing under the Armenia Digital Governance Infrastructure (P174607) and Advancing Governance Reforms (P179503), aimed at maximizing the use of data for anti-corruption purposes, which will inform new anti-corruption digital infrastructure development efforts by the CPC. Focus Area 2: Human Capital Development and Equity 20. Despite the negative impact of the pandemic on outcomes in the education, health, and social protection sectors, performance under Focus Area 2 is rated Satisfactory; of the three objectives, two are achieved and one is mostly achieved. Investing in the skills and human capital of the population is key to addressing unemployment, boosting productivity and growth, and achieving the twin goals. The CPF aimed to support Armenia in enhancing its human capital and improving equity in access to services and economic opportunities. The key WBG engagements in this Focus Area were Education Improvement Project (EIP; 43 P130182), including the Additional Financing (AF) of US$25 million, Disease Prevention and Control Project (DPCP; P128442), including an AF of US$7.4m, and two social protection operations (P148836 and P146318). Additionally, this Focus Area was supported by strong knowledge work and by leveraging the GRI DPO (P176278) approved in FY23. Objective 5. Enhanced access to good-quality educational services for skills development and employability – Achieved 21. The two indicators have exceeded the targets. The share of preschool-aged children enrolled in early childhood education increased from 52.4 percent in 2016 to 64.3 percent in 2021 (indicator 5.1.), above target of 62 percent. The establishment and refurbishment of 136 preschools was financed by EIP, exceeding the initial target of 134, and 3,462 five-to six-year-old children were enrolled in these pre-schools in their first year of operation. A total of 13,580 children were enrolled in these schools (52 percent boys and 48 percent girls) from 2015 to 2020, covering about 6 percent of children entering the first grade in the given year. While fully achieved, this indicator does not adequately measure the quality of education. A more accurate measure is “improved school readiness among those entering first grade in participating communities” tracked under EIP. As such, the Early Development Index (EDI) scores of children enrolled in preschools increased on average by 32 percent in the 2015-16 schoolyear, 43 percent in 2016-17, 57 percent in 2017-18, and 85 percent in 2018-19. EDI scores of children in comparable communities not enrolled increased by much lower averages. In higher education, out of the 18 Competitive Innovation Fund (CIF) projects supported by the WB, 6 were consortium projects of several institutions (higher education institutions [HEIs], research centers, public and private sector representatives), by far exceeding the target of one consortium (indicator 5.2.). Surveys on 18 CIF grants showed improved quality, relevance, and efficiency in Armenian HEIs. 22. Additional results were achieved in dimensions not covered by the indicators above, such as skills development and employability. An impact evaluation from May 2022 of the EU4Innovation Science, Technology, Engineering, and Mathematics (STEM) Project (P170001), which supported the curriculum reform in STEM subjects, showed preliminary gains of 0.13 standard deviations on student performance in mathematics and selected science subjects, equivalent to 3-4 months of learning.36 Objective 6. Improved access to health care services – Achieved 23. All three indicators of this objective were achieved. Despite the pandemic limiting access to essential health services and changing immediate priorities in the sector, use of preventive care made good progress. The percentage of antenatal care attendees screened for glycosuria, hypertension and proteinuria substantially increased from 68 percent in 2018 to 94.8 percent in 2022 (target of 95 percent - indicator 6.1.). The percentage of 35-68 years-old men screened for hypertension also increased from 21 percent in 2018 to 26.7 percent in 2022 (target of 27 percent- indicator 6.2.). Indicator 6.3. on the new health insurance system was also achieved. The COVID-19 pandemic shifted the Ministry of Health’s attention to strengthening public health functions, with significant changes in the relevant timeline. The Government’s Concept on new health insurance system was approved only in February 2023. At the time of the CPF preparation, Armenia’s service delivery system focused largely on infectious diseases and maternal and child health, ignoring the growing chronic disease burden. The introduction of mechanisms from 2013 for early diagnosis of non-communicable diseases (NCD) was a significant effort requiring new equipment, new supplies, retraining, and a new performance-based financing mechanism. The downstream steps are constrained by over 70 percent of the population having no coverage for medicines, diagnosis, or hospital care. The Government’s Concept plans to address this in 30 years by expanding the benefits package and introducing mechanisms to ensure quality. 24. Additional results were achieved during COVID-19 pandemic. The WB proactively responded to the need for supplies and equipment to facilitate case management and intensive care of patients by: (i) restructuring the health DPCP and allocating US$3 million to emergency response, and (ii) processing US$7.4 million in Health AF through redirecting savings from other operations. As such, the WB procured 16 completed contracts for lifesaving medical equipment and supplies to facilitate case management, infection 36 A quasi-experimental evaluation of student learning effect (pilot/non-pilot grades of 210 schools in Tavush, Lori, and Shirak). 44 prevention and control, and case detection for COVID-19. Items delivered include 25 ambulances, 70 ventilators, 4 X-ray machines, pulse-oximeters, thermometers, and personal protective equipment. IFC also provided support to address COVID-19 related vulnerabilities, including through short-term trade finance under its Global Trade Finance Program to support trade flows during the pandemic. Objective 7. Improved access to social protection services and economic opportunities for poor and vulnerable populations – Mostly Achieved 25. Three of the four indicators were achieved, and one was partially achieved. Progress under this objective followed a stop-and-go pattern due to the twin shocks. Specifically, the share of the poorest 20 percent of the population covered by the Family Benefit Program (FBP) increased from 38 percent in 2018 to 41 percent in 202137, against a target of 45 percent (indicator 7.1). This trend is expected to continue with FBP reform to better reach the income-poor population. The reform of the FBP targeting system was delayed due to priority shift driven by the twin shocks. The Government decided to adjust the mix of social assistance benefits for families with children by introducing a combination of universal and poverty-targeted programs. In 2021, the childcare allowance was extended to all rural families with children under 2. This expansion, together with the social protection cost of the conflict, constrained the overall increase in coverage of the FBP due to budget limitations. However, the expansion of the childcare allowance to rural families and children under 2 contributed significantly to the overall increase in the social assistance coverage of the poorest quintile from 47 percent in 2019 to 54 percent in 2021. In addition, indicator 7.2. on the share of beneficiaries of the Social Investment and Local Development Project (SILD)38 satisfied with community infrastructure was achieved. Also, SILD has been instrumental in supporting the territorial reform (December 2021) with participation of enlarged communities. Indicator 7.3. on client participation costs of receiving benefits and services of Integrated Social Protection Centers (ISPC) was achieved, with costs decreasing from AMD 3,036 in 2018 to AMD 709 in 2022. In addition, territorial ISPCs (employment, social assistance, pensions, and medical examinations) are being constructed and renovated. Finally, the number of businesses in sustained operations by the end of the Promoting Social Inclusion and Self-Reliant Livelihood Activities Project (P165314) reached 306 in 2023, including 56 percent of female-run businesses, against a target of 225 (indicator 7.4.). The grant beneficiary-recipients are FBP beneficiaries. 26. Several ASAs were produced during the CPF period and helped improve the effectiveness of social assistance, social services, and active labor market programs (Annex 5). These ASAs helped increase the client’s understanding of labor markets to promote better jobs and improve access and impact of programs for vulnerable populations. ASAs are used to draft the national Social Protection and Employment Strategies for 2023-2026. 27. An extra result not included in the CPF was the WB’s swift response to the 2020 conflict by mobilizing a US$3.72 million grant from the State and Peacebuilding Fund (SPF). The conflict in 2020 forced more than 90,000 ethnic Armenians (60 percent of the population, mostly women and children) to relocate to Armenia. The WB supported the Government’s social protection measures to assist the affected families by financing three Government measures: (i) monthly cash benefit for hosting families in Armenia (benefiting almost 5,000 families hosting 12,000 displaced people); (ii) monthly cash benefits to displaced people in Armenia (almost 4,000 beneficiaries, 52 percent being women); and (iii) employment subsidies for displaced people (379 beneficiaries, 76 percent being women). Armenia received this grant due to the Fragile and Conflict- affected Situation (FCS) status the Bank assigned to the country in FY22, with limited access to FCS instruments given the country’s middle-income status.39 This grant helped offset the host families’ costs and improve the food consumption of displaced people by 20 percent. One-third of beneficiaries of employment subsidies remained employed after the program, while about 37 percent of those receiving cash benefits in 2021 returned to their place of origin by mid-2022. Focus Area 3: Sustainable Management of Environmental and Natural Resources 37 Due to changes in consumption measurement, the used approach has minor impact on comparability. 38 SILD fosters social capital and livelihood opportunities of the most vulnerable municipalities. 39 Risk and Resilience Assessment (May 2023) developed understanding of drivers of fragility, conflict, and violence in Armenia. 45 28. Focus Area 3 is rated Satisfactory as one objective was achieved, and one was mostly achieved, with good progress made on sustainable landscape management, transparency in mining, and renewable energy generation. The WBG built on its past and ongoing engagement in agriculture, mining, forestry, Disaster Risk Management (DRM), and renewable energy to promote integrated, collaborative, and pro-poor solutions. The key engagements in this Focus Area were: CARMAC2 (P133705), Irrigation System Enhancement Project (ISEP; P127759), (PSFR; P157571), as well as IFC and MIGA investments in efficient energy generation. Additional support included TFs on forestry and landscape management (EU4Environement TA; P170428) and advisory services in mining. Objective 8: Improved management of natural resources – Mostly Achieved 29. At PLR stage, programming ambitions of this objective were scaled down. The previous Objective 9 on Enhanced climate change resilience, water security and disaster risk management capacity was merged with Objective 8, and several indicators were revised or dropped (the indicator on water was dropped as the new project was only requested by the Government at the end of 2022 and thus did not materialize during the CPF). 30. Four indicators were achieved, and one was not achieved. The grasslands area under sustainable landscape management increased from 58,000 hectares (Ha) in 2018 to 128,150 Ha in 2022, above the target of 110,550 Ha (indicator 8.1.). Indicator 8.3 on the number of communities with improved knowledge and capacity for forest management has not been achieved as the EU4Environment TA was delayed; work is slated to begin in 2023. The TA supports with the development of a national action plan to establish the Emerald Network, including the methodology for preparing and piloting relevant management plans.40 In the education, the number of high schools retrofitted to meet building standards increased from 5 in 2018 to 12 in 2022, the CPF target (indicator 8.4.). The schools were rehabilitated and do meet the seismic safety standards. In mining, the WB was the only International Financial Institution leading a dialogue on greater transparency and environmental challenges in the sector. To improve the governance and environmental and social standards in mining, the WB supported an economic assessment of the mining sector, environmental and health assessments and a rapid analysis of the COVID-19 impact on the mining sector. These assessments and extensive stakeholder engagement in the preparation of the Mining Sector Development Strategy enabled integration of key challenges and the vision for the sector by 2035. The Mining Strategy was adopted by the Government in May 2023 (indicator 8.5.), and the WB helped promote better mining practices and improve Armenia’s compliance under the Extractive Industries Transparency Initiative (EITI ASA; P168274). The Mining Strategy articulates goals related to mine closure regulations and remining practices. With the Mine Closure and Economic Regeneration Study (P166894), the Bank provided advice on rehabilitating abandoned mine sites in line with Armenia’s climate adaptation ambitions. An inventory of abandoned mining sites, ranked by risk to the environment and human health, was completed in 2020 (indicator 8.2.). The Ministry of Environment also continued to do inventories of abandoned mine sites and created a priority list. In FY23, the Government asked to include one mine site closure in the Global Environment Facility (GEF) -8 financed Armenia Resilient Landscapes Project (P178899). The selected mine is in the forest area and will be the best example of mine closure and afforestation. 31. In the water sector, two ASAs completed in FY23 provided inputs to improve practices in irrigation development, management, and integrated agricultural development interventions, which are high priority policy areas for the Government. The Integrated planning and implementation of investments in irrigated agriculture (P178109) and a regional ASA-Enhancing Water Secure Investments in Irrigated Agriculture (P179623), focuses on reservoir prioritization and use of remote sensing for decision making, supports the dialogue with Government on a pipeline operation (Water and Irrigation Services Enhancement-WISE IPF; P180733), covering irrigation and water supply and sanitation reforms, investments in irrigation modernization, and rural water supply. 32. Several TFs supported the environment sector in Armenia. “The EU4Enviroment” approved in 2019 plans to support the communities in capacity building and forest management from 2024. The Bank advised on innovative financing mechanisms to maximize funding sources for climate action. With funding from the Nationally Determined Contributions (NDC) Support Facility TF, the Bank undertook analytical studies to 40 Emerald Network implementation was launched by Council of Europe as part of Bern Convention (adoption of rec. 16 in 1989). 46 assess forest landscape restoration opportunities, including development of a Forest Policy Note and assessment of private sector potential for forest restoration and afforestation, taking note of the climate change mitigation potential of the forestry and the need for forest resilience and adaptation measures. The Climate Support Facility finances the GREEN (Growth and Recovery to Equip, Empower, and Nurture) Armenia platform, a joint initiative of the WB, United Nations Development Programme (UNDP), EU, and the Government, to support Armenia’s green and resilient growth. The GREEN platform aims to widen the discussion and advance the agenda on circular economy, green economy strategy, green taxonomy, and other relevant policies. Objective 9: Enhanced energy sustainability and renewable energy resources – Achieved 33. Both indicators of this objective were exceeded as Armenia enhanced its solar energy generation capacity and lowered GHG emissions. The solar PV generation capacity increased from 6 MW in 2018 to 402.4 MW in 2022, exceeding by far the target of 61 MW (indicator 9.1.). Indicator 9.2. on GHG emissions was also achieved with 233,731 tons of CO2 reduction from 2018 to 2022 because of new renewable energy investments (target of 148,000 tons of CO2). While the milestones presented were achieved without direct lending and it is difficult to measure the extent of any indirect contributions by the WBG, the support to Armenia’s renewable energy program helped move the policy discussion on how to support reforms and investments for green energy transition. The first 55 MW project was tendered in 2018. The tender process was supported by WB TA financed by a grant from the Scaling-Up Renewable Energy Program (SREP). IFC provided long-term financing for the project, enabling its financial closure in 2021, with no need for IBRD and SREP guarantees. Building on this success, in early 2021, the Government approved a strategy to scale-up the solar power to 1,000 MW by 2030. The Bank thus shifted the focus to enabling grid investments and analytical work on the need for energy storage. IFC also supported the development of major energy infrastructure to attract foreign investors. 34. Building on the success of PSFR (P157571), closed in 2021, the WB supported a program combining critical grid investment with reforms to accelerate renewable energy deployment; improve reliability of supply; and make power sector SOEs ready for accessing commercial, non-guaranteed financing in the medium-term. The proposed model has great potential to advance the Government’s overall economic policy and reform agenda by attracting FDI, contributing to fiscal consolidation, favorable export, and SME business environment, and serving as a model for the SOE reform. III. WORLD BANK GROUP PERFORMANCE 35. The WBG’s overall performance over the FY19-FY23 CPF period is rated Good. The initial CPF objectives were relevant to Armenia’s development goals; IFC, MIGA, and WB complemented each other to achieve the CPF objectives, and three engagement principles (catalyze, explore, and optimize) were used to maximize WBG impact. The dialogue with the client, the pipeline, and the portfolio, despite the borrowing constraints41 in the beginning of the program, were proactively managed during the CPF period, including mid-term adjustments during PLR. IEG also rated the WB performance positive, as 100 percent of all projects evaluated in the last 18 months had a Satisfactory outcome (Moderately Satisfactory or higher). During FY19-FY23, IEG reviewed five projects, and only one didn’t have a Satisfactory outcome (ISEP; P127759) reviewed in FY21. See Annex 4 on IEG ratings. 36. Last five years were turbulent for Armenia, but the WBG’s agility was a defining hallmark of this CPF period. The WBG was agile at the CPF design stage by revising the whole approach following the Velvet Revolution and putting together a DPO that supported the new Government’s priority areas. Given the borrowing constraints of the government, until mid-2021 the Bank focused on the active portfolio and knowledge activities such as diagnostics and sectoral work to prepare a robust pipeline. The WBG used its voice and convening power in areas, such as the GREEN Platform, gender entrepreneurship and COVID-19 awareness. Design and Relevance 41 The Fiscal Rule was upgraded in 2017 allowing more counter-cyclical fiscal response and flexibility (escape clause in 2020). 47 37. The CPF focus areas remained highly relevant to the Government’s vision for a just, inclusive, and citizen-centric Armenia. The lessons from the FY14-FY17 Country Partnership Strategy informed the design of the FY19-FY23 CPF, as well as the design and implementation of lending operations, TAs, and analytical products (leveraging development partners’ resources, capacity building of implementing entities, and ensuring the analytical products relevance through disseminations/communications). The 2022 PLR identified further emerging lessons and confirmed the continued relevance of the CPF with objectives well- aligned with the Government’s new strategic vision articulated in the 2021-2026 Government Program. 38. During the design of the CPF, the nexus among SCD findings, the Government’s vision and the WBG’s comparative advantage was used to define the program. First, the CPF prioritized areas that linked closely to the twin goals through a focus on the resilience and livelihoods of the bottom 40 percent. Second, the focus areas aligned with the Government Program and requests for WBG support. Third, the WBG concentrated on areas in which it had comparative advantage, including the active portfolio, rigorous analytical work, IFC’s and MIGA’s success in the energy sector, collaboration with multiple development partners, and its convening power. Activities were selected based on the Client’s requests to respond to the twin shocks, e.g. AF to the health and education projects. During the CPF, the WBG did not engage in trade policy or trade and transport facilitation, high-level national roads, and highways, and ended its engagement in geothermal exploration. 39. The choice of instruments was appropriate to foster policy reforms demanding sustained government commitment. Wide variety of WB instruments (DPO, IPF, PforR, ASAs) were used to inform policy dialogue and deliver the program according to the evolving country context. IEG evaluations of projects completed in the FY19-FY23 suggest a need for more extensive feasibility phase for complex infrastructure IPFs in sectors like irrigation to test/adapt the solutions on the ground, (typology, local capacity, and social context). The PforR instrument employed in the energy sector showed how small financial recovery operations can entail successful reforms. However, successful implementation is conditional upon Government buy-in and control/commitment to project objectives. The experience with standalone DPOs revealed that short-term programs should pay particular attention to political economy considerations. DPO series should avoid triggers that are unlikely to translate into prior actions ensuring the achievement of targets for the whole program. 40. The WB engaged with development partners to ensure as much as possible the alignment of efforts and avoid duplication. For example, the WB engagement in education (including higher education) complemented the EU budget support to general education and other donors’ engagement in vocational education and training. In roads, the EBRD and Asian Development Bank were the main partners and financiers, and the WBG support was limited to specific rural roads. The WBG engagement in the justice sector was limited to advisory work while the EU and United States Agency for International Development focused on supporting the rule of law and human rights aspect. However, there were also some challenges that resulted in duplications or financing gaps. While many donors were active in the agricultural sector, overall donor engagement in the important irrigation sector nearly came to a stand-still. In PIM, four different donors provided support to different agencies involved in the PIM process, which at times resulted in coordination challenges. 41. The overall risk to CPF implementation remained moderate throughout the CPF, yet new risks that emerged from the twin shocks could not be envisaged at the time of CPF approval. As an overall risk- mitigation measure, the CPF was designed as a flexible program that could be adapted to respond to the changed country context and new developments. Based on the program adjustments set forth by the PLR and considering the risk-mitigation measures, the residual impact of political and governance risk for the last period of program implementation was lessened from substantial to moderate. The risks rated as substantial were related to institutional capacity, and fiduciary risks (particularly due to the procurement system). Mitigation measures included prioritization of good-quality procurement and financial management (FM) mechanisms, careful supervision and implementation support by WB project teams, on-the-job training of concerned staff, and capacity building. Other risks, associated with COVID-19 and introduced at the PLR stage, were also rated as substantial, and currently reduced moderate. The mitigation measures proposed at CPF inception and PLR stages were effective as the WBG program delivered the expected results, and the overall CPF performance is rated as Good. 48 Program Implementation 42. The CPF, with an indicative IBRD program envelope approved at US$300-400 million for FY19-FY23, delivered US$247.3 million in seven lending operations (Annex 3). The CPF envisioned new DPOs, AFs for existing projects, and new investment projects in water and irrigation, climate-smart agriculture, and environment. The new operations planned in irrigation, agriculture, and environment were not approved during the CPF due to fiscal sustainability considerations. In 2021-22, the Government implemented significant fiscal consolidation, which, supported by high GDP growth and exchange rate appreciation, provided a sizeable decline of debt to GDP ratio and improvement of the borrowing space. Although the PLR was delivered late (FY22) due to the twin shocks and the Government’s borrowing policies, the program was continuously adjusted to provide support to the client in changing circumstances. Lending operations of the CPF period include: (i) a DPO delivered in FY20 focusing on economic, fiscal, and public sector governance, and a new programmatic DPO (with the first in a two-part series) delivered in March 2023 extending the reform program to human capital and green and sustainable development, with total amount of both DPOs is US$150 million; (ii) four AF operations to ongoing projects (LRNIP; P169158, SILD; P171862, EIP; P173318, DPCP; P175023), total amount of US$67.4 million; and (iii) one new operation that responded to the Government’s new priorities in governance (PSMP4; P176803), with a commitment of US$29.9 million. In addition, multiple analytical and grant activities informed a solid dialogue for potential new lending operations i.e., health sector assessments, which were instrumental in health insurance reforms progress; education sector assessments, including learning losses and human capital review, which helped strengthening the sector dialogue for potential engagement; PER, which identified spending gaps in health and social sectors, and water sector analytics and informed the pipeline operation on water reservoirs and remote sensing. 43. As of June 2023, the WB’s portfolio comprises 10 projects totaling US$499 million. The average age of a project is 7.4 years (4.25 years in ECA). It is caused by extensions due to implementation challenges and delays brought on by the Velvet Revolution and the twin shocks. At the start of the CPF period, 28 percent of the portfolio was in a problem status. Proactive and collaborative portfolio monitoring by the WB and the Government markedly improved the portfolio performance. Bi-annual Joint Portfolio Performance Review meetings, frequent technical discussions, and regular supervision missions (virtual and in person) resulted in discernible implementation progress: by FY20, all projects were lifted out of problem status. Overall disbursements under CPF were decent, with average annual rate of 19.5 percent during FY19-22. Disbursements in FY23 have slowed down though, with a disbursement ratio of 16.5 percent, due mostly to new commitments approved in FY22 only becoming effective at the end of Q2 FY23, and implementation challenges in few projects (global supply chain disruptions, slow decision making, and frequent staff turnover). Jointly with the Government, the Bank’s teams used digital tools for close project supervision. Alternative supervision mechanisms were introduced during the twin shocks, when the quality of supervision and counterpart dialogue was ensured through digital solutions. 44. The flexibility of the CPF and the program supported the achievement of outcomes . In FY20-21, the WBG responded flexibly and quickly to the crisis arising from the twin shocks by: (i) restructuring the health DPCP (P128442), including allocating US$3 million to emergency response to COVID-19 and processing US$7.4 million in Health AF through redirecting savings from other ongoing operations; (ii) mobilizing grant financing of US$3.7 million through the SPF to support people displaced by conflict; (iii) using savings from ongoing activities for new borrowing considering the fiscal constraints; and (iv) deploying a US$15 million short-term facility from IFC to Inecobank to support working capital for MSMEs. 45. The CPF results framework was adequate, despite some weaknesses related to the results chain such as the links between some indicators and the CPF objective they were supposed to support. The emerging lessons from the PLR called for greater focus on capacity building and knowledge work to lay the foundations for the next CPF. These lessons were reflected in the adjustment to the program under Focus Area 3 (Sustainable management of environmental and natural resources) and Focus Area 1 (Export enablers and firm competitiveness) with a stronger emphasis on public sector management. Similarly, the technical dialogue under the PER and the DPO responded to the emerging lesson of a greater focus on improved public 49 investment management, public procurement, and the PPP framework. The DPO also played an important role in supporting the Government’s goal of improved social spending efficiency. 46. Robust ASAs underpinned WB engagement and the delivery of CPF objectives, informed the dialogue around policy priorities, and strengthened the foundation for future lending. The CPF indicative ASA pipeline was delivered as planned (Annex 5): 36 country-specific and 38 regional activities were delivered in FY19-23. ASAs addressed knowledge gaps identified in the SCD and focused on key development priorities. The regional tasks focused on sectors requiring transnational approach such as digital development, energy (e.g., power interconnection between Armenia and Georgia), or trade and transport routes (e.g., economic potential of regional connectivity). As detailed above, in addition to informing new lending and adjusting the program over time, ASAs also helped to fill knowledge gaps and improve the quality and influence of WB knowledge. 47. The CPF implementation was supported by a strong TF portfolio (Annex 6), which includes 63 grants for total commitments of US$38 million: 10 recipient (US$18 million), and 41 bank executed at the country level (US$18 million), and 12 bank executed at the regional level (US$2 million). RETF grants allowed response to specific needs given the Government’s borrowing strategy. Over 70 percent of the RETF funding is focused on human development. Key support was provided to energy and extractives via support to EITI and mineral sector policy. People displaced by the 2020 conflict and their host families received grant financing of US$3.7 million mobilized by the WB through the SPF. BETFs supported active and future lending operations via analytical advice, budget oversight and knowledge building. Ongoing efforts will continue in the next CPF to consolidate TFs into fewer and more programmatic engagements. 48. The volume of IFC investment in FY19-23 amounted to US$384.6 million. The total amount of long-term finance was US$314.9 million, of which US$192.9 million was invested on own account and another US$121.9 million was mobilized from partners. During the same period, IFC provided trade guarantees in the total of US$69.8 million. IFC also delivered advisory services that advanced improvements in investment climate and corporate governance, supported energy infrastructure and greater access to finance, and provided support for female entrepreneurs (Annex 7). 49. Despite adverse environment for private investment during CPF, the WBG supported PCM in the energy and financial sectors. Increased investment in the energy sector became possible thanks to joint IFC/WB effort on enabling conditions for PCM. Specific interventions included the US$30 million. IBRD PSFR PforR, which supported the adoption of bankable tariff regulation and strengthened the governance of power sector SOEs. WB advisory on social mitigation measures accompanied tariff reforms and supported the Government in organizing the first utility scale solar project tender in line with best international practices. IFC financed a new capital investment in electricity generation (gas and solar) and distribution infrastructure and provided advisory services to appraise the rehabilitation of aged hydropower infrastructure. IFC investment in electricity distribution strengthened the off-take of private investment in generation and allowed new supplies reach the customers. IFC supported the development of major energy infrastructure through direct investment. 50. As of June 2023, MIGA’s outstanding gross exposure in Armenia stood at US$39.2 million in support of one energy project and PCM in the country. MIGA provided political risk insurance to a private foreign investor to support the financing, construction, operation, and maintenance of a greenfield 250 MW combined-cycle gas-fired thermal power plant, Armpower, in Yerevan. The project, jointly supported by IFC and MIGA on a project finance basis, contributed to Armenia’s strategic objective of replacing aging and inefficient power generators and is a good business case for private investors in generation. 51. Fiduciary aspects of the program were mostly satisfactory. Fiduciary and institutional capacity risks were rated as substantial, and the WB implemented mitigation measures to improve procurement and FM. The WB ensured that FM and procurement procedures were closely followed for all projects at all stages through risk-based on-site and off-site implementation support and proactive capacity building measures. However, the Project Implementation Unit (PIU) reorganization initiated by the Government in 2019, as well as the high turnover of project staff in implementing agencies led to low knowledge of WB policies and capacity gaps, and negative impact on implementation. In addition, the uncertain situation at the borders, 50 instability of market, global logistic issues, and fluctuation of currency slowed down procurement activities and required frequent rebidding due to lack of qualified participants or absence of interest. The WB permanent support in streamlining procurement processes helped the client mitigate the risks of delays and ensure adequate project implementation. The WB continuously engaged in the procurement reform to improve access to data, maximize value for money and promote innovative solutions. The analytical works conducted by the Bank also contributed to improved procurement performance and efficiency and impact. 52. Performance on Environmental and Social (E&S) safeguards policies was mostly satisfactory. The majority of IPFs implemented during the CPF were guided by the old Safeguards Policies. Some of these projects are over or close to 10 years old, implying changes in implementation arrangements, challenges in retention of E&S staff and maintaining capacity in PIUs. Multiple sub-projects, accompanied by changes in PIU staff, increased the burden on Bank specialists to support the PIUs. Social risk across the portfolio remained mainly low to moderate. The Safeguards Policy for Involuntary Resettlement was triggered for seven projects with client performance satisfactory for most of them. The ESRP (P116748) was the only project rated as substantial for social risk, and moderately satisfactory for performance on Involuntary Resettlement. No project was given substantial or high environmental risk rating, and compliance with OP/BP4.01 was satisfactory or moderately satisfactory under all operations. The weakest points in environmental performance of civil works providers, stemming from shortfalls in national systems, included waste management and observance of occupational health and safety (OHS) rules (though no OHS incidents occurred). During the CPF, a review of Armenian E&S systems against the WB requirements commenced under the Strengthening National Systems for ES Risk Management ASA (P177771). This, coupled with dissemination of the findings with key stakeholders, substantially supports the transition from the Safeguards Policies to the new E&S Framework. 53. The WB’s convening power helped mobilize key development partners to support urgent development priorities of the Government. Partnership with the EU, UK, Japan, and other international organizations expanded. Coordinated work with development partners included: i) initiation a collective call for action on COVID-19 vaccines; ii) promotion of the gender equality agenda by co-leading the extended Gender Theme Group and leading the Women’s Economic Empowerment multi-stakeholder platform; iii) launch of the GREEN Armenia public-private platform for green recovery and growth; and iv) support to citizen-centered innovations and digitization agenda. The WB also continued working with the IMF on macro fiscal stability, PIM reforms, while IMF complemented the Bank’s PER through a review of the wage bill. IV. ALIGNMENT WITH CORPORATE GOALS 54. The CPF was designed to reduce poverty and increase shared prosperity in Armenia by improving firms’ competitiveness and access to finance, public sector performance, infrastructure, human capital, and sustainable management of the environment. During CPF and after the Velvet Revolution, Government acknowledged the need for a systematic approach to poverty reduction and increased income for citizens. 55. The WBG contributed to poverty reduction and shared prosperity through targeted and timely interventions enhanced further during the twin shocks. Roads and electricity projects’ activities in support of enhanced connectivity and access to reliable transport and energy infrastructure directly addressed the welfare of the bottom 40 percent, including the rural population through reliable infrastructure, road safety, and accessibility. The energy sector work helped increase renewable energy production. The DPOs played a key role in supporting the improving of social spending efficiency and public oversight over corporate financial reporting. The education projects increased the coverage of early childhood care and supported the establishment of HEIs, reducing the skills mismatch and increasing employment. The health and social protection work supported a better access to healthcare services and increased share of the poorest 20 percent covered by the FBP. Additional resources were provided to human capital, and the WB engagement in supporting vulnerable and poor populations was strengthened. Engagement in agriculture contributed to improved management of natural resources by increasing the productivity and sustainability of pasture and livestock systems in targeted communities and helped increase marketed production from livestock and high value agri-food value chains. These operations, coupled with knowledge activities, contributed to reduction of poverty from 52.3 percent in 2019 to 43.1 percent in 2022 (UMIC poverty line-US$6.85). The program 51 complied and mainstreamed the corporate requirements of citizen engagement, gender, and climate (Annex 9). V. LESSONS LEARNED Strategic Design 56. Lesson 1: Flexible and rapid response to emerging priority challenges helped maintain the relevance and credibility of the WBG. The institutional changes initiated after the Velvet Revolution and the impact of the twin shocks emphasized the importance of flexibility in the program to allow for a rapid response to emergencies. The twin shocks led to a fiscal contraction of 7.2 percent in 2020 and a temporary breach of the fiscal rule. In this environment, new borrowing by the Government was extremely constrained. The Bank responded by leveraging its knowledge work (PER, Human Capital Review) and existing portfolio to keep the dialogue alive. By cancelling some non-performing components, room for new lending was created in crucial areas such as education and public administration reform. The Bank shifted lending allocations to address the most acute needs arising from COVID-19. The 2020 conflict and the challenges of an unfinished peace process highlighted the fragility of Armenia’s geo-political environment necessitating an assessment of how the future WBG engagement can proactively consider the sources of fragility. The WB prepared Risk and Resilience Assessment (RRA) helped to identify ways the program can better address the country’s vulnerabilities and constraints under the next CPF. With a newly reopened fiscal space after 2021, a budget support operation became possible leveraging the sectoral dialogue and knowledge work of the CPF’s first years. The rest of the CPF was used to firm-up a pipeline of new investments in health, education, energy, regional development, and irrigation. 57. Lesson 2: Recently closed projects suggest that new project design should properly consider the evolving implementation capacities of many agencies and include elements of capacity building. It implies avoiding overly ambitious project timelines, complicated implementation arrangements, and the use of framework approaches where specific subprojects are yet to be identified during implementation, thus causing delays. Projects involving significant amount of civil works must carefully consider the small capacity of local construction market. Where possible, TA should be included in projects; and if financed via parallel grant financing, very close alignment of projects and TA is needed. Finally, a realistic theory of change will be key to ensuring the successful implementation of projects. The CLR clearly shows the added value of the WB knowledge portfolio in helping the Government prioritize among competing investment needs, strengthen the monitoring and results measurement, tackle difficult coordination challenges within Government (e.g., in waste management), and improve the efficiency of public spending. Program Implementation 58. Lesson 3: Continuous engagement with development partners is key to ensuring alignment of efforts and avoidance of duplication of efforts. For example, while many donors were active in agriculture, irrigation had nearly come to a standstill. Similarly, four different donors provided support to different agencies in the PIM process, which at times resulted in coordination challenges. The WB addressed it through donor coordination and by championing multi-donor dialogues with Government, such as the collaboration with the EU, UNDP, and Government on the green agenda. An ASA on the performance of the irrigation system and a prioritization of water reservoir investments (P169192) helped shift the focus of the donor dialogue with Government to priorities in the water sector. Under the new CPF, the Ministry of Finance requested the WB to set-up a Multi-Donor Trust Fund (MDTF) to align fragmented donor TAs in important areas such as PFM and green growth. 59. Lesson 4: Engaging with the Government and regularly strengthening the capacities of the Government and other key stakeholders is crucial for good implementation, as well as client and community ownership. The integration of PIUs into the Government structures was one of the challenges to portfolio implementation. High staff turnover in ministries and implementing agencies also affected the implementation capacity. Continued close cooperation with key counterparts, including capacity building related to WB procedures and contract management will contribute to the Government effectiveness and timely delivery, as well as improved implementation, planning and decision making. Also, securing upstream 52 buy-in of stakeholders and beneficiary communities, as well as their inclusive participation and awareness of the projects is crucial for successful implementation and ownership. 60. Lesson 5: Effective collaboration among WBG institutions has been a powerful driver of strong results. An example of effective WBG engagement and PCM success was the modernization and greening of the energy sector. A coordinated WBG approach helped open the sector through policy dialogue and critical reforms through sustainable tariff setting mechanisms, established an electricity distribution code and supported financial restructuring of energy sector SOEs. Guided by these reforms, IFC developed new investments in energy with a strong demonstration effect and mobilized solid private capital, in addition to IFC’s own resources. MIGA’s participation strengthened the transactions further by providing political risk insurance, mobilizing foreign investors, and contributing to the enhancement of more efficient energy generation. With prioritization of specific reforms for unlocking private sector investments in other critical sectors, it is possible to replicate the success achieved in the energy sector for PCM in transport, healthcare, water, and waste management. IFC and WB successfully collaborated to help build capacity of the Enterprise Armenia – investment promotion agency - by advising to identify the priority areas for investment (pharmaceutical, tourism, agriculture, IT, and e-mobility) and provide sector-specific incentives to existing and potential investors. Under the upcoming CPF, strong collaboration across the WBG will continue to underpin the program. 53 CLR Annex 1: Status of Armenia FY19-23 CPF Results Matrix (Summary table) Description Status at CLR Overall rating Focus Area 1: Export Enablers and Firm Competitiveness – Satisfactory Objective 1: Improved performance in export-enabling sectors Indicator 1.1: Number of rehabilitated tourism facilities Mostly Achieved contributing to tourism value chains Indicator 1.2: Number of jobs created by activities linked to the Mostly Achieved Mostly Achieved project investments Indicator 1.3: Increased annual value of marketed production Achieved from selected livestock and high value agri-food value chains Indicator 1.4: Increased sales/transaction volumes of Achieved Engineering City resident companies Objective 2: Improved business environment to support investor confidence Indicator 2.1: The insolvency framework is in line with ICR Achieved Achieved principles Indicator2.2: Improved corporate financial reporting Achieved Additional evidence: IFC Economic Growth Advisory Project improved business environment and investor confidence. In addition, IFC Armenia Women Entrepreneurship Project helped increase economic outcomes of women entrepreneurs by improving their business competencies and access to business network. Objective 3: Enhanced connectivity and access to reliable infrastructure (transport & energy) Indicator 3.1: Increased share of the rural population with Achieved Achieved access to an all-season road Indicator 3.2: Plant and equipment failures in power Achieved transmission substations reduced Additional evidence: The Power Sector Financial Recovery PforR supported the adequacy and reliability of electricity supply, and several ASAs contributed to maintain security and adequacy of supply. Objective 4: Improved public sector performance and increased private financing for development Indicator 4.1: Upgraded public investment management Achieved framework in place Indicator 4.2: Increased public procurement efficiency following implementation of the Public Procurement Law by improving Achieved cost estimates Indicator 4.3: Improved institutional framework and capacity to Mostly Achieved combat corruption, as measured by increased share of income Partially Achieved declarations covered by risk analytics Indicator 4.4: Increased volume of private financing mobilized Achieved for energy infrastructure with WBG facilitation Indicator 4.5: Improved efficiency of investment programs measured by the number of projects reviewed by PIM Achieved Investment Committee process Additional evidence: The WB provided support to increase data analytics and usage for anti-corruption purposes. Focus Area 2: Human Capital Development and Equity – Satisfactory Objective 5: Enhanced access to good-quality educational services for skills development and employability Indicator 5.1: Increased share of preschool-aged children Achieved Achieved enrolled in early childhood education/childcare Indicator 5.2: New cluster of higher education institutions, Achieved research centers, industry, and Government established Additional evidence: From 2015-2019, 136 preschools were financed by the education project, and 13,580 children were enrolled in these schools (48% girls) from 2015-2020. Objective 6: Improved access to health care services Indicator 6.1: Increased percentage of antenatal care attendees Achieved screened for glycosuria, hypertension, and proteinuria in at least Achieved three antenatal visits 54 Description Status at CLR Overall rating Indicator 6.2: Increased percentage of men aged 35-68 screened Achieved for hypertension at least once in the last year Indicator 6.3: Concept Note for the new health insurance system Achieved developed and submitted to the Government for approval Additional evidence: The WB repurposed resources of the Disease Prevention and Control Project to obtain lifesaving medical equipment for the COVID-19 response. Objective 7: Improved access to social protection services and economic opportunities for poor and vulnerable populations Indicator 7.1: Increased share of the poorest 20 percent of Partially Achieved population covered by the Family Benefit Program Indicator 7.2: Increased share of beneficiaries in SILD project Achieved Mostly Achieved areas satisfied with community infrastructure Indicator 7.3: Client participation costs of receiving benefits and Achieved services of ISPCs (for FBP) Indicator 7.4: Number of businesses in sustained operations by Achieved the end of JSDF project Additional evidence: A grant from the State and Peacebuilding Fund supported the Government’s social protection measures during the conflict with Azerbaijan in 2020. Focus Area 3: Sustainable Management of Environmental and Natural Resources – Satisfactory Objective 8: Improved management of natural resources Indicator 8.1: Increased land area under sustainable landscape Achieved management practices Indicator 8.2: Completed inventory of abandoned mining sites, Achieved ranked by risk to the environment and human health Indicator 8.3: Increased number of communities with improved Mostly Achieved knowledge and capacity for forest management and/or use Not Achieved practices Indicator 8.4: Increased number of high schools retrofitted to Achieved meet current building standards Indicator 8.5: Approved Mining Strategy as a result of wide Achieved stakeholder engagement Additional evidence: Thanks to the mining sector ASA, Armenia is now internationally recognized as a successful implementor of EITI standard Objective 9: Enhanced energy sustainability and renewable energy resources Indicator 9.1: Solar PV Generation capacity constructed Achieved Achieved Indicator 9.2: Greenhouse Gas emissions reduced as a result of Achieved new renewable energy investments Additional evidence: WBG’s in support to solar energy generation helped the Government to approve a strategy to scale up solar power to 1,000 MW by 2030. 55 CLR Annex 2: Republic of Armenia FY19-FY23 CPF Results Matrix Evaluation Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF Focus Area 1: Export Enablers and Firm Competitiveness Indicator 1.1: Number Lending Operations Mostly Achieved of rehabilitated • Local Economy and Baseline: 0 (2018) Value: 9 (Dec 2022) tourism facilities Target: 10 (2022) Source: Project’s M&E Infrastructure Development contributing to reporting. Project (P150327) (ongoing) tourism value chains • Trade Promotion and Quality Mostly Achieved Infrastructure Project Value: 48 (Dec 2022) (P146994) (ongoing) Source: Project’s M&E Importance of embedding • Second Community Indicator 1.2: Number reporting. /synergizing the Agriculture Resource of jobs created by Justification: The LEID infrastructure Baseline: 0 (2018) Management and activities linked to the (P150327) project has been rehabilitation (hard Target: 55 (2022) Competitiveness Project project investments restructured and its closing investments) and its Objective 1: (P133705) (closed) (gender disaggregated) date extended by 21 months further sustainability and Improved • Irrigation System until December 2024, with operation and performance in Enhancement Project and an end target of 150 jobs management aspects (soft export-enabling Additional Financing created. investments) starting from sectors (P127759) (closed) Achieved the design phase, • Armenia Women Value: 4,499 million AMD accompanied by human Overall Rating: Entrepreneurship Project (2021) resource Mostly Achieved (IFC) (P603670) (ongoing) Source: Monitoring system (trainings/capacity Indicator 1.3: • IFC Armenia Economic of the CARMAC 2 project, tax enhancement) and Increased annual value Growth Advisory Project reports of the beneficiary institutional integration of marketed Baseline: 2,450 (P604477) (ongoing) companies from 2021. (guidelines/DMO production from (2018) ASAs/TFs Justification: The current structure/etc.) activities. selected livestock and Target: 3,850 • Agriculture Export Cluster value represents annual high value agri-food (2022) Development EU TF on sales of 51 beneficiary value chains (in AMD Broadband Strategy for companies in 2021, while the millions) Eastern Partnership value of sales of the 48 (P167086) (closed) beneficiary companies with sub-projects completed only • Digital Agriculture and in 2022 are not captured. Agriculture Mechanization in 56 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF The agriculture project the Climate Change Context closed in October 2022, and (P165884) (closed) the implementing team was • Realizing Armenia's disbanded so data for 2022 Technology Potential was not collected (gap (P169451) (value chain reflected in the ICR). analysis) (closed) Achieved • IFC Country Private Sector Value: US$ 31 million Diagnostics (CPSD) Source: Enterprise Incubator • Integrated planning and foundation (EIF) data/EC implementation of Indicator 1.4: Justification: EC has 20 investments in irrigated Increased companies, of which 15 agriculture in Armenia and sales/transaction Baseline (2018): companies are already Georgia (P178109) (ongoing) volumes of US$ 0 generating commercial sales Engineering City (EC) Target: (2022): and 5 start-ups working resident companies US$ 28million towards commercialization. (disaggregated by 30% of sales are domestic domestic/export sales) and 70% are export oriented. Breakdown of annual sales: 2019 - $7M; 2020 - $6M (Covid year); 2021 - $8M; 2022 - $10M Achieved A comprehensive Lending Operations Objective 2: Value: Yes (2022) approach needs to be • Development Policy Improved business Source: IFC monitoring adopted, covering the full Lending (P169624) (closed) environment to Indicator 2.1: The Justification: Within the cycle from the design of Baseline: No ASAs/TF support investor insolvency framework scope of DB reforms, IFC the strategy, legislation/ (2018) • Regulatory Impact confidence is in line with ICR “Armenia economic growth” regulations, Target: Yes (2022) Assessment (capacity principles project supported the methodologies, practical building) (ongoing) as part Overall Rating: Government to draft an tools to handholding for of EU-TF on Economic Mostly Achieved amendment to the implementation. Governance and Business insolvency law. Awareness raising and 57 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF - On the continuation of engagement with broader Environment, Judicial contracts supplying essential stakeholders is critical, as Functional Review goods and services to the in the case of Corporate (P172969) debtor (WB ICR Principle Financial Reporting • Competition ecosystem C10.2): target was achieved reforms close (ongoing) as part of EU-TF with the 2019 amendments consultations and on Economic Governance to the Armenia Bankruptcy engagement was ensured and Business Environment Law – amended Article 49 not only with MOF, but (P172969) provides that creditors that also a large number of key • Governance in South provide the debtor with stakeholders including Caucasus (P177565) (closed) utility services, including parliament, PM office, • Armenia Financial Sector electricity, natural gas, water Ministry of Economy, Assessment Program (FSAP) and telephone connections, business community Update (P165918) (closed) may not refuse, reject or (including business cease to supply their services associations), international as a result of the debtor and local audit firms, being declared bankrupt by academia (universities, the court, provided that the training centers, etc), debtor regularly makes Professional Accountancy payments for the mentioned Associations operating in services in a timely manner. Armenia, and many In addition, Article 49.2 now others. provides that existence of a On the Bank side it was debt incurred before effective coordination declaring the debtor between in-country bankrupt cannot be a basis activities and regional for the termination of the activities that provided contract for the provision of strong synergies and utility services or the reinforced the reform termination of services. agenda on the policy level (Article 49). This provision and practical applies to both the implementation side. bankruptcy procedure and 58 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF the threatened bankruptcy procedure. - On the ability of the insolvency administrator to reject overly burdensome contracts (WB ICR Principle C10.3): target was achieved. Article 50.4 of the bankruptcy law as amended in 2019 provides that parties to contracts terminated early by the debtor may claim damages to be compensated for the early termination which is interpreted to achieve the effect of early termination being allowed by the law. - On assigning insolvency cases to specialized bankruptcy judges (WB ICR Principle D1.2): target was achieved. On 6 August 2018 the Supreme Judicial Council, an independent constitutional state body established in April 2018 and responsible for guaranteeing the independence of courts and judges, approved the composition of a new Insolvency Court and selected 12 acting judges. 59 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF This was given effect on 10 August 2018 by a decree from the president of Armenia, which provided that the Insolvency Court would start operating from 1 January 2019 in accordance with the Judicial Code of Armenia. Achieved Value: The Law on Public Oversight has been adopted. The Public Oversight Board established and operational. The Chamber has been Baseline: No established and operational. effective public The Chamber is sustainable oversight over considering the revenue corporate stream it generates and financial reporting training and qualification Indicator 2.2: (2018) program it runs (2022). Improved corporate Target: Public Source: MOF, Chamber of financial reporting Oversight Board Auditors and Practicing and Chamber of Accountants. Accountants and https://caaa.am/ Auditors Justification: The Chamber operational of Auditors and Practicing (2022) Accountants of Armenia has been established, with the respective legal framework designed based on good global practice. The operational procedures of 60 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF the Chamber have been developed and enforced. There are around 500 individual and corporate members in the Chamber, including all the 26 audit firms operating in Armenia. The Chamber has an effective Board represented by international audit networks, local audit firms, and key representatives of the profession. In parallel, Public Oversight Board has been established for audit oversight including operations of the Chamber. Additional evidence: IFC Economic Growth Advisory Project supported the Government to improve the business environment and investor confidence, attract and retain FDI in competitive sectors (ICT, agriculture, tourism) through targeted investment promotion and investor services. The IFC Women Entrepreneurship Project (2020-2023), has contributed to the enhancement of economic outcomes of women entrepreneurs in Armenia by improving their business competencies and access the business network through various targeted activities, such as Tech for Non-Tech, Investment Readiness, and E-commerce programs (1,370 female entrepreneurs trained and 352 new jobs created). Objective 3: Achieved Enhanced road Lending Operations Enhanced Indicator 3.1: Value: 77.7% (2022) accessibility should also be Baseline: 67.7% • Electricity Supply Reliability connectivity and Increased share of the Source: LRNI Project’s final accompanied by enhanced (2018) Project (P116748) (ongoing) access to reliable rural population with M&E report42 road safety and Target: 77.7% • Electricity Transmission infrastructure access to an all-season Justification: The 77.7% infrastructure resilience (2022) Network Improvement (transport & road represent 913,000 rural provisions. Project (P146199) (ongoing) energy) population, that was 42Calculation method: a single road segment to be rehabilitated is counted based on how many residents from surrounding/adjacent settlements pass through it, and then the percentile is counted based on the total classified network under Lifeline Road Network (LRN is 4,000km, while the whole classified road network of Armenia is 75,000km). Data is taken from official country sources (https://armstat.am or https://www.mtad.am/) that have population data per settlement. 61 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF achieved through IFC and MIGA effectively • Lifeline Roads Network Overall Rating: rehabilitation of 453km of supported the Improvement Project and Achieved lifeline roads within the infrastructure sector via two Additional Financings whole territory of the long-term funding for (P126782) (closed) country modernization of • Power Sector Financial electricity distribution Recovery PforR (P157571) networks, Yerevan (closed) Achieved Value: 3 (2022), 5 (2021). greenfield combined cycle • IFC Investment (electricity gas thermal plant, a distribution Electric Source: High-Voltage guarantee in the power Networks of Armenia) Network of Armenia (HVEN). sector covering the risks of (ongoing) Justification: Reduced network outages and power currency inconvertibility • IFC Investment and transfer restriction, (telecommunications interruptions are critical for expropriation, war and Telecom Armenia) (ongoing) doing business in Armenia. civil disturbance and • IFC Investment (solar PV FRV The share of firms indicating Indicator 3.2: Plant breach of contract, and a Masrik) (ongoing) electricity as the biggest and equipment loan to the first utility • IFC Advisory energy (Sevan Baseline: 39 obstacle to business in the failures in power scale solar PV powerplant Hrazdan Cascade) (ongoing) (2018) WB’s Enterprise Surveys transmission to be built in Armenia. • MIGA Political Risk Target: 7 (2022) declined from 9.2 percent in substations reduced guarantees (Armpower) 2009 to 0.8 percent in 2020. (number)43 Continued engagement on (ongoing) The outcomes cited above adequacy and reliability of ASAs/TFs are the result of the power supply is still • Digital Economy for South investments under the relevant. There should be Caucasus (P177937) Electricity Supply Reliability an expanded focus to (ongoing) Project and its Additional include the clean energy • EU4 Digital Broadband Financing (ESRP; P116748) transition, which is Strategies in the Eastern and the Electricity Network anchored in Armenia’s Partnership Region Improvement Project (ETNIP; global commitments under (P167086) (closed) P149166). the revised NDC and the Armenia Energy Sector 43 The indicator refers to the 7 power transmission substations that are being rehabilitated with WB support, out of a total of 15 transmission substations. 62 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF Development Strategy • Eastern Partnership 2021-2040. Transport Panel (P162871) (closed) • Support to the EaP Transport Panel-Second Phase – (P170406) (ongoing) • Greener Transport Connectivity for the Six Eastern Partnership Countries (P165756) (closed) • Armenia and Georgia Energy Engagement (P174666) (ongoing) • SC Transport PASA (P175770) (ongoing) • Maximizing Financing for the Power Sector in Armenia ASA (P170474) Additional evidence: Armenia Power Sector Financial Recovery PforR (closed in FY22 – P157571) supported the adequacy and reliability of electricity supply in Armenia. Several ASAs also contributed to the Government’s efforts to maintain security and adequacy of supply, including a study on variable renewable energy integration (P174666) and a study on mobilizing private sector in the power sector (P170474). The Geothermal Exploratory Drilling Project (P152039), closed in 2019, built capacities at the implementing agency (R2E2 Fund), and the Institute of Geological Sciences of the National Academy of Sciences initiated building a geothermal energy resources database (Assessment of geothermal energy resources and natural hazards in Armenia) Objective 4: Baseline: No Achieved To ensure that metrics of Improved public effective Value: 100% (2022) unified-framework PIM Lending Operations sector performance Indicator 4.1: framework in Source: MoE, MoF as process coverage for • Third Public Sector and increased Upgraded public place (2018) summarized in PER and PIM domestic, foreign, and PPP Modernization Project private financing investment Target: 50% of TA financed projects are (PSMP3) (P149913) (closed) for development management new investment Justification: The policy credible, a clear sense of • Power Sector Financial framework in place projects framework was put in place the public sector Recovery Program (P157571) Overall Rating: (irrespective of in 2021 (Prime Minister’s accounting framework for (closed) Mostly Achieved funding source) Decree for PIM (N472-L, all capital expenditure/ 63 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF above an agreed approved in May 2021), but investment needs to be in • Fourth Public Sector threshold follow the review of the first batch place. Modernization Project the new public of projects was formally (PSMP4) (P176803) (ongoing) investment completed in 2022 as The CPF should take on • IFC investment (Investment budgeting evidenced by two meetings - board the and mobilization, energy framework (2021) March and October - of the recommendations of the generation: Yerevan CCGT) Investment Committee (IC) Public Expenditure (ongoing) chaired by the Prime Reviews (PERs) Strategic • IFC Investment renewable Minister Public Investment energy: (FRV Masrik) Achieved Management chapter. The (ongoing) Value: 3.37% (2022) Ministry of Finance should ASAs/TFs Source: MoF 2022 Annual present a clear accounting • Macro-fiscal Monitoring Baseline: 10.4% Procurement Report definition of what (recurrent report) Indicator 4.2: (difference of Justification: In the 2022 constitutes an investment • Public expenditure review Increased public cost estimate Procurement Report, the project, particularly as part (P177887) (ongoing) procurement and signed total estimated cost (for of the Program-Based • WBG-EU Armenia TF on efficiency following public Goods, Works and Services) Budgeting (PBB) CAPEX Economic Governance, implementation of the procurement is AMD 404.2 billion, and the allocations. Development Business Environment and Public Procurement contracts in actual total amount of partners should work to Firm Productivity (P172969) Law by improving cost 2017) contracts is AMD 390.6 build up the institutional (ongoing) estimates Target: 5% (2022) billion. The savings capabilities for delivering • Fiscal Incidence Analysis (difference of the above the new PIM pipeline from (P171133) (closed) numbers) are AMD 13.6 upstream to downstream • Programmatic PFM TA billion. delivery planning stages. (P165251) (public investment Indicator 4.3: Partially Achieved and internal audit (closed) Improved institutional Value: 3,044 declarations Lessons learned from • Supporting Governance and framework and Baseline: 0% analyzed manually (out of previous CPF: The PforR Justice in Armenia (P171928) capacity to combat (2018) 15,598), 20% covered by instrument proved to be (closed) corruption, as Target: 100% deep risk analysis (Dec the right choice to support • FIRST TA on Long-Term measured by increased (2022) 2022), as from January 2023, the financial recovery of Finance – Capital Markets share of income 100% of declarations Armenia’s power sector, as Development and declarations covered covered by a basic risk it allowed the Program to by risk analytics analytics tool. 64 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF Source: CPC website tackle complex and deep Infrastructure Finance (http://cpcarmenia.am/hy/rep structural issues by directly (P166048) (closed) ort/) funding measures • Supporting Tax Justification: The risk implemented by sector Administration and Policy analysis of income entities and close Leadership project (STAPL) declarations is implemented supervision and supported by GGF BETF by the Corruption Prevention monitoring throughout a (P170814) (closed) Commission (CPC), multiyear implementation • Strengthening Public Sector established in November process. by supporting DRM, PSA 2019. PSMP3 supported the (Private Sector Assistance) development of the first While private participation and Digital Infrastructure module of the upgraded in infrastructure is Reforms (P174607) (ongoing) asset declaration e-system, desirable from a fiscal, • Support of reforms and which will enable operational efficiency, and macroeconomic sustainability automatization of data service provision through DPLs (P176278) collection and basic perspective, care must be • SC Financial and Private analytics. This module allows taken to craft the right Sector (P177755) (ongoing) interoperability of the e- incentives and penalties • Country Private Sector system with several for balancing the public Diagnostics (CPSD) Government databases for and the private interest. • MfD in Armenia Power Sector easy data collection (pre- (P170474) (closed) filled declarations) and SOE reforms can unlock verification purposes. As new commercial finance from the launch of the new sources and limit the fiscal e-system (in January 2023), burden of the power all declarations are covered sector investment program by a basic risk analytics tool. (reflected in the 2021- The tool allows the CPC to 2040 Energy Sector access data and conduct Development Strategy). basic risk analytics for The modernized power particular declarations. Only sector SOE management upon the development of the can tap commercial second module of the e- 65 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF system, the CPC will be able borrowing markets given to automate deeper risk investment needs during analytics covering 100% of 2021-2035 for power the declarations, with a data generation, transmission, analytics dashboard and a and distribution (US$2.1+ risk assessment framework billion). supported by red flag indicators. While the upstream PIM Achieved process is now Value: US$271 million (FY19- strengthening the pipeline FY23) of "financing/procurement Source: IFC’s project ready" projects, none of Indicator 4.4: reporting the IC projects have Increased volume of Baseline: 0 (2018) Justification: IFC provided entered the budget yet (ie. private financing Target: US$ 110 US$60 million loan to Electric are still at feasibility stage mobilized for energy million (2023) Networks of Armenia, review). Also, no PPP infrastructure with US$202 million loan to projects have yet been WBG facilitation Yerevan CCGT (incl. reviewed or recommended mobilization), and a US$9 by the IC process. The million loan to FRV Masrik passage of a new PIM solar. Decree update in Dec 2022 Achieved further strengthens the Value: 16 (2022) process, including to Indicator 4.5: Source: MoE, as summarized address downstream Baseline: 0 (2020) issues. Improved efficiency of in PER and PIM TA projects reviewed investment programs Justification: The three ICs by the PIM-IC measured by the held in 2022 reviewed 16 The CPF should work Target: 10 (2022) number of projects projects and approved 9 for across MoE, MoF, and line of projects reviewed by PIM further feasibility analysis. agency - particularly reviewed by the Investment Committee Moreover, over 20 projects MoTAI - to strengthen the PIM-IC (IC) process have been significantly whole of life PIM process improved in quality through realization to improve working to the PIM process efficiency of public 66 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF and benefiting from capacity investment. The PER building. This suggests chapter on Strategic Public significant improvements in Investment Management, the quality of the project as well as follow-up pipeline, and awareness of analytics, can serve as the all stakeholders of the roadmap for the new CPF importance of the process. priorities and measures, One limitation to improved including from an efficiency remains the institutional development delayed/limited full staffing and Government of the PIM unit in MoE, as Integrated Financial well as in-house and Management Systems feasibility contracting (GFMIS) perspective. capabilities as the # of projects subject to the PIM process grows. This has been particularly addressed by external TA but will need to be strengthened and continued. Additional evidence: The WB has provided TA to increase data analytics capacity for anti-corruption purposes. In July 2022, around 25 staff members of CPC and Ministry of Finance were trained to improve data analytics capacities (the training was organized in the scope of Governance in South Caucasus activity (P177565)). Additional analysis is being conducted under Armenia Digital Infrastructure Governance activity (P174607) to identify additional opportunities for accelerating the data usage for anti-corruption purposes. Focus Area 2: Human Capital Development and Equity Objective 5: Achieved Preschool community- Lending Operations Enhanced access to Indicator 5.1: Value: 64.3% (2021) based microprojects had • Education Improvement good-quality Increased share of Baseline: 52.4% Source: ArmStat - gone through proof of Project – EIP (P130182) educational preschool-aged (2016) “Enrollment rate of children concept at project design, (ongoing) services for skills children enrolled in Target: 62% 3-5, total”. Data from 2022 is which allowed to quickly • Education Improvement development and early childhood (2022) not yet available. start implementation and Project AF (P173318) employability education/childcare Justification: The WB obtain results within two (pipeline) provided community-based years. These activities 67 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF Overall Rating: grants for the establishment were designed to be ASAs/TF Achieved of preschools, the implemented in a • EU4Innovation in Armenia – refurbishment of classrooms, staggered manner so that Enhanced Education focusing and the purchase of the PIU could learn from on STEM (P167562) (ongoing) equipment and furniture. their implementation in • SC Education Sector Analytics The EIP made a significant earlier phases and make (P174980) (ongoing) contribution to preschool the appropriate • HD Assessment in Eastern expansion in Armenia, adjustments to improve Neighborhood Countries particularly for vulnerable their design. (P173530) (ongoing) communities. The The involvement of a • READ 2 (P163880) (closed) predominant strategy range of stakeholders in • Accelerating Human Capital adopted by the EIP was to the design stage as well as Development in Caucasus establish preschools in implementation stage not Countries (P168480) (closed) designated areas within only contributed to • Diagnosis of the Education existing general and upper increased local ownership System Using Systems secondary schools. This of investments but also to Approach for Better provided an advantage for increased institutional Education Results (SABER) enrolled preschool children coordination across key Tools (P163880) (closed) in terms of familiarity with actors in the sector. the school grounds and Beneficiaries who were community when ultimately awarded funds transitioning to 1st grade. to complete their project Achieved had been responsible for Value: 6 (2022) its design and at least Indicator 5.2: New Source: MoESCS: partially responsible for cluster of higher https://www.cfep.am/hy/ne their implementation. education institutions, ws/item/2023/04/14/CIF/ The co-financing model of Baseline: 0 (2018) research centers, Justification: Out of the community-based pre- Target: 1 (2022) industry, and implemented 18 Competitive schools has helped ensure Government Innovation Fund (CIF) the sustainability of established projects, 6 have been investments through consortium projects community ownership, combining several 68 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF institutions (higher contributing to long-term education institutions, poverty reduction. research centers, and state and private sector representatives), exceeding the original target. Additional evidence: From 2015-2019, the number of preschools rose from 717 to 906, of which 70% was financed by the Project. To date, 136 preschools have been financed by the Project, exceeding the initial target of 134, and 3,462 five- to six-year-old children were enrolled in these pre-schools in their first year of operation. A total of 13,580 children have been enrolled in these schools (52% boys and 48% girls) from 2015-2020, covering about 6% of children entering the first grade in a given year. Achieved The achievements in Lending Operations Value: 94.8% (2022) improving screening • Disease Prevention and Source: Ministry of Health coverage were attained Control Project (DPCP) and Justification: This indicator because of significant buy- AF (P128442) (ongoing) was scaled-up at PLR stage, in for results-based Indicator 6.1: ASAs/TFs from 85% to 95%. The small financing among key Increased percentage • Technical Support for UHC shortfall reflects challenges stakeholders in the Min. of of antenatal care Baseline: 68.0% (P171735) (closed) in increasing coverage during Health, SHA, and at the attendees screened for (2018) • COVID Response and Human Objective 6: and following the COVID-19 facility level, and expertise glycosuria, Target: 95.0% Development Strengthening Improved access to pandemic, with movement in the World Bank on this hypertension, and (2022) (P175905) (closed) health care services restrictions and the topic. This payment proteinuria in at least reallocation of health care • HD Assessment in Eastern three antenatal visits mechanism had been inputs to meet emergency Neighborhood Countries Overall Rating: piloted and iteratively needs. However, the value (P173530) (ongoing) Achieved adapted over the lifetime far exceeds the end target • Armenia HRITF Impact of the project. For under the disease prevention example, the indicators Evaluation (P145531) (closed) and control project (85%). reimbursed were changed • Human Capital Needs Achieved to reflect emerging Assessment (P168480) Indicator 6.2: Value: 26.7% (2022) population health needs. (closed) Increased percentage Baseline: 21% of men aged 35-68 (2018) Source: Ministry of Health There are lessons here for • PFM in Health Sector: Service screened for Target: 27% the next CPF, including the Delivery Challenges and Justification: The small hypertension at least (2022) value of pilots for learning Solutions (P155193) shortfall reflects pandemic- (ongoing) once in the last year related coverage challenges. by doing, focusing support 69 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF Funding for the component on issues with policy • Enabling Universal Health supporting screenings champions and in which Coverage (eUHC) Program through the WB has ended. the Bank has competitive (P179482) (pipeline) The Government will technical advantage. continue to finance provider incentives for screenings The CPF has supported through the state purchaser. Indicator 6.3 which requires significant dialogue across sectors on reform design and Achieved implementation. In Value: Concept note hindsight, the DPL has Indicator 6.3: Concept approved by the given the dialogue much Note for the new Government in February more traction than the health insurance Baseline: No 2023Source: Ministry of advisory support. The system developed and (2018) Health (Government Decree latter contributed submitted to the Target: Yes (2022) N 133-L, February 2, 2023) primarily through demand- Government for approval Justification: This indicator is driven technical pieces on a trigger supported by the specific aspects of the pipeline DPO. design, such as fiscal space options, public financial management, and primary health care capacity. Additional evidence: With the COVID-19 pandemic, the WB proactively responded to the need for supplies and equipment to facilitate case management and intensive care of patients. The WB repurposed resources of the ongoing Disease Prevention and Control Project to obtain lifesaving medical equipment in COVID-19 response, including ventilators and patient monitors. Partially Achieved Objective 7: Indicator 7.1: The Armenian pension Value: 41% (2021) Lending Operations Improved access to Increased share of the Baseline: 38% system is structurally Source: WB staff calculation • Social Investment and social protection poorest 20 percent of (2018) sound however, a study based on ILCS 2021 Local Development services and population covered by Target: 45% needs to be done to https://armstat.am/file/article/ Project and AF (P148836) economic the Family Benefit (2022) determine the degree to poverty_2022_en_4..pdf (ongoing) opportunities for Program (FBP) which the minimum (table 4.6.) 70 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF poor and Justification: The reform of pension is currently • Social Protection vulnerable the Family Benefit targeting preventing or reducing Administration Project populations system was delayed because elderly poverty. WB is (P146318) (ongoing) of the change in priorities working with MoL and ASAs/TFs Overall Rating: generated by the twin MoF on potential pension • Promoting Social Mostly Achieved shocks. In addition, the reforms, primarily focused Inclusion and Self-Reliant Government decided to on budget expenditures. Livelihood Activities reform the mix of social Armenia – JSDF Grant assistance benefits for The twin shocks resulted in (P165314) (ongoing) families with children by changes of policy priorities • Strengthening Social introducing a combination of and pressures on the Protection Systems in the universal and poverty- budget. As a consequence, SC (P177449) (ongoing) targeted programs: coverage reforms were delayed or • Support Conflict Affected of the childcare allowance implemented with a stop- Families (P176454) was expanded for children and-go approach and the (ongoing) under 2, with the aim of Government now tries to • HD Assessment in Eastern making it universal through a catch-up, launching Neighborhood Countries phased approach until 2024. several reforms at once. (P173530) (ongoing) This approach is expected to • SC Pensions TA (P171869) have impact on poverty, but It was key crucial to count (closed) also on mothers’ on alternative sources of • Jobs Diagnostics and participation in the labor funding (SPF, TA) to Advisory Services in the market. In 2021 the childcare respond to Government’s SC (P168811) (closed) allowance was extended to requests during the twin • Social Inclusion and all rural families with shocks, which could not be Activation TA (Rapid children under 2. This readily done with Social response) expansion, together with the restructuring of ongoing (P155916) (closed) social protection cost of the investment projects. conflict, made impossible an SPAPII also experienced overall increase in coverage increased use of single of the FBP due to budget sourcing. The new CPF constraints. However, the should continue expansion of the childcare supporting public 71 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF allowance contributed procurement functions significantly to the overall and build capacities of increase in the social sectoral ministries. assistance coverage of the poorest quintile from 47 While alternative percent in 2019 to 54 supervision and percent in 2021. The 2022 verification mechanisms round of the survey (ILCS) were developed and will be available only in implemented in the October 2023. ground during COVID, for Achieved example for ESN, it was Value: 88.5% (88.3% critical to count on local women). Component 1 consultants for supervision (support to socio-economic of certain technical development and capacity activities building at local level): 92% (93% women). Component 2 (support to intercommunity Indicator 7.2: social and economic Increased share of development initiatives): beneficiaries in SILD Baseline:80% 85% (83.5% women). project areas satisfied (2018) Source: Beneficiary with community Target: 88% Assessment reports provided infrastructure (2023) by the Armenian Territorial (disaggregated by Development Fund (last one gender) conducted in 2020) Justification: Project Results Framework displays a baseline of 85% in 2015 for Comp 1 and 43% in 2017 for Comp 2. The Project has been instrumental in supporting the territorial 72 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF reform (completed in December 2021) with active participation of enlarged communities and expressed interest in follow-up initiatives and innovations to strengthen municipal capacities in provision of services and improved access to the socio-economic infrastructure. Achieved Value: AMD 709 (2022) Source: MLSA & UNICEF survey on integrated services Armenia Social Protection Administration II Project - P146318 - Sequence No: 16. Page2. Justification: Through SPAPII, Indicator 7.3: Client Baseline AMD territorial centers for the participation costs of 3,026 (2018) integrated provision of receiving benefits and Target less than services (employment, social services of ISPCs (for AMD 2,476 (2022) assistance, pensions and FBP) medical examinations) are being constructed and renovated, increasing the number of access points to social services across the country. Moreover, back-end integration of processes is being enhanced through the development of the Unified 73 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF Information System. It is expected that client participation costs of receiving benefits and services would further decrease given the increased number of centers, improved infrastructure, better working conditions for staff and back-end system integration. While the indicator is likely achieved, currently there is no updated data available. As a result of the changes of policy priorities, the survey to update this and other indicators related to the SPAPII project was delayed and is now being procured. Achieved Value: 306 grantees (of which, 56% female-run businesses) Indicator 7.4: Number Baseline: 0 (2019) Source: Project reporting of businesses in Target: 225 from Implementing agency sustained operations (2022), of which (AASW) for Jan-March 2023 by the end of JSDF 40% female-run project businesses PSISLA_Progress_Report_N_ 10_january-march_FIN.pdf Justification: Project completion is in June 2023. CPF indicator has been 74 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF revised based on the target indicated in the final/approved design of the project - 225 businesses to continue their operation at the end of the project. Additional evidence: The Armenia-Azerbaijan conflict in Sept–Nov 2020 forced more than 90,000 residents of conflict-affected areas (60% of the population) to relocate to Armenia. The WB supported the Government’s social protection measures aimed at assisting the c onflict affected families by mobilizing a US$3.7 million grant from the SPF to finance three Government measures: monthly cash benefit for hosting families in Armenia (benefiting 5,000 families hosting 12,000 displaced people); monthly cash benefit to displaced people in Armenia (4,000 beneficiaries); and employment subsidies for displaced people (379 beneficiaries). The Grant succeeded to protect the hosting families against food consumption losses and improve food consumption of displaced people by 20%; 1/3 of employment subsidies beneficiaries were still employed after the end of the program; 37% of those receiving cash benefits in 2021 had returned to their place of origin by June 2022. Focus Area 3: Sustainable Management of Environmental and Natural Resources Achieved A pilot of environmental Value: 128,150 Ha (2022) remediation in selected Lending Operations Source: Monitoring system mining sites is being • Second Community of the CARMAC 2 project discussed with possible Agriculture Resource implementing team Indicator 8.1: GEF financing Management and Baseline: Justification: By project Objective 8: Increased land area Competitiveness Project 57,000Ha (2018) completion, 233 stock Improved under sustainable Forests in Armenia have (P133705) (closed) Target: 110,550 watering points have been management of landscape long been a source of a ASAs/TFs Ha (2022) constructed, each of which natural resources management practices broad range of • Agriculture Policy serves on average 550 ha of provisioning, regulating Monitoring and Evaluation pastureland area, which Overall Rating: and cultural ecosystem Capacity Building Project made the remote pastures Mostly Achieved services that are vital for (P158359) (closed) available for sustainable not only the economy of • Armenia EITI Support grazing the country but also the (additional financing) Achieved Indicator 8.2: health and wellbeing of its (P166274) (ongoing) Baseline: No Value: The inventory was Completed inventory citizens. Armenia is one of • Armenia Mineral Sector (2018) completed in 2020. of abandoned mining the least forested Policy (P163060) (closed) Target: Yes (2020) Source: Mine Closure and sites, ranked by risk to countries in the region, Economic Regeneration 75 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF the environment and Global Toolkit – Armenia’s with 9.3%44 forest cover • Armenia Mineral Sector human health specific report is not largely concentrated in the Policy II (P173686) published online. north-east and south-east (ongoing) Justification: the issue of of the country. Continued • Supporting Sustainable abandoned mining sites and degradation and reduced Mining Sector Development more broadly environmental productivity of forests as in Georgia and Armenia liabilities featured well as other resources (P168804) (ongoing) prominently in the such as pastures and • Informing Seismic Risk discussions on the mining wetlands worsen rural Reduction and Resilience in Sector Development strategy livelihoods and aggravates Armenia (P150327) and are well reflected in the the negative cycle of (ongoing) final draft. poverty leading to over- • EU for Environment Eastern The Bank provided advice on exploitation of natural Partnership Forests Program rehabilitating abandoned resources and further land (P170428) (ongoing) mine sites in line with degradation. To address • SC Regional Environment Armenia’s climate this issue, the Bank’s and Climate Programmatic adaptation ambitions. support would have to ASA and NDC TF Assessing Not Achieved follow an integrated Forest Landscape Value: 0 approach to restore and Restoration Opportunities Source: EU4Environment TA sustainably manage these (P171738) (ongoing) Indicator 8.3: Justification: The TA was resources with active • SC Strengthening National Increased number of delayed due to contractual involvement of local Systems for ESRA (national) communities with issues. Procurement of a communities. (ongoing) Baseline: 0 (2019) improved knowledge contractor to support Government’s • Regional Environment and Target: 5 (2022) and capacity for forest communities with enhancing commitments and Climate Program (P171738) management and/or their knowledge and capacity ambitious targets on forest (ongoing) use practices for managing forest and recovery and sustainable • Holistic Approach for natural resources is under management of natural Investment in Irrigated preparation. Another resources requires Bank’s deliverable is the successful continued engagement 44 Source: AO 2010: Global Forest Resources Assessment, The UN Food and Agriculture Organization. FAO: FRA. 2020. FRA Country Reports – Armenia. Rome. 76 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF procurement and through analytical work, Agriculture in Armenia and implementation of support capacity building and Georgia (P178109) (ongoing) to protect biodiversity and investment. • National Disaster Risk natural ecosystems (Emerald Management (DRM) Network), incl. developing a Currently 31․7% of schools Program (P167315) (closed) national action plan to in the country need • Armenia Forestry-Poverty- establish the Emerald rehabilitation. There is a Energy Linkages (PROFOR Network, developing a need to continue Program on Forests TF) methodology for preparing retrofitting more schools (P160526) (closed) management plans for the while adding energy • Digital Agriculture and Emerald sites, and pilot efficiency regulations, Agricultural Mechanization development of including energy-efficient in the Climate Change management plans for 2 appliances and equipment. context (P165884) (closed) selected Emerald sites. This exercise also requires • Innovative Financing Achieved significant dialogue across Mechanisms for the Indicator 8.4: Value: 12 high schools (2022) sectors on reform design Environment (P166299) Increased number of Baseline: 5 high Source: MoESCS and implementation. (closed) high schools schools (2018) Justification: The schools • Mobilizing Finance for retrofitted to meet Target: 12 high have been fully rehabilitated Environmental Priorities current building schools (2022) and seismically strengthened (P168465) (closed) standards (of which and have become compliant • Private Enterprises in the financed by WBG) with seismic resistance Forest Sector (P169373) standards. (closed) Achieved • ENPI-Forests project Value: The Mining Sector (P131138) (closed) Development Strategy was Indicator 8.5: successfully drafted as a Approved Mining Baseline: No result of wide stakeholder Strategy as a result of (2018) engagement and was wide stakeholder Target: Yes (2023) formally adopted by the engagement Government in May 2023. Justification: at least 22 consultation events on 77 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF mining developments as part of the process and a range of capacity building opportunities like a Study Tour to Finland in April 2022. Additional evidence: the Extractive Industry Transparency Initiative (EITI) is a good Armenia-related ASA in the mining sector: Armenia is now internationally recognized for a successful implementation of the EITI standard. The Irrigation System Enhancement Project (closed in FY20) allowed to reduce the water losses in rehabilitated canals by 21.44 million cubic meters. Achieved The focus on solar power The target is surpassed was adequate and relevant Lending Operations thanks to numerous small- at the time of the previous • Power Sector Financial scale solar PV installed CPF and remains very Recovery Program (PSFR) capacities. The indicator relevant (arguably even (P157571) (closed) refers to the Solar PV more relevant in view of • Irrigation system Generation capacity geopolitical developments) enhancement project development and mainly was today. Armenia has (P127759) (closed) Objective 9: focused on the first utility- highlighted the • IFC Investment Enhanced energy scale project in Armenia. development of Solar PV renewable energy: FRV sustainability and Value: 402.4 MW (2022) Generation capacities as a Masrik (ongoing) Baseline: 6 MW renewable energy Indicator 9.1: Solar PV Source: Electricity Network key pillar in its Energy • IFC advisory services (2018) resources Generation capacity of Armenia: Sector Strategy and (Advisory energy: Sevan Target: 61 MW constructed (MW) https://www.iea.org/reports Government program Hrazdan Cascade) (2022) Overall Rating: /armenia-2022 adopted in 2021. We (ongoing) Achieved Justification: Solar PV continue our focus on ASAs/TFs generation acceleration is a supporting the solar power • Preparation of Model PPA critical source for Armenia’s utilization targets in for Small Renewable accelerating energy Armenia. Energy Projects in transition and supporting The most important Armenia (P165786) energy security. Government operational lesson is that (closed) targets in its Energy Sector Solar PV Generation • Support to PSRC with Strategy for 2040 and support needs to be Review of Investment Government’s program 2026 combined with energy Plan (P163072) (closed) the improvement of energy efficiency measures, which 78 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF independence, with is the “cheapest fuel”. increasing the share of solar Besides the potential energy up to 15% or 1000 identified in the MW by 2030, bringing the Government’s strategic share of renewable energy to documents, solar PV 50% in energy production. generation can be further Armenia has been improving utilized in small and the conditions for the small medium business sectors solar PV panels installation (including in agriculture) by households and and has the potential to negotiating industrial-scale create prerequisites for projects. After having the change to electrified obtained a competitive price heating. benchmark obtained from the first competitive bidding, Areas for potential the Government signed an support: The WB is agreement with the Abu working with Armenia’s Dhabi-based clean energy Renewable Resources and group Masdar for a second Energy Efficiency (R2E2) phase of large-scale solar PV Fund on the potential for with overall 200 MW. commercialization of energy efficient Achieved investments in the Indicator 9.2: Value: 243,055 tons CO246 residential sector and Greenhouse Gas Baseline: 0 tons (2022) clean energy solutions for emissions reduced as a CO2 (2018) Source: R2E2 Fund households, public result of new Target: 148,000 https://cdm.unfccc.int/meth buildings, and small scale- renewable energy tons CO2 (2022)45 odologies/standard_base/20 commercial users. These investments 15/sb165.html opportunities could result in a request for a lending 45The indicator refers to the cumulative reduction of greenhouse gas emissions since 2018 and is measured in tons of CO2. 46The methodology for Grid emission factor for the electricity system of the Republic of Armenia involves calculating the greenhouse gas emissions associated with electricity generation in the country using a combination of data from energy sources and emissions factors. 79 Lessons Learned and Objective Indicator Baseline/target Status at CLR Suggestions for the New WBG Program instruments CPF Justification: The transition engagement in the to clean energy sources medium term. remains an important source of greenhouse gas reduction. The indicator reflects the installment of clean energy sources such as Solar PV stations and Net metering PV systems. Additional evidence: Given the role of the WBG in supporting solar energy generation and its success to date, the Government approved a strategy to scale up solar power to 1,000 MW by 2030. 80 CLR Annex 3: World Bank Lending Program FY19-FY23 Planned Versus Actual CPF Indicative Lending Program Focus Amount Actual/Pipeline Lending Program Amount (in US$ million) Area (US$ (in US$ million) (US$ million) million) FY19 FY19 Lifeline Roads Network Improvement (AF) 1,2 15 Lifeline Roads Network Improvement (AF) 15 FY20/23 FY20 Development Policy Operation 1,3 50 Development Policy Operation: Economic, 50 Fiscal, and Public Sector Governance Social Investment & Local Community 2 20 Social Investment & Local Community 20 Development (AF) Development (AF) FY21 Health Preventive Care & Service Delivery 2 20 Disease Prevention and Control Project (AF) 7.4 (AF) FY22 Education Improvement & Skills 2 20 Education Improvement Project (AF) 25 Development Fourth Public Sector Modernization Project 29.9 FY23 Development Policy Operation 1,2,3 60 Green, inclusive and sustainable DPF 100 Competitive & Climate-Smart Agriculture 3 60 Irrigation Modernization 3 50 MfD for Environment 1,2,3 TBD MfD for Power Sector & Energy Efficiency 1,3 TBD Total (w/o MfD operations) 295 Total: 247.3 81 CLR Annex 4: World Bank Portfolio and Project Performance Ratings during the CPF Period Portfolio and Disbursements (FY19-23) – as of June 30, 2023 Fiscal Year 2019 2020 2021 2022 2023 Projects # 13 13 12 12 10 Net Commitment Amount 567.9 605.9 563.3 588.2 498.6 Total Disbursements $m 304.5 364.9 356.3 369.5 252.3 Disbursement in FY $m 52.6 92.0 42.4 42.7 23.7 Disbursement Ratio 18.2 16.0 19.2 24.7 16.5 # Problem Projects 4 0 0 0 0 IEG Ratings (FY19-FY23) Exit FY FY19 FY20 FY21 FY22 # Proj 2 1 1 1 Outcome % Satisfactory 100.0 0.0 100.0 100.0 Bank Performance at Entry % Sat 100.0 0.0 100.0 Bank Performance at Supervision % Sat 100.0 0.0 100.0 ICR Quality % Sat 100.0 100.0 100.0 100.0 Net Disconnect 0.0 100.0 0.0 0.0 % Substantial or Better M&E Quality 50.0 0.0 100.0 82 CLR Annex 5: World Bank Advisory Services and Analytics Pcode Task Name Global Theme Completion FY World Bank Advisory Services and Analytics: Country specific P163072 Support to Public Services Regulatory Commission with Energy and 2019 Review of Investment Plans Extractives P165786 Preparation of Model PPA for Small Renewable Energy Energy and 2019 Projects in Armenia Extractives P166299 Innovative Environmental Financing - Project Pipeline Environment and 2019 Development (Armenia) Natural Resources P168465 Armenia: Mobilizing Finance for Environmental Environment and 2019 Priorities Natural Resources P165918 Armenia Financial Sector Assessment Program (FSAP) Finance, Compet. 2019 Update and Innovation P169642 Just-in-time Workshop Series Finance, Compet. 2019 and Innovation P170344 Portfolio Implementation Support and Assessment of Governance 2019 Alternative Procurement Arrangements (APA) P170398 Looking Forward: Strategically Engaging in Select Governance 2019 Reform Areas in Armenia P165743 Armenia Health Insurance System Health, Nutrition 2019 and Population P163880 Building on Results: Strengthening Armenia's Education 2020 Educational Assessment Capacity to Support Better Student Learning Outcomes P172334 Teachers Policy Note Education 2020 P160526 Understanding the Linkages Between Forestry, Poverty Environment, 2020 and Energy Use in Armenia Natural Resources P166048 Armenia #E013 Long-Term Finance – Capital Markets Finance, Compet. 2020 Development and Infrastructure Finance and Innovation P169451 Realizing Armenia's Technology Potential Finance, Compet. 2020 and Innovation P169971 FSAP Finalization and Financial Sector Work Finance, Compet. 2020 and Innovation P173942 Rapid Mapping of Innovation and Entrepreneurship Finance, Compet. 2020 Policies and Innovation P169857 Assessment of Strategic Procurement System with Governance 2020 Realistic Cost Estimation for Armenia Ensuring Value for Money and Better Governance P166748 A Reform Assessment on Competition in Armenia: Macro, Trade and 2020 Fostering Market Contestability for Productivity and Investment Prosperity P155916 Armenia Social Inclusion and Activation TA and Rapid Social Protection 2020 Social Response (RSR) TF and Jobs P171133 Fiscal Incidence Analysis (as part of SC Poverty, Equity Poverty and Equity 2020 and Gender Program FY20-22) P170405 Armenia Variable Renewable Energy Grid Integration Energy and 2021 Support Phase 2 Extractives P170474 Maximizing Finance for Development in the Armenian Energy and 2021 Power Sector Extractives P175556 Strengthening Competitiveness, Innovation and Digital Finance, Compet. 2021 Transactions and Innovation P165251 Programmatic Technical Assistance on Public Financial Governance 2021 Management in Armenia 83 Pcode Task Name Global Theme Completion FY P170814 Armenia: Supporting Tax Administration and Policy Governance 2021 Leadership P171928 Supporting Governance and Justice in Armenia Governance 2021 P145531 Armenia Health Results Innovation Trust Fund/ Health, Nutrition 2021 Strategic Impact Evaluation Fund (HRITF/SIEF) Impact and Population Evaluation P167315 Advancing Disaster Risk Management in Armenia Urban, Resilience 2021 and Land P171735 Armenia: Technical Support for Universal Health Health, Nutrition 2022 Coverage and Population P167562 EU4Innovation STEM Pilot Education 2023 P173003 Forward Look to Support Armenia’s Justice Sector Governance 2023 Reforms P177887 Armenia Public Expenditure Review Macro, Trade and 2023 Investment P179675 Armenia DeMPA (Debt Management Performance Macro, Trade and 2023 Assessment) Technical Assistance Investment P155193 PFM in Health Sector: Service Delivery Challenges and Governance 2023 Solutions P500101 Armenia Systematic Country Diagnostic Macroeconomics, 2023 Trade and Investment P172969 Economic Governance, Business Environment and Firm Finance, 2024 Productivity Competitiveness and Innovation P174607 Strengthening Public Sector by Supporting DRM, PSA, Governance 2024 and Digital Infrastructure Reforms P179850 Armenia Public Expenditure Review 2 Macroeconomics, 2024 Trade and Investment P170406 Support to the EAP Transport Panel - Second Phase – Transport 2024 Macro-fiscal Monitoring Macroeconomics, Recurring Trade and Investment World Bank Advisory Services and Analytics: Regional P165884 Digital Transformation - Opportunities for Agriculture Agriculture and 2019 in the South Caucasus Food P160431 South Caucasus Poverty and Equity Program FY17-19 Poverty and Equity 2019 P160432 South Caucasus Gender Program FY17-19 Poverty and Equity 2019 P167999 South Caucasus Pensions Social Protection 2019 and Jobs P168811 Job Diagnostics and Advisory Services in the South Social Protection 2019 Caucasus and Jobs P168837 Trans-Caucasus Corridor Strategy Transport 2019 P168480 Accelerating Human Capital Development in Caucasus Education 2020 Countries P169373 South Caucasus - Forests and Private Sector Environment, and 2020 Development Natural Resources P166747 One Belt One Road Caucasus Macro, Trade and 2020 Investment P171869 South Caucasus Pensions Social Protection 2020 and Jobs 84 Pcode Task Name Global Theme Completion FY P171875 South Caucasus Social Protection and Jobs ASA Social Protection 2020 and Jobs P168996 South Caucasus Digital Development Initiatives Digital 2021 Development P173470 South Caucasus Maximizing Finance for Development Finance, 2021 (MFD) Note Competitiveness and Innovation P174940 GovTech for South Caucasus: Transforming Governance 2021 Government Services through Digital Innovations P174952 South Caucasus Social Protection and Economic Social Protection 2021 Opportunities ASA and Jobs P174997 South Caucasus Pensions Social Protection 2021 and Jobs P169192 South Caucasus Region - Irrigation and Water Security Water 2021 P168804 Supporting Sustainable Mining sector development in Energy & 2022 Georgia and Armenia Extractives P174980 South Caucasus Education Sector Analytics Education 2022 P177565 FY22 Governance in the South Caucasus Governance 2022 P170294 South Caucasus: Strengthening the strategic Health, Nutrition 2022 purchasing of health care services to improve health and Population system efficiency and equity P175905 South Caucasus COVID Response and Human Health, Nutrition 2022 Development Strengthening and Population P171133 SC Poverty, Equity and Gender Program FY20-22 Poverty and Equity 2022 P178123 Operationalizing Smart Village Approaches in the Social 2022 South Caucasus Sustainability and Inclusion P175770 Southern Caucasus Transport Programmatic ASA Transport 2023 P177449 Strengthening Social Protection Systems in Caucasus Social Protection 2023 and Jobs P177755 SC Financial and Private Sector Finance, Compet. 2023 and Innovation P177771 South Caucasus: Strengthening National Systems for Social 2023 Environmental and Social Risk Management Sustainability and Inclusion P177937 Digital Economy for South Caucasus Digital 2023 Development P178109 Integrated planning and implementation of Water 2023 investments in irrigated agriculture in Armenia and Georgia P179505 South Caucasus Education Sector Capacity Education 2023 Development P179623 Enhancing Water Secure Investments in Irrigated Water 2023 Agriculture in Armenia and Georgia P179760 South Caucasus: Improving Financial Protection, Use Health, Nutrition 2023 and Quality of Health Services and Population P179897 South Caucasus Trade & Transport Corridors Impact Macro, Trade and 2023 Assessment Investment P179898 Green and Sustainable Cities in Armenia and Georgia Urban, Resilience 2023 and Land 85 Pcode Task Name Global Theme Completion FY P179922 Competitive Agriculture and Food Security in the South Agriculture and 2023 Caucasus Food P179503 Advancing Governance Reforms in the South Caucasus Governance 2024 P179649 South Caucasus Mining Needs Assessment Energy and 2024 Extractives P171738 South Caucasus: Regional Environment and Climate Environment, 2024 Program Natural Resources P174666 South Caucasus Energy Engagement Energy and 2024 Extractives P179877 SC Poverty, Equity and Gender Program FY23-25 Poverty and Equity 2025 86 CLR Annex 6: World Bank Trust Funds Fund Fund name Global theme Pcode Grant Grant Completion Amount type FY ($M) World Bank Trust Funds (TFs): Country specific TF014138 Armenia: HRITF Health, Nutrition P128442 1.80 RE 2019 Implementation Grant and Population TF0A5519 Armenia Mineral Sector Policy Energy and P163060 0.23 RE 2020 Extractives TF0A6768 Armenia EITI support Energy and P166274 0.33 RE 2021 Extractives TF0A4449 Agriculture Policy Monitoring Agriculture and P158359 1.13 RE 2022 and Evaluation Capacity Food Building Project TF0A4543 Implementation of the Poverty and P155630 3.00 RE 2022 National Strategy Program for Equity Strengthening of the National Statistical System TF0B2692 EU4Innovation RETF STEM Education P170001 4.64 RE 2022 Project TF0B3556 Armenia Mineral Sector Policy Energy and P173686 0.25 RE 2022 Grant II Extractives TF0B5651 SPF: Armenia Support to Social Protection P176454 3.72 RE 2022 Conflict Affected Families and Jobs TF0B2613 Promoting Social Inclusion Social Protection P165314 2.70 RE 2023 and Self-Reliant Livelihood and Jobs Activities in Armenia TF0B4808 Armenia EITI Support Energy and P166274 0.50 RE 2024 Extractives 10 Total – RETFs – Country Specific 18.30 TF015271 Armenia HRITF Supervision- Health, Nutrition P128442 0.45 BE 2019 Bank Executed and Population TF017848 Armenia - Geothermal Energy & P152039 0.37 BE 2019 Development Project - MDB Extractives Fees TF0A3432 Armenia Forestry-Poverty- Environment, Nat. P160526 0.10 BE 2019 Energy Linkages Resources TF0A4910 Building on Results: Education P163880 0.34 BE 2019 Strengthening Armenia's Educational Assessment Capacity to Support Better Learning Outcomes TF0A6080 Social worker as entry point to Social Protection P155916 0.27 BE 2019 promote investments in the and Jobs yearly years TF0A6639 Armenia #E013 Long-Term Finance, P166048 0.35 BE 2019 Finance – Capital Markets Competitiveness Development and and Innovation Infrastructure Finance TF014874 Armenia HRITF Impact Health, Nutrition P145531 0.25 BE 2020 Evaluation and Population 87 Fund Fund name Global theme Pcode Grant Grant Completion Amount type FY ($M) TF0A3569 Supervision Support for EDB- Water P127759 0.39 BE 2020 Financed Irrigation System Modernization Project TF0A5570 Agriculture Policy Monitoring Agriculture and P158359 0.20 BE 2020 and Evaluation Capacity Food Building Project Implementation Support Bank Supervision TF0A7313 Reducing disasters risks and Urban, Resilience P167315 0.75 BE 2020 strengthening weather and and Land climate services in Armenia TF0A8722 Armenia Mineral sector Policy Energy and P163060 0.02 BE 2020 Supervision II Extractives TF0A9759 Armenia SIEF Nimble Health, Nutrition P145531 0.15 BE 2020 Evaluations and Population TF0B0322 Maximizing Finance for Energy and P170474 0.15 BE 2020 Development in the Armenian Extractives Power Sector TF0B0093 Armenia: Supporting Tax Governance P170814 1.17 BE 2021 Administration and Policy Leadership TF0B3000 Enhancing the Resilience of Education P130182 0.05 BE 2021 Preschool Establishments and Introducing a Model for Care Service Delivery in Emergency Situations TF0B3139 Supervision Support for EDB- Water P173135 0.18 BE 2021 Financed Irrigation System Modernization Project TF0A5135 Armenia ECASTAT Poverty and P155630 0.24 BE 2022 Implementation Support Equity TF0A6504 Supervision Armenia EITI Energy & P166274 0.12 BE 2022 Grant Extractives TF0B2242 Armenia: Technical Support Health, Nutrition P171735 0.45 BE 2022 for Universal Health Coverage and Population TF0B3557 Armenia Mineral Sector Policy Energy & P173686 0.05 BE 2022 II-Supervision Extractives TF0B5652 SPF: Armenia Support to Social Protection P176454 0.27 BE 2022 Conflict Affected Families and Jobs TF0B7017 Armenia: Customs Governance P174607 0.40 BE 2022 Administration Development Project TF0A0456 Armenia - Utility Scale Solar Energy and P155662 0.24 BE 2022 Power Project - MDB fees Extractives TF0B0597 EU4Innovation STEM Pilot in Education P167562 6.17 BE 2023 Armenia TF0B2612 Promoting Social Inclusion Social Protection P165314 0.24 BE 2023 and Self-Reliant Livelihood and Jobs Activities in Armenia (Bank Supervision) 88 Fund Fund name Global theme Pcode Grant Grant Completion Amount type FY ($M) TF0B3350 Support to Self-Declaration Governance P174607 0.23 BE 2023 System Implementation in Armenia TF0B6269 Informing Seismic Risk Urban, Resilience P150327 0.50 BE 2023 Reduction and Resilience in and Land Armenia TF0B6332 Debt Management Finance, Compet. P172969 0.08 BE 2023 and Innovation TF0B6334 Support to Public Investment Finance, Compet. P172969 0.28 BE 2023 and Innovation TF0B6338 Supporting SMEs and Firm Finance, Compet. P172969 0.21 BE 2023 Capabilities and Innovation TF0B6339 Support to the Competition Finance, Compet. P172969 0.15 BE 2023 Eco-system and Innovation TF0B6340 Public Private Partnership Finance, Compet. P172969 0.13 BE 2023 (PPP) Implementation and Innovation TF0B6341 Implementation of the New Finance, Compet. P172969 0.17 BE 2023 Public Procurement Law and Innovation TF0B6342 Support to Regulatory Impact Finance, Compet. P172969 0.26 BE 2023 Assessment (RIA) and Innovation TF0B6452 Forward Look to Support Governance P173003 0.38 BE 2023 Armenia's Justice Sector Reforms TF0B6456 Facilitating Trade: Customs Finance, Compet. P172969 0.09 BE 2023 and Innovation TF0B7016 Armenia/Belarus Governance P174607 0.35 BE 2023 Strengthening of Public sector Accounting Framework TF0B7027 Armenia Digital Governance Governance P174607 0.40 BE 2023 Infrastructure TF0B9282 Armenia DeMPA (Debt Macroeconomics, P179675 0.07 BE 2023 Management Performance Trade and Assessment) Investment TF0B4809 Supervision of the Armenia Energy and P166274 0.05 BE 2024 EITI Support Grant Extractives TF0B8470 Tax and Customs Governance P174607 0.78 BE 2024 Administration Modernization in Armenia TF0B8969 Capacity Building in Armenia Education P130182 0.05 BE 2024 through TEACH and COACH 42 Total – BETFs – Country Specific 17.55 World Bank Trust Funds: Regional TF0A8002 Impact of Belt and Road Macroeconomics, P166747 0.07 BE 2019 Initiative over Caucasus and Trade and Central Asia Investment TF0A9826 Technical Assistance for Governance P165251 0.03 BE 2019 Capacity Building on PFM in Armenia and Georgia TF0B1505 Armenia - Digital Data-Driven Digital P168996 0.09 BE 2021 Development Strategy Development 89 Fund Fund name Global theme Pcode Grant Grant Completion Amount type FY ($M) TF0B2176 Armenia - NDC-SF Track 3 Environment, P171738 0.32 BE 2022 Grant Natural Resources TF0B8283 Armenia - Clean Energy Energy and P174666 0.27 BE 2022 Engagement Extractives TF0B4351 Assessment of the Poverty and P171133 0.08 BE 2022 distributional and poverty Equity effects of fiscal policies to mitigate the social and economic consequences of the COVID-19 pandemic TF0B7627 Growth Recovery to Environment, P171738 0.36 BE 2023 Empower, Equip and Nurture Natural Resources (GREEN) Armenia – NDCP Whole-of-Government & Country Engagement Support TF0B9478 South Caucasus Mining Needs Energy and P179649 0.08 BE 2023 Assessment Extractives TF0B9612 Armenia: Support to Energy and P174666 0.15 BE 2023 Creditworthiness of Power Extractives SOEs in Armenia TF0B9798 South Caucasus Trade and Macro, Trade and P179897 0.30 BE 2023 Transport Impact Assessment Investment TF0B9929 Armenia - Rural Broadband Digital P177937 0.15 BE 2023 Expansion Development TF0B9960 Armenia: Cybersecurity Digital P177937 0.10 BE 2023 Enabling Environment Development Improvement 12 Total – BETFs – Regional 2.00 64 GRAND TOTAL - TFs 37.85 90 CLR Annex 7: Statement of IFC’s Committed Portfolio Annual Program (US$ millions, as of 06/30/2023) FY19 FY20 FY21 FY22 FY23(YTD) Total Total Long-Term Finance 171 15.1 93.2 20.5 15 314.8 Commitments Of which Own Account 49.1 15.1 93.2 20.5 15 192.9 Of which Mobilization 121.9 0 0 0 0 121.9 Total Short-Term Finance 17.3 8.9 40.8 1 1.8 69.8 Investment Portfolio (US$ millions, as of 04/30/2023) MAS INR FIG CDF Outstanding 0 155.8 23.8 0 Undisbursed 0 8.4 16 0 Total 0 164.2 39.7 0 91 CLR Annex 8: MIGA’s Guarantee Portfolio, FY19-FY23 Outstanding exposure in US$ million Effective Expiry Project Name Sector FY19 FY20 FY21 FY22 FY23 Date Date Armpower Feb 2019 Feb 2034 Infrastructure 39.2 39.2 39.2 39.2 39.2 Total Outstanding Exposure 39.2 39.2 39.2 39.2 39.2 Number of projects 1 1 1 1 1 92 CLR Annex 9: Progress on corporate priorities Climate Climate co-benefits (CCBs) from the six projects delivered in FY19-FY22 stand at 11 percent, with 72 percent adaptation share.47 Out of a total of US$147 million commitments approved, US$15.75 million will directly support climate action, of which US$4.4 million for mitigation and US$11.34 million for adaptation. Relatively modest overall result on CCBs (WB’s overall target is 35 percent) is due to the structure of the portfolio delivered in this period – out of six projects, five are from Equitable Finance and Institutions (EFI) and Human Development (HD), and only one from Infrastructure (INF). In ECA, and similarly in the global WB portfolio, the main drivers of CCBs are Sustainable Development (SD) and INF, while EFI and HD have lower potential to generate CCBs due to the nature of their operations. However, all projects in Armenia that have generated CCBs have a very high adaptation share, which indicates that projects consider climate vulnerabilities and risks and include targeted actions to address them. The projects’ task teams have received and will further receive targeted trainings on mainstreaming climate in future operations and maximizing the potential of projects to generate CCBs. The CCB for the next CPF will have to consider the composition of projects in indicative lending program to plan the discussion on a corporate level in MOUs on CCBs. Citizen engagement (CE) CE over the CPF period has reached and maintained 100 percent compliance with corporate CE requirements. All projects include CE oriented design and beneficiary feedback indicators. Compared to projects approved during the beginning of the CPF period, the quality48 of CE design has considerably increased in Armenia, including more robust design of CE approaches and training for PIUs, focus group discussions, participatory planning, and citizen satisfaction surveys. These sets of actions resulted in higher quality of CE mechanisms, whose scope and objectives influenced broader audiences and were used beyond social safeguards requirements. Between FY19-FY22, 100 percent of the portfolio consistently had the highest CE quality score, meaning that a project included processes encouraging a pro-active interface between citizens and the Government and service providers (depth), frequent and timely throughout service delivery (frequency), allowing for feedback on any issue by any citizen (openness) and lastly, offering citizens the opportunity to provide feedback through multiple relevant channels (opportunity). Gender Over the CPF period, gender was mainstreamed in the WBG operations, and project-level activities addressed key gender disparities. These include helping enhance women’s entrepreneurial capacity (women entrepreneurship project, IFC); promote women’s access to traditionally male-dominated jobs (roads project); increase women’s participation in community-level decision-making (two community-driven development projects); increase the uptake of select health services for women and men (health project); revise the general curriculum to present a balanced image of men and women roles, and promote girls’ enrollment in STEAM streams in high school and in higher education (education project); establish a grievance redress mechanism to help prevent sexual exploitation, abuse and harassment during civil works (roads and health projects); and establish a hotline for domestic violence/gender-based violence (GBV) calls (governance project). The CPF results framework includes two stand-alone CPF objective indicators on gender and three gender-disaggregated indicators. The four stand-alone supplementary progress indicators were assessed at PLR stage. Also, out of the six projects approved since FY19, four (or, 67 percent) have been gender tagged49 encompassing the transport, health, education, and 47 World Bank Climate Co-benefits Dashboard. This high share for adaptation is appropriate for Armenia given its emission profile compared to peer countries. 48 The ECA region tracks the quality of CE in the IPFs, and activities are measured for quality at design, and projects are ranked according to four criteria: depth, frequency, openness, and opportunity. 49 Corporate targets for gender tagging are 55 percent for IBRD and 60 percent for IDA operations. The Armenia country program now has an improved framework to support task teams on gender tagging: Such as, all three lending projects in Armenia approved in FY21 and FY22 were gender tagged; the pipeline DPO has incorporated a gender framework under Prior Action #5 (social protection) to be considered for the gender tag; and work is underway for the health and energy pipeline operations. 93 governance sectors. Other deliverables over the CPF period included Assessing the effects of the fiscal system on gender disparities; Priorities for gender equality in Armenia: A proposal to close the gap; support to the Statistical Committee in collecting data on GBV; and the Impact of the Covid-19 Crisis on Firms Enterprise Survey, with the gender lens applied. On advocacy, the WB in Armenia leads the Women’s Economic Empowerment multi- stakeholder platform, represented by development partners, local NGOs, and government agencies, to share knowledge and advocate on key issues affecting women’s empowerment. In terms of communications, the WB produced, inter-alia, two documentaries - “Merci Papa!”, and “Dare to Succeed: Armenian Women in Small Business”, to help improve perceptions of women’s value and role in the society, and help incentivize women to engage in economic activity and doing business, respectively. 94 ANNEX 4. SELECTED INDICATORS OF BANK PORTFOLIO PERFORMANCE AND MANAGEMENT (as of Date 10/31/2024) 95 ANNEX 5. OPERATIONS PORTFOLIO (IBRD/IDA AND GRANTS) (as of Date 10/31/2024) 96 ANNEX 6. STATEMENT OF IFC’S HELD AND DISBURSED PORTFOLIO As of 10/31/2024 (In US$ Millions) 97 ANNEX 7. MIGA’S GUARANTEE PORTFOLIO (as of October 31, 2024) Outstanding Project Effective Expiry Investor Business Proj. ID Exposure Name Date Date Name Sector ($US Million) ArmPower 14085 02/27/2019 02/26/2034 Renco Spa Infrastructure 39.2 CJSC (Closed Joint Stock Companies) Total 39.2 98 ANNEX 8: ARMENIA’S KEY GENDER GAPS AND CPF INTERVENTIONS 99