Armenia is a landlocked country in the mountainous region of Caucasus between Asia and Europe. Following the recession triggered by the 2009 global financial crisis, its gross domestic product (GDP) contracted by 14.1%, the economy grew at an average 4.7% from 2010 to 2012 before declining to an average of 3.3% from 2013 to 2015. Public debt to GDP increased substantially from 36% in 2009 to 48.8% in 2015 and further to 57.0% in 2016. Infrastructure public spending declined sharply, giving no break to the deterioration of the country’s road and water infrastructure assets.
To help address the situation, the Asian Development Bank (ADB) approved in August 2014 a loan for $49 million-equivalent from the Asian Development Fund and a technical assistance grant of $0.9 million for Armenia’s Infrastructure Sustainability Support Program. The loan was disbursed in two tranches after specific policy actions were completed.
The program was designed to help improve service delivery in the road transport and water supply sectors through public expenditure management and financing reforms. The expected outcome was the implementation of results-based management in these sectors. The program focused on prioritizing critical expenditures, improving their sustainability, and life-cycle costing to enhance the maintenance of infrastructure and increase users’ benefit. The outputs included (i) improved management systems, (ii) more efficient strategies and processes in allocating investments, (iii) enhanced regulatory frameworks, and (iv) strengthened monitoring systems.
Under output 1: integrated sector management was developed; the responsibilities of specific agencies were more clearly delineated; a multi-agency road council was established to coordinate multiple sector agencies, and road maintenance policies were harmonized; the Water Code of 2002 was amended, and a new water sector strategy and financing plan were approved.
Under output 2: a road maintenance financing strategy was adopted; key performance indicators were introduced to measure expenditure effectiveness; water sector financial planning, transparency, and accountability was improved, with all the country’s 5 water operators now required to publish financial reports including water subsidies.
Under output 3: a regulatory department, covering Armenia’s entire road network, was established and user feedback and grievance redress systems for both transport and water services were instituted.
Under output 4: a geo-referenced video inventory of Armenia’s road network was completed and now used to prioritize expenditure decisions; the international roughness index was adopted as a standardized benchmark of road quality; a new disclosure policy and comparison of tariffs among various operators were adopted; and work was begun on an asset management system in preparation for the move to a single water operator.
While some policy actions were not fully implemented, the completed program outputs successfully imbedded results-based management and effective and predictable use of public resources in the road transport and water sectors. Overall, the intended outcome and impact were achieved and strengthened further by phase 2 of the program, which extended the reforms to the power sector of Armenia.
ADB’s Central and West Asia Department rated the program successful. Armenia’s Ministry of Finance, the executing agency, supervised program implementation across several government agencies.