Armenia's strong economic growthfrom 2001-2008, when real gross domestic product (GDP) grew12.6 percent per year on average, boosted living standardsand created the fiscal headroom necessary for the Governmentto respond to the 2009 financial crisis with a large fiscalstimulus. As a result, the fiscal deficit reached 7.6percent in 2009 and helped limit the contraction in real GDPto 14 percent. With the economy growing again, the stimulushas to be gradually withdrawn. However, the retrenchmentwill need to be designed carefully to limit negative impacton growth. Improving the efficiency of all aspects of publicfinances - tax policy, tax administration, and publicexpenditures - will be crucial to the planned fiscaladjustment. With the ratio of tax revenues to GDP lower thanthat of comparator countries with similar levels of incomeper capita, the brunt of the fiscal consolidation should beborne by an increase in tax revenues (the lower boundestimated to be between 2.3 and 5.8 percent of GDP).
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