Republic of Armenia: Technical Assistance Report-Updating the Borrowing Framework for Local Governments

The Republic of Armenia is a unitary state with significant financial and decision-making power concentrated at the central government. Over the past two decades, Armenia has evolved from a system of many fragmented municipalities, with low capacity and resources, to a more centralized municipal system with limited local government financial autonomy. Reflecting this, Armenia has a highly centralized budget structure with municipalities accounting for a small share of the general government budget and depend largely on transfers from the central budget. This technical assistance report provides guidance on enhancing the framework for safe and sustainable local government borrowing, including opportunities to strengthen oversight and ensure that decentralized borrowing supports broader fiscal objectives. It identifies opportunities to enhance the institutional and legal underpinnings of subnational borrowing—such as clarifying eligibility criteria, establishing borrowing limits, and integrating municipal debt within the broader public debt framework. The report also highlights the importance of reinforcing public financial management systems and local government capacities to support effective borrowing. Recommended actions include better alignment of budget calendars, stronger fiscal risk monitoring, improved data exchange across ministries, and more regular municipal financial reporting.