Quasi-Fiscal Activities, Hidden Government Subsidies, and Fiscal Adjustment in Armenia

This paper aims to develop a detailed analysis of quasi-fiscal deficits and subsidies, and their impact on Armenia’s fiscal performance in the second part of the 90-s. Based on the flow-of-funds approach, we estimate the magnitude of the quasi-fiscal deficits and the incidence ofquasi-fiscal subsidies in Armenia, as well as identify main recipients and donors of quasi-fiscal financing. The main finding of the paper is that, while quasi-fiscal deficits in Armenia remain considerable, their recent decline has been the main source of fiscal adjustment in Armenia todate. The paper also shows that the population remains a major ultimate recipient of quasi-fiscal subsidies. Thus, the main distortive impact of quasi-fiscal subsidies is on social policy, not on enterprise restructuring and private sector performance.