GOVERNMENT OF THE REPUBLIC OF ARMENIA

DECISION

No 184-L of 7 March 2019

ON APPROVING THE PROGRAMME FOR SUBSIDISING INTEREST RATES OF CREDITS EXTENDED TO THE AGRICULTURAL SECTOR

Based on part 2 of Article 146 of the Constitution of the Republic of Armenia, as well as in compliance with point 44 of Decision of the Government of the Republic of Armenia No 667-L of 8 June 2018, the Government of the Republic of Armenia decides to:

1. Approve the programme for subsidising interest rates of credits extended to the agricultural sector, pursuant to the Annex.

2. Assign to the Minister of Agriculture to submit — within a period of one month following the adoption of this Decision — recommendations on carrying out redistribution in the Law of the Republic of Armenia “On the State Budget of the Republic of Armenia for 2019” and making relevant amendments and supplements to Decision of the Government of the Republic of Armenia No 1515-N of 27 December 2018 “On the measures ensuring the execution of the State Budget of the Republic of Armenia”.

Annex to Decision of the Government of the Republic of Armenia No 184-L of 7 March 2019

PROGRAMME

FOR SUBSIDISING INTEREST RATES OF CREDITS EXTENDED TO THE AGRICULTURAL SECTOR

CONTENT

INTRODUCTION.............................................................................................................................................. 2

I. DESCRIPTION OF CURRENT PROCESS OF SUBSIDISING INTEREST RATES OF CREDITS EXTENDED TO THE AGRICULTURAL SECTOR .............................................................................................................................2

II. NECESSITY OF IMPLEMENTATION OF THE PROGRAMME FOR SUBSIDISING INTEREST RATES OF CREDITS EXTENDED ............................................................................................................................................. 4

III. THE MAIN GOAL AND OBJECTIVES OF THE PROGRAMME ................................................................... 5

IV. DESCRIPTION OF THE PROGRAMME....................................................................................................... 6

V. MONITORING OF THE PROGRAMME. ......................................................................................................11

VI. RISKS OF THE PROGRAMME.................................................................................................................. 13

VII. FINANCIAL ASSESSMENT OF THE PROGRAMME................................................................................. 13

VIII. OUTCOMES EXPECTED FROM THE IMPLEMENTATION OF THE PROGRAMME .................................13

INTRODUCTION

Currently, a number of factors prevent the development of agriculture, out of which the high risk of agriculture maintenance, small sizes of rural households and fragmentation of portions of land, low specific weight of large commodity economy, insufficient process of joint venture of economic entities in the agriculture, underdevelopment of production and market (financial) infrastructures may be distinguished. Along with the mentioned, the law level of affordability of credit for economic entities is also one of the issues faced by the agriculture.

Due to high interest rates of credits mainly extended by commercial banks, they are unaffordable for many economic entities having complex production and technical conditions and difficulties with sales, therefore, the implementation of the state sponsorship policy is a necessary condition for enhancing the capacities of economic entities in the agriculture, increasing the production volumes and improving the competitiveness of agricultural production. Along with this, an important issue is improving the level of purposefulness of credits, targeting them — by increasing the amounts of credits and extending the credit period — to the enlargement of households, introducing modern technologies and raising the level of knowledge of economic entities.

I. DESCRIPTION OF CURRENT PROCESS OF SUBSIDISING INTEREST RATES OF CREDITS EXTENDED TO THE AGRICULTURAL SECTOR

1. The attempt to implement programmes for affordability of credits extended to the agriculture through subsidising interest rates of credits is available in the Republic.

2. “The pilot project for subsidizing interest rates of credits extended to the agricultural sector” was approved upon Decision of the Government of the Republic of Armenia No 706 of 12 June 2008. The validity period of the project was until 31 December 2010. The interest rates of credits extended to the economic entities carrying out agricultural activities in 60 rural and urban communities of Amasia and Ashotsk regions of Shirak Marz of the Republic of Armenia and Chambarak region of Gegharkunik Marz of the Republic of Armenia were subsidised by the pilot project. However, the scope of the given project was rather narrow; it included almost 7 per cent of the rural communities, and no interest rates of new credits have been subsidized by the project since 31 December 2010.

3. Then, in 2011, pursuant to the procedure for subsidising the interest rates of credits extended to the agricultural sector approved by Decision of the Government of the Republic of Armenia No 349-N of 31 March 2011, the programme for subsidising the interest rates of credits was implemented in the Republic from 1 April 2011. Credits of up to AMD 3.0 million at the interest rate of 14 per cent for a 2-year period were extended. The part proportionate to 4 percentage point of the interest rate of credits and those to 6 percentage point of the credits of the borrowers of the 225 most indigent communities of the Republic were subsidised. Since 2015, the subsidization of part proportionate to 6 percentage point of the interest rate for all the communities of the Republic has been defined by Decision of the Government of the Republic of Armenia No 139-N of 19 February 2015.

4. Each year, the programme was implemented in two stages in all the communities of the Republic. Grace period for both the repayment of principal amount and the payment of interest rate was prescribed for at least 6 months. In total, within the period from 1 April 2011 to 30 June 30 2017, an estimated 127.5 thousand units of credit with an amount of AMD 106.4 billion have been extended. The subsidised amount comprised about AMD 5.1 billion.

5. In recent years, the positive shifts recorded in agriculture were, to various extents, the result of increase of the level of credit affordability through the programme for subsidising the interest rates of credits. Along with the mentioned, currently the most important issue is the extension of targeted credits for the intensive horticulture, pedigree breeding, introduction of modern technologies which must comply with other requirements both from the perspective of the amount and the credit period.

II. NECESSITY OF IMPLEMENTATION OF THE PROGRAMME FOR SUBSIDISING INTEREST RATES OF CREDITS EXTENDED

6. The effective measures for solving the above-mentioned issues and other ones faced by the agriculture include increasing the credit affordability for economic entities in the agriculture and improving the credit terms. The latter will provide the opportunity to expand the capacities of rural households, increase the level of competitiveness of the sector, contribute to the strengthening of rural communities, improve the living conditions and the quality of life of the rural population, raise the level of food security of the country.

7. Due to the peculiarities of agriculture and the complicated conditions of activities thereof, the credit terms recommended by commercial banks are unaffordable for the economic entities in the agriculture. Therefore, at a certain stage, the implementation of targeted programmes aimed at increasing the level of affordability of agricultural credits becomes a necessity, as a result whereof the pre-conditions will be created for expanding the capacities of economic entities, as well as increasing the volume of production in the agriculture.

8. The economic entities in agriculture strongly need to have sufficient fixed and current assets — one of the most important sources whereof may be the extension of affordable targeted credits through subsidization of interest rates — to enhance the capacities of production, stocking, processing of agricultural products and preparation for agricultural works of the next year, production capacities, to apply new modern technologies.

9. The mechanisms and conditions, applied in currently existing programmes aimed at increasing the level of affordability of the credits extended to the sector, provide the opportunity to solve the current issues of the economic entities in the agriculture.

10. At some level, in order to develop the agriculture, an importance is attached to the review of mechanisms of targeted programmes for credit extension, which will contribute to the following:

(1) increase of the affordability of credits;

(2) increase of the capital investments, enlargement of households, introduction of modern technologies.

III. THE MAIN GOAL AND OBJECTIVES OF THE PROGRAMME

11. The main goal of the programme is to contribute — through partial subsidisation of interest rates of credits extended to natural and legal persons engaged in the agro-food sector of the Republic, improvement of credit terms — to the increase of volumes of capital investments, enhancement of production capacities, enlargement and development of households, introduction of modern technologies, improvement of agricultural productivity and increase of volumes of production.

12. The objectives of the Programme shall be as follows:

(1) definition of credit terms based on the following directions of subsidy: capital investments, introduction of progressive technologies, processing of agricultural products and carrying out of the current activities;

(2) clarification of credit mechanisms, form and size of subsidisation.

IV. DESCRIPTION OF THE PROGRAMME

13. The programme will be directed to the extension of credit to the programmes for developing the agricultural sector.

14. The economic entities who are beneficiaries of programmes approved by Decision of the Government of the Republic of Armenia No 893-L of 19 July 2018, Decision of the Government of the Republic of Armenia No 201-L of 28 February 2019, Decision of the Government of the Republic of Armenia No 327-L of 29 March 2019, Decision of the Government of the Republic of Armenia No 1305-L of 19 September 2019, Decision of the Government of the Republic of Armenia No 369-L of 4 April 2019, Decision of the Government of the Republic of Armenia No 927-L of 3 June 2021, provided for by the State Budget of the Republic of Armenia of each year, may not participate in the programme, taking into account the fact that other means are envisaged by the State Budget for the implementation of the mentioned programmes. The beneficiaries of the mentioned state support programmes may be participants of this Programme for implementing programmes beyond the scope of certain programmes indicated above, where those economic entities comply with the conditions of the financial institution.

(point 14 edited by No 103-L of 27 January 2022)

15. The subsidisation of the interest rates of credits extending to the agricultural sector shall, in terms of the content, include the following provisions:

(1) programme will be implemented in all the communities of the Republic of Armenia for the purpose of carrying out agricultural activities;

(2) programme has been implemented since the third quarter of 2017 and will be continuous;

(3) participants of the programme shall be natural and legal persons carrying out economic activities, commercial banks or credit organisations (hereinafter referred to as “the Financial Institutions”), the Ministry of Economy of the Republic of Armenia (hereinafter referred to as “the Ministry”), the Institution of Agricultural Funding of “Rural Areas Economic Development Programmes Implementation Unit” state institution of the Ministry (hereinafter referred to as “the IAF”);

(4) credits will be extended in drams in the amount of AMD 3-5 million with a maximum effective interest rate of 14 per cent, moreover, no other fees are charged for the services of the financial institutions related to credits (cash withdrawal fee, service charge, commissions, etc.) Credits may be extended in separate stages:

(4.1) credits shall be extended only in the following targeted directions:

(a) acquiring queen bees, bee colonies, as well as hives;

(b) constructing livestock buildings and technological support;

(c) acquiring farm animals (point 18 of Article 3 of the Law of the Republic of Armenia “On veterinary medicine”);

(d) acquiring fodder;

(e) acquiring seeds, seedlings and saplings;

(f) acquiring land of agricultural significance;

(g) acquiring circulating assets (except for assets referred to in paragraph “e” of this sub-point) and services necessary for cultivating land and agricultural plants, implementing agrotechnical measures;

(h) introducing modern irrigation systems in the land parcels adjoining houses;

(i) building and rebuilding industrial buildings, structures in the agro-processing sector;

(5) credit repayment period shall be prescribed for up to 3 years;

(6) subsidisation of the interest rates of credits for the borderline settlements receiving social support approved by Decision of the Government of the Republic of Armenia No 1444-N of 18 December 2014 will be implemented in such a limit that the credits will be extended to the economy entities at the interest rate of 0 per cent, whereas for the rest of the communities of the Republic, the subsidisation will be implemented in such a limit that the credits will be extended to economic entities at the interest rate of 5 per cent, whereas to agricultural cooperatives – at the interest rate of 3 per cent;

(7) financial institution may define a grace period of maximum 6 months for both the interest rate of credit and the principal amount;

(8) fines and penalties shall not be imposed in case of early payment of credit;

(9) (sub-point repealed by No 832-L of 20 May 2021)

(10) fines and/or penalties shall not be subject to subsidisation;

(11) amount of interest payment subject to subsidization shall be calculated with respect to the credit balance;

(12) subsidisation of the interest rate of credit shall be implemented based on the actual repayments of the principal amount of credit and the non-subsidised part of the interest rate of credit;

(13) the process of subsidisation of the interest rate of credit shall be initiated by the Financial Institutions that extend credits meeting the conditions of this Programme;

(13.1) (sub-point repealed by No 1117-L of 8 July 2021)

(14) amount for subsidisation of the interest rate of credit shall be transferred by the IAF to the relevant account of the Financial Institution based on the application of the given Financial Institution. The requirements for the content of application shall be prescribed by the trilateral agreement concluded between the Ministry, the IAF and the given Financial Institution. The model form of the agreement shall be developed by the IAF, agreeing it with the Ministry;

(15) the Financial Institution shall submit the application for subsidization of the interest rate of credit to the IAF once a month and not later than on the fifth working day of the following month. The IAF shall — within ten working days following the receipt of the application — be obliged to grant it and transfer the amount of subsidisation of the interest rate of credit to the relevant account of the Financial Institution where the application meets the requirements for the programme. In case the application fails to meet the requirements for the programme, the IAF shall, within three working days, be obliged to inform the Financial Institution, indicating the grounds for not granting the application;

(16) a beneficiary may — within 5 months from the moment of concluding the credit contract — apply to the Financial Institution to change the target direction of extension of the credit prescribed by sub-point 4.1 of this point. The change of target direction shall be stipulated in the credit contract;

(17) beneficiaries subsidised for the purpose of cultivation of products included in the list of crops insured within the scope of the "State support programme for implementing pilot programme for introducing insurance system in the agricultural sector" approved by Decision of the Government of the Republic of Armenia No1485-L of 24 October 2019 must — following the conclusion of the credit contract — submit to the financial institution a copy of the agricultural insurance contract concluded with the insurance company for the given or the upcoming agricultural year.

(point 15 amended, supplemented and edited by No 399-L of 26 March 2020, supplemented by No 537-L of 9 April 2020, edited, amended and supplemented by No 681-L of 30 April 2020, supplemented, amended by No 832-L of 20 May 2021, No 1117-L of 8 July 2021, amended by No 1928-L of 25 November 2021, amended, supplemented and edited by No 103-L of 27 January 2022)

16. The subsidisation of the interest rate of credit shall be terminated in the following cases:

(1) non-targeted use of the credit by the borrower, moreover, non-targeted use of the credit shall be deemed to be the investment of credit means beyond the direction(s) chosen by the beneficiary from the target directions of expending credits prescribed by sub-point 4.1 of point 15;

(2) where there are overdue liabilities of a borrower with regard to the given credit exceeding sixty days in total for one year (previous 12 months) or as a result of the overdue liabilities to the financial institution, the credit fails to be classified by standard class according to the objective criteria, pursuant to the procedure of the Central Bank of the Republic of Armenia for the classification of credits and receivables of the banks operating within the territory of the Republic of Armenia and for the formation of reserves of possible losses;

(3) early rescinding the contract concluded between a borrower and the Financial Institution;

(4) detecting falsifications in the information provided by the economic entity;

(5) in other cases provided for by the contract concluded between a borrower and the financial institution;

(5.1) in case of failure to submit the document referred to in sub-point 17 of point 15;

(6) in cases of non-targeted use of the credit and provision of false information by a borrower, the amount of subsidisation extended until that moment shall be subject to return (the Financial Institution shall, within a three-month period, return the subsidised amount to IAF). The financial institution shall be entitled to demand the amount of subsidisation from a borrower. In other cases mentioned above, the subsidisation of the credit shall be terminated starting from the day of the previous repayment of the credit prescribed by the credit repayment schedule.

(point 16 amended, supplemented and edited by No 103-L of 27 January 2022)

V. MONITORING OF THE PROGRAMME

17. (point repealed by No 832-L of 20 May 2021)

18. As a result of summing up the applications for subsidization of the interest rate of credit, the IAF shall form a statistical database, which includes the information related to the implementation of the programme, issues recorded and implementation difficulties.

19. The Financial Institution shall — within a six-month period following the extension of the credit — carry out targeted monitoring and financial monitoring in accordance with the internal legal acts of the Financial Institution.

(point 19 edited by No 399-L of 26 March 2020)

20. The Financial Institution envisages to submit a report to the IAF and the Ministry. The report must contain detailed information about the progress of the programme, including:

(1) amount and quantity of credits extended, the number of beneficiaries, the amount of subsidy according to the marzes of the Republic;

(2) information on the results of targeted monitoring conducted;

(3) information on detected violations;

(4) where necessary, recommendations related to the improvement or advancement of the conditions of the programme, etc.

21. In case of non-targeted use of the credit by a borrower or identification of false information submitted, the Financial Institution shall be obliged to remove the current credit of the borrower from the programme for subsidisation of the interest rate of credit and unilaterally change the interest rate of the credit, by applying a higher interest rate established for agricultural or business credits available in the given Financial Institution.

22. The IAF shall plan to submit a summary report to the Ministry of Finance of the Republic of Armenia, the Ministry and the Office of the Prime Minister of the Republic of Armenia once in each quarter.

23. The report must contain detailed information on the progress of the programme, including:

(1) information on credits according to the communities of marzes, the quantity, amount of credits, the amount of subsidisation of interest rate of credit, according to the sector of use;

(2) recommendations for improvement or advancement of the conditions of the programme.

VI. RISKS OF THE PROGRAMME

24. The possible risks of the programme shall be deemed as follows:

(1) the lack of applications equivalent to the amounts envisaged for subsidization of interest rates of credits, as a result of the incomplete allocation of the envisaged credit resources;

(2) non-targeted use of credit resources;

(3) impossibility to return the principal amount and to pay the interest rate of the credit resources extended, due to the natural disasters, epidemics or depreciation of fixed assets.

VII. FINANCIAL ASSESSMENT OF THE PROGRAMME

25. Financing for subsidisation of the interest rates of credits for the implementation of the programme from the State Budget will be provided at the expense of the amounts envisaged by the State Budget of the Republic of Armenia with regard to the programme for the given year.

26. The conditions of the programme envisages extension of credits of about AMD 20-22 billion every year. The results of calculation of the principal amount, the amount of interest rates subsidized are presented in the table.

VIII. OUTCOMES EXPECTED FROM THE IMPLEMENTATION OF THE PROGRAMME

27. The success criterion for the programme shall be as follows:

(1) allocation of planned credit resources in the communities of the Republic;

(2) targeted use of credits;

(3) surplus of gross product of agriculture, increase in the level of use of resources.

28. As a result of the partial subsidisation of the interest rate of credits being extended:

(1) the level of creditworthy demand in the sector will increase, which will lead to increase in gross product;

(2) the risks of banks and credit organisations will significantly reduce;

(3) the investment attractiveness of the agricultural sector will increase.

(4) the capacities of economic entities in the agriculture will enhance, the organising works of production of agricultural products will be performed within the prescribed time limit and in compliance with the requirements, opportunities will be ensured for fulfilling the agro-technical requirements, improving the pedigree and nutritional characteristics of farm animals in the cattle breeding, for increasing the efficiency of production;

(5) opportunities will be created for identification of primary credit issues through the introduction of modern technologies in the agriculture, enlargement of households, maintenance of a register of borrowers;

(6) private investments in the sector will increase by AMD 20.0 billion per year in average, which will create an opportunity for stabilizing the households of beneficiary economic entities, increasing the capital investments, continuing the production in expanded volumes and introducing modern technologies.

(title supplemented by No 1790-L of 9 November 2020)

29. In addition to the grace period envisaged for the repayment of the principal amount and the interest rate of credit provided for by the programme, the Financial Institutions may provide the beneficiary natural persons with additional grace period of up to three months for repayment of the principal amount and the interest rate of credit (except for those extended within the scope of the second measure aimed at addressing the economic impact of Coronavirus disease), whereafter, the grace period may be extended for another three months, upon consent of the Ministry.

30. The validity period of sub-point 9 of point 15 of this Annex shall apply to the relations having arisen before 1 April 2021.

(point 30 supplemented by No 832-L of 20 May 2021)

31. Within the scope of the programme, the Financial Institutions shall not apply the precondition for the certificate issued from 15 October 2021 for the economic entities having applied for the programme before 1 April 2021, having been credited by the Financial Institutions, but having not received a certificate from the Ministry.

(point 31 supplemented by No 1666-L of 14 October 2021)

Prime Minister of the Republic of Armenia

N. Pashinyan

Table

(Annex amended, supplemented and edited by No 399-L of 26 March 2020, supplemented by No 537-L of 9 April 2020, edited, amended and supplemented by No 681-L of 30 April 2020, supplemented by No 1790-L of 9 November 2020, supplemented, amended by No 832-L of 20 May 2021, No 1117-L of 8 July 2021, supplemented by No 1666-L of 14 October 2021, amended by No 1928-L of 25 November 2021, edited, amended and supplemented by No 103-L of 27 January 2022)

Published on a joint site 06.06.2024.