World Bank Report Highlights Path to Fairer Taxes and Improved Education in Armenia for Sustainable Growth

The report, the second in a two-part Public Finance Review series, offers a detailed analysis of Armenia’s fiscal policies and presents actionable recommendations.

A newly released World Bank report emphasizes that reforming Armenia's tax system and improving the quality of education are key steps toward achieving the country's revenue, education, and sustainable growth targets. The report, the second in a two-part Public Finance Review series, offers a detailed analysis of Armenia's fiscal policies and presents actionable recommendations.

Armenia's tax-to-GDP ratio has averaged 24% from 2021 to 2023, falling short of the 25% goal set in the Government Program (2021-2026). To close this gap and make the tax system more equitable, the World Bank report outlines several critical measures:

Broaden the regular tax regime to ensure similar taxation for more businesses.

Narrow the turnover tax regime's coverage, reducing special treatment for specific industries.

Modernize international tax rules to reflect the realities of the digital economy.

Introduce tax relief for low-income earners, such as deductions to ease their financial burden.

Enhance environmental and fuel excise taxes to better align with regional standards and incentivize a green economy.

The report underscores the potential for environmental taxes to help Armenia achieve its low-carbon economy goal. Recommendations include introducing an explicit carbon price on imported natural gas and oil products and increasing excise taxes on fossil fuels.

"Raising the tax-to-GDP ratio creates fiscal space to increase spending, particularly on education and social services," said Carolin Geginat, World Bank Country Manager for Armenia. "Improving tax equity will also encourage formal job creation and support low-income households."

Education Reforms to Address Learning Gaps and Inefficiencies

Despite high enrollment rates, Armenia faces persistent challenges in learning outcomes, pre-primary education access, and higher education participation, particularly for low-income populations.

Key findings from the report include:

• Only 43.4% of poor children attend pre-primary education, and just 17.2% pursue higher education.
• While students spend 11.3 years in school, they achieve only about 8 years of effective learning.
• The overall higher education enrollment rate is 53%, below the peer country average of 60%.

Recommendations to Strengthen Education

The report suggests actionable strategies to address these gaps:

1. Expand pre-primary education coverage to enhance early childhood learning.
2. Improve teacher quality through better training and support.
3. Optimize school sizes for resource efficiency.
4. Invest in vocational training to align skills with labor market needs.
5. Increase financial aid for low-income students pursuing higher education.

Additionally, reforms in school governance and funding mechanisms are critical to achieving better outcomes. These include streamlining management structures and prioritizing learning outcomes in funding decisions.

Focus on Green Transition and Vocational Training

The report also highlights the importance of preparing Armenia's workforce for emerging industries and addressing environmental challenges. Investments in vocational education can help close the skills gap, while environmental tax reforms can support sustainable economic growth.

Broader Development Collaboration

This report is part of the World Bank's ongoing partnership with the Armenian government. Its recommendations aim to ensure Armenia's public finances are aligned with its broader development objectives, including fostering a more equitable society and equipping future generations with skills to thrive in a rapidly evolving economy.

By addressing fiscal inefficiencies and prioritizing learning outcomes, Armenia can strengthen its foundation for long-term sustainable growth.