Public Administration in Armenia 2025

The Principles of Public Administration

Budget management

Principle 23. The annual budget is comprehensive and formulated within a credible and rolling medium-term framework, balancing policy needs with fiscal constraints.

Principle 24. The government supports budget implementation and service delivery by ensuring liquidity in the short and medium term.

Principle 25. The government implements the budget in line with estimates and reports on it in a comprehensive and transparent manner, allowing for timely scrutiny.

Internal control and audit

Principle 26. Public administration bodies manage resources in an effective and compliant manner to achieve their objectives.

Principle 27. Internal audit improves the management of public administration bodies.

Public procurement

Principle 28. Public procurement legislation, including public-private partnerships and concessions, is based on principles of equal treatment, non‑discrimination, transparency, proportionality and competition, and supported by a sound governance framework.

Principle 29. Contracting authorities conduct public procurement operations, including public-private partnerships, efficiently and economically.

Principle 30. An independent procurement review system ensures effective, rapid and competent handling of complaints.

External audit

Principle 31. All public funds are effectively audited by an independent auditor that provides assurance on the use of public resources and helps improve the functioning of the public sector.

Financing of local governments

Principle 32. Regional and local governments have resources and adequate fiscal autonomy for exercising their competences, with financial oversight to foster responsible financial management.

Since the previous assessment, the Government continued to make efforts to implement PFM reforms. These developments were driven by the Public Financial Management Strategy (PFM Strategy) for 2019–2023, although it unfortunately expired at the end of 2023. The Government has continued to work on introducing fully-fledged programme budgeting, the management of fiscal risks and embedding other PFM practices. The legal framework for the Audit Chamber was amended in 2024, enhancing the independence of the Audit Chamber. However, with respect to PIFC, little progress has been made with the main change being the increased level of contracted-out internal audit services across the public administration. The most significant change in the public procurement system has been the reform of the review and remedies framework, marked by the transfer of competence for handling public procurement complaints from a specialised review body to the judiciary. Additionally, the use of e‑procurement has expanded, and the proportion of competitive procedures has increased.

Armenia has established a sound and transparent budget process. The implementation of a clear legal framework and detailed procedural calendars has facilitated predictable budget formulation and approval. Medium-term Budgetary Frameworks (MTBFs) are comprehensive, with clear quantitative targets and rules, and link fiscal objectives and priorities with expenditure ceilings for first-level budget users. The quality of budget procedures could be further improved by respecting MTBF ceilings when preparing the annual budget law and consecutive MTBFs. An independent review body, such as a fiscal council, has not been established, and while SIGMA has been informed that large capital investments undergo independent appraisal of the costs and benefits, the process is not entirely transparent.

While tax collection is highly digitalised, taxes collected in the last fiscal year were well below those that were budgeted. Treasury Single Account (TSA) systems are well established, with consolidation of revenues and expenditures and bank-account reconciliation performed regularly. Effective commitment controls have been established, and there are no significant arrears. While debt strategies and detailed reports are published, there have been delays in releasing the public debt report. The level of public debt to gross domestic product (GDP) is in line with the national target and well within European Union (EU) benchmarks.

Deviations between budget plans and outturns indicate that budget credibility could be improved, particularly at a disaggregated level. Sound budget reporting practices have been developed, with reports on budget implementation being provided in a timely, transparent, and comprehensive manner. However, there are areas for improvement, including around the reporting of assets and liabilities and the need for more frequent fiscal risk monitoring, especially regarding state-owned enterprises (SOEs). The absence of regular spending reviews or cross-sectoral reallocations limits the optimisation of resources. Additionally, parliamentary scrutiny of the (Medium-Term Expenditure Framework (MTEF) is limited, and the timeframe for debate and approval of the budget is shorter than internationally recommended.

While aspects of effective internal control are embedded within the Treasury system and the conduct of regular asset inventories, the internal control framework in Armenia is limited, and systemic weaknesses persist due to the absence of a formal, comprehensive internal control framework, limited co‑ordination mechanisms, limited managerial accountability and the lack of formal risk management practices across government entities.

The internal audit system is based on a sound legal framework, and most auditors have received local certification. Recent initiatives, such as adopting strategic plans and manuals, aim to elevate audit quality. However, there are limitations in practical implementation, with challenges around audit planning and execution, quality assurance, variable outsourced audit quality and weak follow-up mechanisms, which hinder the effectiveness of internal audits.

The Public Procurement Law (PPL) is broadly aligned with the 2014 EU Directives. However, essential public procurement instruments and tools, such as framework agreements and dynamic purchasing systems, are missing. The system of exclusion of economic operators is not aligned with EU law requirements and is generating significant burdens for the review system. The Public-Private Partnership (PPP) Law reflects core public procurement principles, but contract award procedures and review mechanisms are not in line with the EU acquis.

A strategic framework for public procurement is in place, but it is neither comprehensive nor up to date. An electronic procurement system exists, but it requires substantial expansion to support full electronic procurement by all contracting authorities and entities. Related development activities are ongoing.

Key challenges persist in procurement planning and contract management. The share of non-competitive procedures remains high. While a training system is in place, there is a need for more practice-oriented training and manuals, as well as a strengthened advisory function on the part of the central procurement institutions.

The public procurement review system underwent major reform in 2022, with the abolishment of a specialised review body and the transfer of competence to handle public procurement disputes to courts. The number of appeals has increased, which may indicate that the new system is encouraging a greater use of review mechanisms by economic operators. However, a large share of appeals relating to being included on the list of ineligible bidders is placing a heavy burden on the courts’ capacity. Data collection and reporting on the review system need improvement to enable effective monitoring of its efficiency. The timeframe for decision making also remains a concern. The establishment of a dedicated judicial panel specialised in public procurement is expected to contribute positively to the quality and efficiency of the dispute handling. A significant shortcoming remains in the review and remedies framework for PPPs and concessions.

The external audit system is underpinned by a solid legal and constitutional framework, with recent reforms enhancing the independence of the Audit Chamber, transparency and strategic planning. Despite these strengths, some practical implementation issues, such as the lack of external quality assurance, limited legislative engagement and underdeveloped follow-up mechanisms, impact the effectiveness of the external audit function.

Armenia has a legal framework supporting local fiscal autonomy, including a system for tax sharing and equalisation. However, in practice, there is an evident gap between legislation and practice and financial resources remain insufficient for municipalities to fully meet their responsibilities. Local government spending accounted for only 8.23% of total public expenditure in 2024, well below EU and regional averages. The fiscal equalisation system, operational since 2023, now provides over 31% of local revenues and reduces inequalities more than in most Western Balkan administrations. However, its effectiveness could be improved, indicating the need for better allocation formulas. Borrowing is legally allowed, but it is restricted to public sources and remains minimal. Audit and oversight mechanisms are weak and fragmented. Consultation between central and local governments is not institutionalised, and the national association of communities has little influence on financial decisions. A concept of decentralisation of powers was adopted in November 2023 with the goal of developing a corresponding strategy for decentralisation and the programme of measures arising from it by 2026.

Principle 23: The annual budget is comprehensive and formulated within a credible and rolling medium-term framework, balancing policy needs with fiscal constraints.

Armenia’s legal and procedural framework for budget formulation is comprehensive, with clear timelines, medium-term targets and transparent processes aligned with fiscal policy priorities. Recent reforms have strengthened legal safeguards and strategic planning, but the credibility of the MTBF could be improved, and practical challenges remain in operationalising spending reviews and independent and parliamentary scrutiny, and managing fiscal risks.

Armenia’s budget process is underpinned by a clear legal and institutional framework, notably the Law on the Budget System, which governs budget preparation, classification and oversight.1 The country follows a structured annual budget calendar, with key milestones, such as the approval of the Medium-Term Expenditure Plan (MTEP) by 10 July and the submission of the draft state budget to Parliament by 30 September.2 The medium-term fiscal framework plays a central role in fiscal planning. The Government develops and approves a three-year expenditure framework that sets quantitative targets for public debt (stabilising at 55% of GDP) and budget deficits (gradually reducing from -5.5% to -3.5% of GDP from 2025 to 2027).3 These targets align with fiscal rules designed to promote debt sustainability and fiscal discipline, reflecting a commitment to fiscal responsibility.

The annual budget process provides alignment between medium-term priorities and the upcoming year's fiscal plans. First-level budget organisations (FLBOs), which include ministries, constitutional bodies, regional governors and other key institutions, play a crucial role in this process by preparing and submitting their sector-specific budget proposals within the set deadlines. Out of 45 FLBOs, 17 are neither ministries or constitutional bodies They receive budget ceilings from the MoF, which serve as upper limits for their expenditures, and then develop their detailed budgets accordingly. These proposals are reviewed, negotiated and integrated into the overall national budget, so that each sector’s funding should align with strategic priorities and fiscal constraints.

With respect to the MTEP for 2024-26, there was an aggregate deviation from the expenditure ceiling in the 2024 budget of around 8%, with some significantly higher deviations noted at a disaggregated level, indicating a weakness in the preparation and use of the MTEP as a decision-making tool. There were also deviations across successive MTBFs, with aggregate expenditure deviation of 5% and deviations at disaggregated level averaging 12% for the five largest spending ministries.

The Government publishes detailed budget documentation, including macroeconomic assumptions, fiscal risks and non-financial performance indicators, fostering greater public engagement and oversight. The Government does not have operational systems for regular spending reviews or reallocations across sectors, limiting resource optimisation.4

Armenia currently lacks an independent authority dedicated to reviewing fiscal policy effectiveness and sustainability. Oversight is primarily through the Audit Chamber, which focuses on financial statements rather than policy evaluation.5 Furthermore, Armenia’s budget classification system is comprehensive, combining economic, functional, departmental and programme-based classifications. These enhance transparency and accountability and align with international standards. 6

The planning and budgeting process for capital investment projects is tightly integrated within the MTEF and annual budget cycles, with all Public Investment Programs exceeding AMD 1 billion subject to evaluation and inclusion based on criteria established by Government Decree No. 175-N.7 The 2025 State Budget reflects multi-year commitments for major projects, detailed in supplementary annexes that specify objectives, timelines, costs and lifecycle information, ensuring comprehensive oversight. Legislation mandates rigorous cost/benefit analyses, especially for large projects, supported by regulatory frameworks,8 which emphasise detailed assessments, feasibility studies and independent review processes chaired by the Prime Minister. Operational and maintenance costs are to be estimated and included in appraisal documents, but current financial planning appears to omit recurrent costs from the MTEF, potentially impacting project sustainability.9 Due to limited access to information, it was not possible to determine whether the government employs structured selection criteria for project prioritisation, and whether these criteria ensure a systematic approach to public investment decision making.

Parliamentary scrutiny of the MTEF is limited; the timeframe for debate and approval of the budget is shorter than internationally recommended, which constrains oversight.10

Armenia’s budget documents, including the citizen’s budget and open data formats, are publicly available, facilitating scrutiny and citizen engagement. The government now publishes budget data in machine-readable formats, increasing transparency and stakeholder engagement. The Citizen’s Budget for 2025 has been made publicly available.11

Principle 24: The government supports budget implementation and service delivery by ensuring liquidity in the short and medium term.

Armenia’s budget implementation relies on effective cash management, a comprehensive tax strategy and centralised debt and cash flow systems. While tax collection and compliance strategies are well-developed, actual revenues underperform initial targets, and regular debt and arrears data are limited. Armenia demonstrates a structured fiscal framework with robust legal and institutional controls, but challenges remain in revenue collection efficiency, data transparency, and operationalising arrears and debt management practices.

In 2024, 100% of personal income tax declarations were submitted electronically via the government’s web portal, illustrating progress in digitalisation and administrative efficiency.12 However, SIGMA has not received sufficient information to assess the administrative cost of tax collection. The tax administration strategy emphasises a comprehensive compliance improvement plan, including risk management, taxpayer education and post-inspection measures, which has strengthened tax compliance and reduced tax evasion.13 Nonetheless, the recent annual tax outturn indicates that actual revenues across main categories (value-added tax, personal income tax and corporate tax) were below planned levels, with deviations ranging from -5.4% to -15.4%. At an aggregate level, revenues in 2024 were 4.6% below planned levels, whereas they were above planned levels by 5.9% in 2022 and 2.5% in 2023. These shortfalls highlight challenges in revenue predictability and collection efficiency.14

Armenia’s legal and institutional framework mandates that the MoF and the Treasury oversee cash management through the TSA. Coverage of the TSA is complete, consolidating all state revenues and expenditures into a unified account, thus ensuring full control over budgetary cash flows.15 Regular aggregation of all central government bank accounts occurs daily, enabling accurate and timely reporting of the Government’s financial position.16 Additionally, the system of commitment ceilings (established at the outset of the fiscal year) is operational, with controls embedded within the Treasury system to prevent overspending. The commitment control system, which automatically rejects contracts exceeding allocated budgets, has functioned effectively, contributing to fiscal discipline, although commitments are managed on a quarterly basis in accordance with quarterly budget ceilings.17

The MoF prepares annual cash flow forecasts based on expenditure and revenue projections from all budget organisations, updated monthly to reflect actual performance and emerging information.18 This systematic approach helps in aligning cash availability with planned expenditures. Commitment ceilings are set at the beginning of each fiscal year, with regular adjustments permissible within defined limits. During 2024, no supplementary budgets were submitted for parliamentary approval, with in-year adjustments within the defined limits and the Government exercising control over reallocations and supplementary revenues.19 Since there are no expenditure arrears to report, the percentage of arrears is effectively zero, as institutions fulfil their obligations in a timely manner and contract signing issues are due to budget constraints rather than outstanding arrears.

The Government publishes an annual medium-term debt management strategy, which emphasises risk mitigation through diversification, maturity profiling and prudent borrowing limits. As of early 2025, Fitch Ratings affirmed Armenia’s long-term foreign currency rating at BB- with a stable outlook, reflecting confidence in the country’s debt-management practices.20 The strategy sets clear debt-to-GDP targets (~55%) and monitors debt composition, including short-term and foreign currency risks. Legislation centralises debt issuance authority within the MoF, ensuring disciplined borrowing within approved limits.21 The Government’s borrowing capacity is explicitly defined in the Budget Law, which sets annual deficit financing limits, although guarantees remain minimal and are not currently issued.

While the Government produces comprehensive reports on public debt, the publication of the 2023 national debt report was delayed beyond mandated deadlines, impacting transparency and timely oversight.22 Nevertheless, the report provides detailed breakdowns of debt stock, including external and domestic components, and explains deviations from debt management targets due to economic factors and structural changes. The reconciliation of financial data occurs weekly, supporting data reliability. However, no recent IT audits have been conducted to validate the integrity of information systems.

Principle 25: The government implements the budget in line with estimates and reports on it in a comprehensive and transparent manner, allowing for timely scrutiny.

The Government generally reports on budget implementation in a timely, transparent and comprehensive manner, with adherence to legal requirements and independent audit assessments. While in-year and annual reports are published within designated timeframes, there are gaps in detailed reporting on fiscal risks, including on SOE performance. Armenia demonstrates a commitment to fiscal accountability, although further improvements could enhance transparency and oversight in certain areas.

While the Government’s aggregate expenditure deviation over the financial years 2022-2024 averaged approximately 4%, the credibility of disaggregated expenditure plans for the top ten government bodies was higher, with a 19% deviation.23 With respect to revenues, the aggregate revenue deviation over financial years 2022-2024 averaged approximately 4.6%. The level of credibility of expenditure plans is similar to that in the Western Balkans (Figure 59).

The legal framework restricts in-year budget adjustments to no more than 3% of the total budget, with the Government adhering strictly to this limit, as verified by Supreme Audit Institution (SAI) reports.24. Notably, there were no significant in-year amendments or reallocations during 2023 and 2024, indicating budget stability and disciplined adherence to legal restrictions.25

In 2024, Armenia’s actual Government debt (AMD 4.893 billion) and fiscal deficit (AMD 376 billion) were both below their planned levels, demonstrating compliance with fiscal rules. The Government debt as a percentage of GDP was 48.0%, slightly below the target of 48.32%, but the deviation was negligible (0.32%). The fiscal deficit was lower than the planned 4.59% of GDP, at 3.71%.26

The MoF publishes quarterly reports on budget implementation, covering revenue, expenditure and borrowing, providing detailed data on government performance over the first nine months of the year. In addition, monthly reports provide timely and detailed insights into the fiscal activities, including revenues, expenditures and deficit financing.27 These reports are released within four weeks of the reporting period, ensuring regular oversight. The reports include comprehensive breakdowns by economic and functional classifications, covering all transactions of central government bodies, thus supporting transparency and accountability.

The Government’s 2023 Budget Execution Report is comprehensive, covering total revenues, expenditures and borrowing, and providing detailed data on individual government bodies. It employs a structure consistent with the budget’s presentation format, facilitating straightforward comparison with original estimates. The report explains variations from initial allocations, such as increases in social expenditures or project delays, thereby enhancing transparency.28 However, it does not include a comprehensive analysis of state assets and liabilities beyond financial liabilities and debt figures, which limits a full understanding of the Government’s financial position, and no information is provided on environmental impacts. Additionally, while the report provides comprehensive data on capital investments, including their costs and physical progress, it does not explain variations from the original budget allocation for these projects, which limits the transparency and understanding of investment execution. Variations in capital budget have been between 11% and 18% in recent years, and it is worth noting that over the years, the variations are in both directions – in 2022 the actual capital expenditure was 11% higher than planned in the budget.

The Government submits its annual budget implementation report to the National Assembly within six months of the fiscal year-end, fulfilling legal requirements. The 2023 report was published in May 2024, approximately five months after year-end, meeting the timeline stipulated by law.29 The report was discussed in the plenary session, with the Audit Chamber providing an unqualified opinion. Presentation of the report to the Parliament prior to adoption of the next year’s budget ensured timely scrutiny and accountability.

The Public Sector Accounting Standards are aligned with International Public Sector Accounting Standards in many respects, including accrual accounting and recognition principles. The 2023 budget report lacks full reconciliation of assets and liabilities, focusing primarily on financial liabilities, which constrains comprehensive fiscal oversight.30

The Government maintains a comprehensive fiscal risk management framework, encompassing risks from SOEs, private-public partnerships, guarantees, natural disasters and legal proceedings. The Fiscal Risk Management Department within the MoF is responsible for systematic risk assessment, data collection and monitoring. It reports directly to the Minister, ensuring centralised oversight. Regular risk assessments are conducted annually, as documented in the State Budget for 2025, with the risk management policy outlining acceptable risk thresholds, such as limits on guarantees relative to GDP and revenues.31 Nonetheless, the frequency of risk monitoring could be increased; currently, it is limited to annual updates, which might not be sufficient to address emerging risks promptly.

SOEs are required to submit annual financial statements within six months of the fiscal year end, with the MoF reviewing and approving these reports. However, the Government does not publish a consolidated report on the sector’s overall financial performance, which limits transparency regarding the collective financial health of SOEs. Moreover, there are no mandatory audits or published reports for local government entities, which constrains oversight at sub-national levels.

Principle 26: Public administration bodies manage resources in an effective and compliant manner to achieve their objectives.

The internal control framework is limited, lacking comprehensive regulations, co‑ordination and formal assessment practices across government institutions. While some measures exist for confidential information and fraud management, overall, system development remains weak, with no overarching internal control strategy or regular risk management practices in place at entity or budget-organisation level. Strengthening these areas is essential for improved transparency, accountability and governance.

The Government’s strategic documents, notably the Public Financial Management Strategic Action Plan for 2025, primarily associate internal control with the internal audit function and the development of the Government Financial Management Information System.32 These initiatives aim to improve audit quality and professionalism, but they do not establish a comprehensive internal control system or detailed regulatory requirements applicable across all government bodies. No overarching regulations explicitly mandate a unified internal control framework for central government institutions, and no government-approved plan for internal control strengthening exists to date33^,34. This limited regulatory approach constrains the systematic development of internal controls beyond audit functions.

There is no designated body responsible for co-ordinating internal control activities across government entities, nor are there legal mandates requiring regular reporting on internal control implementation. Consequently, there is no institution-level or sector-wide reporting or assessment of internal control practices, leading to fragmented efforts and limited oversight.

While some ministries have established accountability lines and internal organisation acts, there is no evidence of regular self-assessments or evaluations of internal control systems at the central government level. The Central Harmonisation Unit (CHU) does not publish annual reports on internal control implementation, and the overall functioning of internal control remains unverified through formal assessments. However, inspection procedures related to confidentiality and control over state secrets are well defined and rigorously followed, with clear reporting channels mandated by the Law on State Secrets and Confidential Information.35 Furthermore, controls against budget commitments are effectively embedded within the Treasury system, preventing overspending and arrears, which indicates operational discipline in fiscal management.

Institutions maintain structured accountability for confidential information, with procedures for inspections, reporting violations and safeguarding data outlined in law. Assets are updated annually through inventories conducted by relevant ministries and agencies, with inventory results integrated into financial statements.36 The asset management processes are functioning effectively at the operational level, with updated records and valuations maintained systematically.

Legislation clearly assigns responsibility for financial decisions to senior officials, notably the secretary general, with no delegation to lower levels. Despite this, the SIGMA Survey of Public Servants on the functioning of public administration in Armenia 2025, conducted in March-April 2025, indicates that public servants generally perceive that they are empowered and able to take decisions. Procurement and recruitment procedures predominantly require signatures at the level of secretary general or higher, although some minor delegations exist for low-value contracts or staff approvals below the ministerial level.

There is limited formal reporting on internal control activities, with no dedicated reports or evaluations produced at the national or institutional level. However, institutions provide quarterly financial and performance reports that include some aspects of internal control, such as asset management and compliance checks. The absence of systematic internal control reporting hampers oversight but does not preclude effective day-to-day control practices.

A significant weakness is the lack of formal risk management practices across government bodies. There are no legal requirements or established procedures for risk identification, assessment or mitigation, except for internal audit activities focused primarily on compliance audits. The State Revenue Committee assesses taxpayer risks but does not extend these practices to internal operational risks. The absence of a structured risk management framework limits proactive identification and response to operational, financial or strategic risks, increasing vulnerability to unforeseen challenges.

Ministries are responsible for co-ordinating budget preparation and oversight within their sectors, ensuring that subordinate bodies submit annual plans and reports. However, the standards for performance dialogue and monitoring of subordinate bodies are inconsistent. Some SOEs have formal agreements on business plans and performance indicators, monitored annually, but many do not, leading to gaps in accountability. The process for verifying performance and outcomes varies considerably across sectors.

While procedures for reporting irregularities and suspected fraud are regulated by civil service and disciplinary laws, there is no comprehensive framework for assessing or managing fraud and irregularities systematically. The internal audit activities primarily focus on compliance rather than risk-based fraud prevention. Moreover, co-ordination and co-operation mechanisms between bodies responsible for irregularities are absent, limiting effectiveness. Nonetheless, cases of detected irregularities are addressed through disciplinary measures, and investigative procedures are initiated when necessary.

Principle 27: Internal audit improves the management of public administration bodies.

The internal audit framework is well-established legally, emphasising independence, standards and quality assurance, but practical implementation remains limited. While internal audits and assessments are conducted in most institutions, there is no recent external evaluation, and the development of a comprehensive, fully operational internal audit system is still underway. Strengthening institutional capacity and external oversight is essential for enhancing audit effectiveness and governance.

The Law on Internal Audit provides a comprehensive legal basis for internal audit, explicitly emphasising independence. Article 2, Section 11 of the Law on Internal Audit defines independence as the separation of internal audit from other organisational functions, reinforced by provisions granting auditors unrestricted access to information and reporting directly to top management or audit committees.37 Additional safeguards, such as restrictions on auditors’ involvement in other activities, bolster operational independence, aligning Armenia's legal framework with international standards.38

Furthermore, the law specifies powers, duties and organisational requirements, including establishing internal audit units in all public organisations, with clear qualifications and standards for auditors.39 The legislation also mandates adherence to internal audit standards, the code of ethics and reporting arrangements, thus creating a robust legal foundation supporting effective internal audit activities.

Despite the comprehensive legal framework, Armenia lacks a fully operational, co-ordinated internal audit development system. The 2025 Strategic Action Plan for Public Financial Management, approved in January 2025, includes initiatives to enhance internal audit standards, conduct external quality assessments and develop capacity.40 However, the current status indicates that the internal audit development plan for 2024 has not been finalised, and the CHU has faced staffing shortages and limited functioning over the past four to five years.41

While national guidelines for internal audit exist (Order No. 143-N, 2012), the CHU’s capacity to co‑ordinate or guide audit practices across institutions remains limited. There have also been no regular co‑ordination meetings of internal auditors or external assessments of audit practices. The current guidelines and audit manual are based on the former international internal audit standards and do not incorporate the requirements of the updated Global Internal Audit Standards,

The internal audit capacity within central government is relatively high, with 46 out of 51 institutions having established internal audit units as of December 2024.42 Most units are staffed with at least two auditors, and all staff auditors are certified, demonstrating a solid professional base. Nonetheless, outsourcing of internal audit services in 21 institutions has led to varied quality levels, with audits conducted by external providers sometimes perceived as less effective than in-house functions.

The independence of internal auditors is well protected legally, with 100% of internal audit heads reporting directly to senior management, usually the head of the organisation.43 However, the SIGMA Survey of Public Servants on the functioning of public administration 2025 indicates that there are some concerns around independence among auditors, with 29% indicating that they combine their audit role with other work, and only 54% affirming that they operate free from interference in conducting their work. Additionally, there are some concerns about operational influence for outsourced functions, where external providers may face organisational limitations.

The quality of internal audit planning is mixed. While 63% of central government institutions with established internal audit units develop and update strategic and annual audit plans, only a subset (notably the Ministry of Foreign Affairs, the State Revenue Committee and the Statistical Committee) develop audit plans based on comprehensive risk assessments.44 The audit plans for outsourced audits are generally considered less robust, lacking detailed risk analysis and stakeholder engagement.

Audit reports are produced in most institutions, but access to these reports was restricted due to confidentiality, limiting any evaluation of report quality. Nevertheless, internal self-assessments conducted by internal auditors of budgetary institutions, as reflected in the Annual Report on the Internal Audit System of the Public Sector for 2023, show improvements in audit effectiveness, with scores rising from 3.4 in 2021 to 3.7 in 2023, on a five-point scale.45 Follow-up on recommendations remains weak, with only 33% of recommendations from 2023 followed up within a year, partly due to the contracted-out nature of some audit functions.

The regulatory framework provides for a formal quality assurance scheme, including internal and external assessments. While internal assessments have been conducted in 14 out of 46 internal audit units in 2024, external assessments of internal audit units have not been conducted in the last five years, although regulations (Government Decree No. 896-N, 2013) mandate such evaluations at least once every five years.46 Currently, a process is being developed involving a joint effort between the CHU and an external expert, with the aim to initiate external assessments soon. The absence of external evaluations to date limits the objectivity and credibility of internal audit quality assurance, although the framework for such assessments exists.

All internal auditors are certified, and a professional development programme is mandated by Ministerial Order No. 516-N (December 2023). The Order emphasises ongoing training and adherence to international standards. However, in practice, there was no active professional development programme in 2024, as has been the case for several years.

Principle 28: Public procurement legislation, including public-private partnerships and concessions, is based on principles of equal treatment, non-discrimination, transparency, proportionality and competition, and supported by a sound governance framework.

While the applicable legislation essentially reflects fundamental public procurement principles and is broadly aligned with the 2014 EU Directives, several gaps remain. Key instruments and tools, such as framework agreements, are not reflected in the PPL.

The PPL47 and secondary legislation demonstrate broad compliance with relevant EU legislation. The regulatory framework reflects fundamental EU principles of transparency, equal treatment and non-discrimination.

Exclusions from the application of the PPL are not fully consistent with the EU acquis and go beyond it. These include exclusions related to the Central Bank and certain aspects of organising electoral processes.

Eligibility criteria for participation in procurement mirror the exclusion grounds set out in the EU Directives. However, the most significant discrepancy is the way economic operators are excluded and listed as ineligible to participate in the procurement process. This is of particular concern, as the inclusion on the list of ineligible bidders is automatic and allows no room for “self-cleansing”, which results in a very high number of excluded economic operators.48 The implementation burdens and inefficiencies caused by this system are reflected in the fact that more than 70 % of appeals in 2024 were lodged in this context and the correlated unilateral termination of contracts.

Several procurement tools, such as dynamic purchasing systems, framework agreements, design contests and qualification systems, established under the EU Directives, do not feature in the PPL. The types of procurement procedures defined in the PPL do not fully correspond to those foreseen in the Directives. It lacks procedures such as competitive dialogue and innovation partnerships.

There are also discrepancies in key definitions, including those related to contracting authorities and entities, public procurement, types of contracts and mixed contracts.49 The PPL does not include provisions allowing economic operators to rely on third-party capacities or mechanisms for “self-cleansing”. Moreover, there are no specific provisions on preliminary market consultations, prior involvement of candidates or tenderers, occasional joint procurement, procedures for social and other specific services, or contract modifications.

Competitive procedures are the standard method for conducting procurement, and the PPL lists grounds for the application of single-source procurement. However, the wording of some of the grounds is not fully aligned with EU provisions, such as the requirement that urgency not be attributable to the contracting authority.50

Time limits are largely aligned with the EU Directives, although some discrepancies remain, for instance in cases of urgency under the open procedure,51 for which the PPL provides for shorter time limits.

The EU Utilities Directive has not been transposed. While the PPL incorporates basic procurement concepts relevant to contracting entities, such as sectors and activities, it also stipulates that procurement carried out by public organisations (entities that correspond to contracting entities), shall be governed by procedures adopted by those organisations. Therefore, it cannot be concluded that the legal framework fully applies to utilities.

The EU Defence Procurement Directive has not been transposed.

The PPL mandates the publication of procurement notices and contract award results on a central website.52 It allows the use of the best price-quality ratio as an award criterion without restriction. However, the PPL does not reflect the provisions of EU Directives on incorporating environmental and social considerations in procurement procedures.

The basic threshold for the application of the PPL is low, ensuring that procurement principles are applied even below the EU threshold.

The MoF is currently preparing amendments to the PPL. Although consultations have been held during the preparation of the amendments, the process has been criticised by some stakeholders as not sufficiently inclusive. 53

Concessions and PPPs are governed by a separate PPP Law, which outlines private partner selection procedures that incorporate the principles of competition, transparency and fairness. Nevertheless, the procedures for contract award, definitions and exclusions in the PPP Law are not fully aligned with the EU acquis. Notably, there is no definition of a concession that would reflect the EU concept of transferring operating risk. The legal framework also lacks detailed provisions on contract modifications and does not align the scope and exclusion criteria with EU standards. The PPP Law mandates the publication of key documents and results and ensures disclosure of evaluation outcomes. However, allowing non-public, closed procedures under certain circumstances raises concerns about transparency and alignment with EU norms.

Central institutions effectively support, steer and co-ordinate implementation, enforcement and monitoring of the public procurement system

The institutional set-up for developing and implementing public procurement policy is in place. The strategic framework and its corresponding action plan are neither comprehensive nor up to date. There is a need for more practice-oriented training, a strengthened advisory function and development of comprehensive manuals. Institutional co‑operation and co‑ordination should be improved, particularly in relation to development of the legal framework and its interpretation. Monitoring and reporting of the procurement system should also be enhanced, with a focus on introducing risk-based approaches.

Armenia has developed a framework for the public procurement system that demonstrates certain strategic intentions but remains underdeveloped in critical areas. The Prime Minister’s Decision No. 977‑L of 2022 outlines a strategic concept aligned with the Government’s Action Plan for 2021-2026. This document includes time-defined measures that concluded in 2023 and introduces ongoing measures that are outlined broadly. While the strategy reflects an effort to guide the development of public procurement and includes references to integrity and transparency improvements, it does not comprehensively address all necessary policy framework components. Notably, there is a lack of substantive content on PPPs and concessions. The strategy does not contain specific key performance indicators, making it challenging to assess the success of ongoing or completed activities.54

There is no action plan accompanying the strategic framework that meets fundamental criteria. While the Prime Minister’s Decision mentions expected results and certain measures, it lacks detailed activities, institutional responsibilities, timelines and financial planning. Most of the measures are categorised as “continuous”, without milestones or specific targets. The Government Action Plan for 2021-2026 does include references to procurement activities, but these do not extend beyond 2023 and lack the necessary detail to serve as an operational tool for implementation. For example, there is no reference to the ongoing process of drafting and adopting amendments to the PPL. Without an updated and structured action plan, monitoring and accountability are significantly hindered.

The monitoring and reporting mechanisms are also insufficient. There is no evidence of annual monitoring being conducted according to a structured methodology. Reports related to the implementation of the strategy are either absent or do not focus on procurement-specific elements. As a result, it is not possible to evaluate implementation rates or determine the effectiveness of the strategy or any associated action plan.

Central institutional capacity for developing and implementing procurement policy is well defined. The MoF, through its Procurement Policy Department, is the designated authority with responsibilities for drafting legislation, monitoring procurement activities and providing operational and advisory support. The legal framework clearly allocates responsibilities for policymaking, legislative drafting, dissemination of procurement information, oversight, international co‑ordination and capacity building. However, the quality of advisory and operational support provided in practice has been criticised by some stakeholders, who have reported issues such as delayed responses and a formalistic approach in the support provided.55

Co‑operation and co‑ordination mechanisms between key institutions exist, but they need to be improved, particularly in order to ensure broader institutional inclusion in the process of amending the PPL and a unified approach to its interpretation.56

While the State Supervision Service and the Competition Protection Commission are mandated to perform controls and assess procurement practices, there is no evidence of a systematic, risk-based approach. The lack of structured red-flag systems and the need for enhancements to the e-procurement platform have been highlighted as barriers to effective oversight.

The Ministry of Finance holds policymaking authority regarding PPPs and concessions. The legal framework designates roles for drafting legislation and providing advisory and operational support through the PPP Unit. Some guidance documents and training are available, but the overall institutional framework remains fragmented and lacks a coherent underlying strategy.

Monitoring and reporting of the procurement system are facilitated by the ARMEPS platform, which serves as the central digital tool for procurement processes. ARMEPS allows for the publication of procurement notices and tender submissions and supports basic contract management functionalities. Although it provides access to selected procurement data and search functionalities, not all contracting authorities use the platform, the data presented is not complete and not always machine-readable. Efforts to upgrade the system are ongoing and are necessary to ensure comprehensive monitoring across the procurement cycle. While the system provides quantitative data, qualitative performance indicators are absent from current monitoring practices. While search tools are functional and the interface is user-friendly, the limitations in data aggregation, analysis and downloadability restrict the usefulness of the system for advanced monitoring and public accountability.

Annual reports on public procurement are publicly accessible and include some consolidated procurement data, but they fail to present a holistic view of system performance. Notably, aspects such as contract execution and delivery are not sufficiently covered.

Principle 29: Contracting authorities conduct public procurement operations, including public-private partnerships, efficiently and economically.

The number of participants in competitive procurement procedures is increasing but remains relatively low. The share of non-competitive procedures is still high, particularly in terms of contract value. Furthermore, the number of PPP/concession contracts remains limited. Full electronic public procurement does not yet extend to all contracting authorities and entities. Contract management also requires significant improvement.

The procurement planning process demonstrates strong formal adherence to requirements, with procurement plans being published on time. However, implementation issues have been identified, as reflected in the relatively high share of cancelled competitive procedures, which stood at 13.1% in 2024.

In 2024, 82.5% of the total value of contracts was awarded through competitive procedures. However, by number of tenders, only 55.8% of procedures were competitive. This discrepancy highlights significant room for improvement in expanding the use of competitive procurement methods.

The use of modern procurement tools remains significantly underdeveloped. Armenia’s current legal framework does not provide for the use of framework agreements or dynamic purchasing systems. As a result, there are no relevant guidelines, and these instruments are not used in practice. Centralised purchasing practices are also absent.

In 2024, the lowest price criterion was used in 36.7% of competitive procedures, indicating a reasonably satisfactory level of application of the price/quality criterion. However, there are no tools available to support contracting authorities in applying the most economically advantageous tender criterion, such as scoring systems, life-cycle costing and award strategy models.

There has been an increase in the average number of participants in competitive procurement procedures. In 2024, the average number of tenders submitted per competitive procedure was 2.5, compared to 1.9 in 2022.

No comprehensive data are available on key elements such as the participation of small and medium-sized enterprises, single-bid procedures and the practice of lot division.

The e-procurement platform ARMEPS is operational and serves as a central hub for publishing procurement plans, notices and tender documents, as well as for tender submission, contract management and related functions. The platform collects and processes data on procurement procedures, including key information required by the standard forms used in Tenders Electronic Daily. These data are used by the MoF to compile statistical reports.

However, the use of electronic procurement is not mandatory for all contracting authorities, and some procurement procedures remain unregistered on the platform. As a result, full implementation of e‑procurement has not been achieved. In 2024, only 40.8% of procurement procedures used e‑submission. Electronic invoicing is also not mandated. Ongoing efforts are underway to develop a new central public procurement platform, which is expected to support mandatory, full-scale electronic procurement.

Contract management remains a critical weakness in Armenia’s procurement system. Although certain functionalities, including the Procurement Plan and Contracts Management module, are available within the ARMEPS platform, they are only partially used and do not provide a comprehensive view of contract execution or compliance with contractual obligations. No standardised guidelines on contract management have been issued, and data on contract amendments, quality assurance during implementation and payment compliance are not systematically collected or reported. This fragmentation extends to PPP and concession contract management, where guidance is limited and progress on execution is not made publicly available. While some guidelines on PPPs exist, they are insufficient to cover the full lifecycle management of such complex arrangements. Furthermore, there is no systematic mechanism for ex post evaluation of procurement processes or contract outcomes.

Availability and quality of support to contracting authorities and other actors to strengthen professionalisation of procurement operations

Key materials are available to support contracting authorities in complying with procedural rules. The MoF offers consultations through its help desk for both contracting authorities and economic operators. A certification system for procurement officers is in place. Additional guidance is needed, particularly with a focus on practical examples and sector-specific issues. There is also a need for more practice-oriented training, as well as structured training programmes for economic operators.

Advisory and operational support is mainly provided by the MoF. Model documents, forms, manuals and a section for frequently asked questions are available on the official procurement website. While this offers a degree of structured guidance, feedback from contracting authorities and economic operators indicates that the assistance remains overly legalistic and lacks practical orientation.57

Mechanisms for co-ordinating legal interpretation among key procurement institutions require strengthening. Although there is some evidence of inter-agency communication, stakeholders call for a more structured and regular interaction.58

Manuals and guidelines exist and are generally aligned with current legislation, but they do not comprehensively cover all stages of the procurement cycle. Sector-specific guidance is notably absent, especially for high-value or complex procurements. While standard procurement forms are accessible and are up to date, they are often overly complex and do not include practical examples.

The SIGMA Surveys of Contracting Authorities and Businesses on the public procurement system in Armenia 2025, conducted in April-May 2025, indicate that more than nine out of ten contracting authorities (both central and local) have used the guidelines in the last year, while only half of the companies have used them. Among those contracting authorities who have used them, 72% gave a rating of 4 or 5 on a five-point scale (where 1 means “not useful at all” and 5 means “extremely useful”). Among businesses, 48% gave a rating of 4 or 5. The arithmetic mean of positive responses from both groups is 60%, indicating room for improvement, especially for businesses.

In relation to PPPs and concessions, advisory mechanisms are available via the Ministry of Finance through direct communication channels. However, there is no dedicated or regularly updated repository of practical problem-solving resources for PPPs. While guidelines exist, the absence of standard forms and tools with practical examples significantly undermines the support framework.

Training for procurement officials is formalised but remains insufficiently robust. A certification scheme is in place, and procurement co-ordinators are required to undergo training every three years. A central curriculum exists and is aligned with national regulations, with materials generally updated to reflect legal changes.

The 2025 SIGMA surveys show a relatively high level of satisfaction with procurement training. Among contracting authorities, 81.8 % of respondents rated the training at 4 or 5 on a five-point scale (where 1 means “not useful at all” and 5 means “extremely useful”), and 69 % of business respondents gave the same rating. The arithmetic mean of these two groups' positive responses is 75.4 %.

However, stakeholders emphasised the limited practical orientation of these training programmes.59 Moreover, there is no routine collection of feedback from participants, nor is there any documented evaluation of training quality. Training for economic operators is not structured or regularly provided, although occasional outreach activities take place.

There is no regular training programme on PPPs and concessions. Training content is delivered on an ad hoc basis, and there is no standardised curriculum.

The role of civil society in procurement oversight remains limited, despite the existence of formal mechanisms intended to promote engagement.60 Civil society organisations can access procurement information through the ARMEPS platform, but barriers persist due to incomplete e-procurement coverage and difficulties in accessing contract performance data. In some cases, classifications of procurement as secret or confidential appear to be applied inappropriately, further limiting transparency.

The inclusion of civil society representatives in certain activities is widely viewed as formalistic, without genuine engagement. The MoF established a List of Public Organisations and Persons Carrying Out Informational Activities Entitled to Participate in the Process of Adoption of the Results of Contract Performance, but this mechanism is not used in practice fully.61

Principle 30: An independent procurement review system ensures effective, rapid and competent handling of complaints.

The remedies system is largely aligned with EU acquis standards and is based on a judicial review model. The number of appeals has been increasing, with a significant proportion relating to the inclusion of economic operators on the list of ineligible bidders. Detailed analytics and statistics on the review process are not available, and the timeframe for decision making raises concerns.

The review system was significantly reformed in 2022 with the introduction of court jurisdiction to handle public procurement complaints. The PPL stipulates the right to appeal as prescribed by the Civil Procedure Code62 and provides that public procurement cases are to be adjudicated under civil law rather than administrative law. The Civil Procedure Code specifies that cases concerning public procurement shall be examined in the Court of First Instance of General Jurisdiction of the City of Yerevan. Appeal fees are regulated by the Law on State Duty.63

The provisions on review and remedies are largely consistent with the EU acquis, although some discrepancies remain. Time limits for appeals are not in line with the Remedies Directives in cases where procedures are not fully electronic. The same applies to the standstill period. Mechanisms for declaring contracts ineffective and for imposing alternative penalties are also not fully aligned with the concept of ineffectiveness as defined in the Remedies Directives.

A significant shortcoming relates to the review and remedies framework for PPPs and concessions. The PPP Law outlines the procedure for appeal through judicial proceedings but does not specify the competences of the court. Moreover, the Civil Procedure Code contains no provisions specific to PPPs or concessions.

As the public procurement review body is a judicial authority, its roles and functions, the procedures for appointing judges and terminating their powers, and the rules of conduct for judges are governed by the legislation on the judicial system. Judicial matters are regulated by the Judicial Code. Provisions on conflicts of interest are also defined within the same framework, while the Law on Public Service requires the declaration of property, income and interests.

Judges use internal mechanisms to ensure the quality and integrity of decisions, and a specialised panel of nine judges has been established to enhance decision quality.64 However, there is still a need to further strengthen judicial capacities in this area and to improve overall co-operation with the MoF on further development of the public procurement system.

Appeals are lodged and managed using the electronic document system operated by the Judicial Department of Armenia and the Electronic Litigation system.65 Court decisions are publicly available on the official procurement website.66 However, there is no search engine to access these decisions. They are also accessible via an online court proceedings service,67 which offers only a partial search function that does not support specific procurement-related criteria.

There is a need to update certain information materials and tools on the official procurement website68 related to appeal procedures, in order to reflect the new review system.

In 2024, 310 appeals were filed, a notable increase compared to 210 in 2023. The change in the system appears to be encouraging economic operators to make greater use of the review mechanism.

It is preoccupying that the largest share of complaints in 2024 relates to the inclusion of economic operators on the list of ineligible bidders (41.3 %) and the correlated unilateral termination of contracts (32.3 %). A smaller proportion of appeals concerns the conditions set out in the invitation (5.2 %) and decisions made by the evaluation committee (21.3 %), areas that are critical for safeguarding the regularity of public procurement procedures and the application of procurement principles.

However, there are no detailed statistics or annual reports on the functioning of the review system. The annual public procurement reports include an appendix on judicial complaints, which provides a list of the appeals lodged that contains only basic information. It does not offer a comprehensive analysis of the review procedures or the overall functioning of the review and remedies system. As a result, it is difficult to assess the actual performance and effectiveness of the new remedies system, especially in terms of decision-making timeframes. An analysis of sample court decisions indicates that, in some cases, the decision-making period exceeded the legal time limit of 30 days. This conclusion was supported by interviews with contracting authorities and economic operators,69 who noted that appeal procedures continue to suffer from lengthy decision making.

Principle 31: All public funds are effectively audited by an independent auditor that provides assurance on the use of public resources and helps improve the functioning of the public sector.

The legal framework for external audit provides a solid foundation for the independence and broad mandate of the SAI. The constitutional and legislative provisions effectively safeguard the autonomy of the Audit Chamber, and recent reforms have enhanced strategic planning and communication. Nevertheless, practical implementation issues, such as the lack of external quality assurance, limited parliamentary engagement and underdeveloped follow-up mechanisms undermine the full effectiveness of the external audit function.

The Constitution explicitly recognises the Audit Chamber as an "independent state body" responsible for external audits of public finances and property (Article 198). Its members, including the Chairperson, are elected by a supermajority70 of the National Assembly (Article 199), which is a good practice. Members are prohibited from engaging in political activity. Incompatibility provisions further protect independence by preventing conflicts of interest. The powers, procedures and guarantees of the Chamber are to be further established by law.71

The Law on the Audit Chamber provides the Audit Chamber with a broad operational mandate and autonomy.72 The Chamber's budget process involves submitting the budget to the MoF, with the MoF reviewing but not fully controlling the final proposal.73. The legal provisions around members’ immunity and access to information are well articulated. However, delays and restrictions in accessing premises and documents have historically hindered audit effectiveness, although recent amendments aim to address these issues.74

The mandate of the Audit Chamber encompasses financial, compliance and performance audits, as outlined by law.75 It is empowered to audit all public sector entities, including state and local government bodies, as well as entities with significant state involvement, aligning with international standards. The law mandates annual audits of the state budget and grants the Chamber discretion to select audit subjects within the legal framework, providing broad coverage of public financial operations.76

Recent developments include the selection of audits around policy areas, such as environment, digitalisation and infrastructure, indicating an expanding scope aligned with contemporary policy priorities.77 All financial operations, including those outside the formal budget, are within the Chamber's purview, promoting comprehensive oversight.

The Chamber’s strategic planning process is well established with the 2020-2023 strategic plan being extended for a further two years into 2024-2025, with a focus on legal reforms, capacity building and modernisation. The strategic plan was extended as a significant number of the objectives and actions were predicated on the implementation of a revised legal framework, which did not take place until 2024. A needs assessment conducted before the development of the original plan identified deficiencies in legal independence, recruitment procedures and follow-up mechanisms, prompting amendments to address these gaps. The strategic plan emphasises transparency, stakeholder engagement and improved audit impact, supported by an action plan aligned with international good practices.78

Recent reforms aim to enhance governance by establishing clearer management roles and developing a human resources strategy aligned with new legislation. These initiatives are designed to improve efficiency and accountability, although implementation is ongoing. The Chamber’s management framework is thus evolving to better support its independence and operational effectiveness.

The Chamber’s audit methodologies adhere to the International Standards of Supreme Audit Institutions (ISSAIs), ensuring compliance with international good practices in financial, compliance and performance audits. Internal assessments of audit quality are conducted periodically, but external assessments have not been performed for over five years. Although regulations mandate external evaluations at least once every five years, resource constraints have prevented these assessments from taking place. Based on the information provided by the Audit Chamber, there is no conclusive evidence to affirm that the engagement quality reviews of financial, compliance or performance audit engagements explicitly demonstrate adherence to the ISSAIs. While efforts are underway to align audits with national guidelines and improve methodological practices, the absence of formal inspections, documented assessments or checklists indicates that these engagements have not been systematically evaluated for compliance with the ISSAIs.

The Chamber has begun to establish a Quality Management System aligned with the revised ISSAI 140,79 encompassing audit planning, execution and review processes. Policies for engagement quality reviews exist, but in practice these reviews have not been conducted systematically. Reports indicate that no formal inspections of completed audits have been performed recently, which limits oversight of audit quality.

The Chamber’s codes of ethics for auditors and members are publicly available and aligned with ISSAI 130 principles.80 Regular written confirmations of independence are obtained from personnel, reinforcing ethical standards.

The legal framework mandates regular reporting to the National Assembly, including annual, quarterly and special reports (Articles 24, 25 and 30). The Chamber’s reports are publicly available, and the law grants it discretion over report content and publication modalities, ensuring transparency. However, in practice, most reports are not actively discussed or scrutinised by the Parliament. For example, only one out of numerous reports was formally considered within three months of publication in 2024, indicating limited legislative engagement.

The Chamber’s reports are generally comprehensive, containing audit findings, recommendations and responses from audited entities. Nonetheless, the follow-up of audit recommendations remains weak, with no systematic process yet operationalised. Recent legal amendments provide for future follow-up activities, but these are still under development, and the Chamber has not yet implemented a formal follow-up system (see the analysis of Principle 16).

The Chamber has adopted a Communication Strategy (2023-2025) aimed at enhancing transparency and stakeholder engagement. It actively disseminates reports via its website, media and public events, contributing to increased visibility. However, stakeholder feedback mechanisms are limited and largely ad hoc. The Chamber is developing a stakeholder feedback system, including a new website feature, but this remains in the planning stage.

Parliamentary engagement is formalised through established procedures, with reports submitted to committees. Nonetheless, actual legislative scrutiny is limited, with most reports not discussed in detail or used for decision making. For instance, only one report was discussed within three months of publication in 2024, and hearings with audited entities are infrequent, with only two held in the last year. There is also no formalised follow-up mechanism to monitor how audit recommendations are implemented.

Principle 32: Regional and local governments have resources and adequate fiscal autonomy for exercising their competences, with financial oversight to foster responsible financial management.

The legal framework for tax sharing, fiscal equalisation and asset ownership is solid. Local governments face practical challenges due to limited financial resources, weak administrative capacity and underdeveloped oversight mechanisms. The equalisation system supports local budgets, covering over 31% of their revenues. It has had a moderate effect on reducing disparities, and allocation formulas need to be refined. Borrowing by municipalities is legally permitted but tightly restricted, and public debt remains minimal. Oversight is fragmented, with the Audit Chamber conducting very few audits. Moreover, the absence of an institutionalised consultation mechanism hinders co-ordinated financial planning. Although reforms are underway following the 2023 adoption of a decentralisation concept, significant efforts are still required to ensure meaningful financial independence and improved governance at the local level.

The legal framework provides clear guarantees for fiscal autonomy of local self-governments.81 It establishes a diversified revenue base for municipalities and sets clear and objective criteria for allocating financial resources. The system for distributing shared national taxes and general-purpose transfers is stable and designed to ensure horizontal equity (among local communities) and vertical fiscal balance (between central and local levels of government).

Local governments are legally empowered to own and manage assets autonomously. Municipal budgets are approved by the elected community councils and do not require approval from higher-level administrative bodies. In cases of fiscal distress or outstanding financial obligations, the law provides for a structured approach: the head of the community, in co-operation with the competent state authority, is required to develop and implement a programme for gradual repayment and fiscal consolidation.

Local governments are legally permitted to borrow, but only from public sources and with state approval. While borrowing procedures and limits are clearly defined, the restriction to public funding has made borrowing uncommon, and overall municipal debt low. In 2024, interest payments totalled around AMD 256 million (EUR 570 688),82 a small fraction of total local government spending, which reached AMD 277.9 billion (EUR 619 million). Loan receipts amounted to AMD 510 million (EUR 1.37 million), underscoring the limited role borrowing plays in municipal finance.

The amalgamation reforms created larger-scale local governments and thus strengthened the capacities for financial management. Some concerns persist regarding the efficiency of financial management at the local level, particularly among small municipalities with limited administrative and technical capacity.

The law designates the Audit Chamber as the primary authority for external financial oversight. Audits of local budgets may be conducted either by the Audit Chamber (externally) or independent auditors (internally, on behalf of communities), although in practice the Audit Chamber audits only one community per year, and municipalities typically do not rely on professional audit services.

In 2025, the legally mandated 4% state budget transfer to local governments amounts to AMD 90.2 billion (EUR 200.6 million). The country maintains a stable legal framework for distributing shared national taxes and general-purpose transfers, with unconditional grants comprising 78.17% of all municipal transfers in 2024.

In addition to general-purpose grants, Armenian municipalities can access special-purpose grants for co-financed local projects. For 2025, a total of AMD 30 billion (EUR 66.9 million) has been allocated for this purpose from the state budget. These funds are distributed by a governing board chaired by the Deputy Prime Minister, which includes the Ministers of Territorial Administration and Infrastructure and the Ministry of Finance.

The Government has also introduced a participatory budgeting initiative aimed at enhancing citizen engagement in local decision-making. In 2024, AMD 500 million (EUR 1.15 million) was allocated for participatory budgeting subventions, rising to AMD 1 billion (EUR 2.3 million) in 2025. These funds support co-financed projects initiated at the local level. To date, approximately 30% of all municipalities (21 out of 71) have been included for assistance under this scheme.

The extensive territorial consolidation of municipalities significantly increased their size and capacities. However, significant differences in population size, administrative capacity and financial resources persist at the local level. These disparities underscore the essential role of the fiscal equalisation system in ensuring fair access to resources and supporting balanced territorial development.

To address these challenges, Armenia adopted a new Law on Financial Equalisation in 2016, which entered into full effect in 202383 following the amalgamation of communities.

In 2024, local government revenues totalled AMD 273 billion (approximately EUR 608.6 million), of which AMD 85.3 billion (approximately EUR 190.2 million) – or 31.25% – came from equalisation transfers provided by the state budget. These subsidies are granted on a non-repayable, non-earmarked basis and can be spent by local governments according to their needs, strengthening the financial independence of local authorities and enabling them to address their own priorities.

Armenia’s equalisation system is formula-based and operates through two main components. Component A targets small municipalities (with populations under 3 500) by providing a uniform, per community‑ grant, irrespective of population size. The annual amount is defined in the Law on the State Budget. Component B applies to all municipalities and is calculated using the budget security coefficient, a metric that takes into account expenditure needs84 and reflects how far a municipality's own revenues fall below a defined fiscal threshold. This component aims to secure a minimum level of fiscal capacity for all local governments and reduce inequalities in service delivery across communities.

This equalisation approach ensures that municipalities have the flexibility to manage their resources independently while receiving predictable financial support from the central government.

The Gini Coefficient for per capita local revenues in Armenia decreases from 0.338 to 0.217 after equalisation, indicating a noticeable reduction in inequality. Similarly, the ratio between the ninth and second revenue deciles drops from 3.99 to 1.99. While these figures show that the equalisation system has a tangible impact, its effectiveness remains limited, particularly given that equalisation transfers account in average for nearly one-third of total local government revenue.85 This suggests that the current allocation formulas require revision to more effectively reduce disparities among communities.

Total own-source revenues, including taxes, fees, tariffs, and property income, represented 43.46% of all local government revenue in 2024, a slight decline from 45.7% in 2020. The percentage of own revenue compared to total revenue declined slightly, because the transfers increased faster. Compared to 2020, own-source revenues as a share of total national government revenue remained unchanged at 4.4%.86

In 2024, local tax revenue amounted to 0.73% of GDP, up from 0.5% in 2020.87 The bulk of municipal tax income came from property taxes88, which accounted for 67% of total local tax revenues. Notably, vehicle property tax alone contributed 36.33% of all local tax revenue. Local governments have the authority to adjust tax rates, but only within the limits set by central legislation.

While the legal framework recognises the principle of commensurate funding for delegated functions, this is not consistently applied in practice.89 Moreover, there is no institutionalised mechanism for financial consultation with the Communities Association of Armenia. Although the Association is occasionally invited to provide input on draft laws and strategies, it lacks a meaningful role in final decision-making processes.

Local government expenditure accounted for 7.2% of total general government spending (2.2% of GDP) in 2020, rising to 8.23% (2.46% of GDP) in 2024. This increase has followed the economic recovery after the 2020 pandemic-related contraction of -7.4% of GDP,90 but it is mainly due to the increase in state transfers and own revenue mentioned before.

However, Armenia's share of local government spending remains significantly lower than that of EU countries, including Romania, Bulgaria and the Western Balkans. This relatively low figure reflects not only the limited responsibilities assigned to local governments in Armenia, but also the insufficient capacity and resources available to many municipalities to carry out their functions effectively.91

In 2023, the Prime Minister signed a resolution approving the Concept for the Decentralisation of Powers in the Republic of Armenia. The concept outlines the Government’s commitment to adopting a comprehensive decentralisation strategy and a corresponding action plan by 2026. Especially concerning finance, the reform agenda in this concept includes the “specific goal” of financial decentralisation by “increasing the degree of financial independence of the community and increasing the community's budget revenues, ensuring the necessary financial resources for the implementation of its powers.” In addition, it is planned to compare the mechanisms and principles of planning financial decentralisation and financial equalisation subsidies provided to communities free of charge from the state budget, as well as to assess their effectiveness”.92