Population 3.366 million
GDP 10.551 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
2.2 |
4.7 |
6.2 |
4.3 |
|
Inflation (yearly average) (%)
|
7.3 |
7.7 |
2.4 |
4.2 |
|
Budget balance (% GDP)
|
-4.6 |
-2.8 |
-2.1 |
-2.6 |
|
Current account balance (% GDP)
|
-14.8 |
-10.9 |
-10.4 |
-9.6 |
|
Public debt (% GDP)
|
39.7 |
41.8 |
44.9 |
43.5 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Financial support from the international community
- Overhaul of public finances
- Improvement of the business environment
WEAKNESSES
- Current account deficits structurally high
- Geographic isolation
- Heavy dependence on Russia (foreign direct investments and exports)
- Risk of armed conflict with Azerbaijan
Risk assessment
Less lively growth
Armenia’s economic performances were better than predicted in 2012. Very dependent on the Russian economy (particularly in terms of transfers from expatriates), which is holding up rather well, the Armenian economy is expected to remain relatively free of the Eurozone slowdown in 2013. However, growth is expected to be hamppered by a slower growth of credit, which will curb private investment. Consumption, sustained by fiscal measures, will continue to drive growth. Less favourable climatic conditions will restrain agricultural production while the mining (copper, aluminium), manufacturing (construction, engineering) and services sectors will remain buoyant. The rise in food prices, accentuated by the summer drought which affected Russia, the country’s main grain supplier, as well as the cost of energy, will strengthen inflationary tendencies. The Central Bank is keeping its inflation rate target (4% ±1,5%) and is expected to maintain its refinancing rate, unchanged since September 2011.
Fiscal consolidation efforts and control of the current deficit
The government is continuing its programme of consolidating public finances. Spending, redirected to social programmes and pension increases to the detriment of capital spending, remains under control thanks to the wages freeze. The postponement until 2013 of infrastructure investments (motorway project) not carried out in 2012 could push the deficit up slightly, with the reforms, aimed mainly at reducing tax evasion and improving VAT collection, limiting its size. This budgetary consolidation effort is necessary in order to stabilise the public debt, of which 80% is denominated in foreign currencies and which has more than doubled since 2008 (from 16% to 42% of GDP).
The current deficit stabilised in 2012. Despite a slight fall expected in 2013 as a result of the strengthening of the prices of the main export products (metals, minerals), it will remain high. Imports will continue to be sustained by the increase in household demand. Transfers from expatriate workers (mainly in Russia) will grow modestly. Foreign direct investment flows will weaken (end of privatisation programmes, investor caution with regard to a country subject to tensions with its neighbours) and portfolio investment flows are negative. Borrowing is therefore unavoidable in order to cover the economy’s financing needs. External debt, mainly to multilateral backers and Russia, is growing strongly, approaching 70% of GDP (30% in 2008). The interventions of the Central Bank to limit the volatility of the dram, which lost 7% of its value in the first half of 2012, are reducing the country’s reserves. The banking sector appears to be stabilised with non-performing loans in decline and new prudential rules strengthening the capitalisation requirements. But, heavily dollarized, it is exposed to foreign exchange risk.
A stable political situation but a geopolitical environment at risk
President Serzh Sargsyan was comfortably re-elected in the first round of the elections in February 2013 with 58.6% of the votes. Despite the objections of his main rival, the ex-minister of foreign affairs, Raffi Hovannissian, the violence which had marked the presidential election of 2008 was not repeated. The president’s party, the Armenian Republican Party (ARP) has held an absolute majority of the seats in the National Assembly since the legislative ballot of May 2012. The internal political situations therefore seems to have stabilised.
Negotiations with Azerbaijan on the status of the Nagorno-Karabakh region remain at an impasse. Relations became more tense at the beginning of September 2012 after the decision of the Azerbaijan authorities to promote an officer found guilty of the murder of an Armenian soldier. The risk of armed conflict remains high, while the military budgets of both countries have been growing strongly since 2010. Moreover, Turkey, Azerbaijan’s historic ally, makes relations with Armenia conditional upon the resolution of the Nagorno-arabakh situation. No major progress is expected in the coming months with regard to Turko-Armenian relations.
Some progress has been made in terms of governance (protection of property rights, regulatory clarity) but corruption and the close links between the political and economic elites ensure that Armenia one of the lowest ranked countries according to Transparency International (129th out of 182).
