Outlook for Armenian economy remains challenging, says IMF

By bne IntelliNews July 22, 2016

The outlook for the Armenian economy remains challenging as investment, remittances and imports continue to fall, eroding export revenues and purchasing power, and prices of copper - one of the country's key exports - stay subdued, the International Monetary Fund (IMF) said in a report on July 21. While GDP is projected to grow moderately by 2.2% in 2016 and 2.5% in 2017 on the back of a supply-side boost from agriculture and mining, the short-term outlook for growth remains uncertain as the recession in Armenia's leading commercial partner continues, and commodity prices remain depressed.

The small Armenian economy is highly dependent on agriculture and mining, sectors that have received a boost thanks to the commissioning of a new copper mine in December 2014 and higher-than-expected agricultural yields, as well as higher trade resulted from changing trade relations in the region - such as Russia's temporary ban on imports of Turkish products earlier this year. While the sectors drove growth in 2015 to a respectable 3.1%, conditions in the country have worsened as bank lending dried up and remittances from Russia, on which some Armenians depend for livelihood, continued their steep decline started in 2014. Consumer demand fell by 5.5% in 2015, which, accompanied by the low value of imports, brought the current account deficit down to 2.5% of GDP.

On the bright side, monetary conditions have stabilised in the country, where the central bank has reduced its net foreign exchange (FX) sales from $167mn in Q1/2015 to $95mn this year, in part supported by gas provider Gazprom Armenia's phasing of FX purchases to pay for gas imports from Russia. Inflation has remained below the government's 4% target, prompting the regulator to cut rates by 2.5 percentage points since August 2015, the IMF said after concluding the third review of the country's extended arrangement with the institution.

The IMF expects inflation to remain low at 1% and for fiscal consolidation to resume in 2016, with the budget deficit declining to 4.1% of GDP. Public debt is approaching 50%, prompting the need for fiscal discipline to reduce the primary deficit below 0.8% of GDP, the debt-stabilising level, to increase quality and efficiency of budget spending, particularly social spending, and the urgent passing of a new tax code. The latter will "close loopholes" by introducing a 5% tax on dividends for residents, subjecting agricultural businesses with revenues above AMD40mn (€76,000) to value added tax, exacting VAT on fuel, and increasing the excise tax on alcohol and tobacco.  

The banking sector, however, has seen its performance plummet despite adequate capitalisation thanks to new regulations that raise minimum capital requirements. Loan performance, in particular, has continued to deteriorate, with sector-wide non performing loans (NPLs) reaching 10% of GDP this year, up from 6% in 2014. Meanwhile, profits turned slightly positive (0.3%) in the first quarter of 2016, up from low negative rates (-0.3%) throughout 2015.

In addition to external economic risks, geopolitical ones pose a threat to near-term growth, particularly as they relate to the conflict with neighbouring Azerbaijan over the breakaway region of Nagorno-Karabakh, the IMF concludes. 

Related Articles

EBRD says 2016 net profit was around €1bn

The European Bank for Reconstruction and Development (EBRD) said it made a net profit of around €1bn in 2016, up by a quarter from the €802mn it made in ... more

World Bank raises growth forecasts for Kazakhstan and Azerbaijan

The World Bank’s latest “Global Economic Prospects” report issued on January 10 offers a mixed picture when it comes to the GDP growth prospects of countries across Central Asia and the ... more

Armenia's outlook remains challenging, says IMF

The International Monetary Fund (IMF) predicts GDP growth to the tune of 2.7% and 3% in Armenia in 2017 and 2018 respectively, the multilateral lender announced upon completing an extended ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss