IMF slashes forecast for Armenian economic growth for 2022

IMF slashes forecast for Armenian economic growth for 2022
The IMF had predicted last December that the Armenian economy would grow by 5.3% in 2022, and by 5% in 2023.
By Javid Agha in Baku March 18, 2022

The Armenian economy might grow by only 1.5% in 2022, the IMF has said, a much slower pace than previously forecast by the fund and other international financial institutions, because of the regional and global economic impacts of the Russian-Ukrainian conflict. 

The preliminary forecast was voiced by the head of the IMF team, Thanos Arvanitis, who conducted the sixth final review of the economic programme of Armenia, implemented within the framework of the Stand-By Agreement (SBA) assistance programme, from March 1 to March 6.

“Large-scale sanctions on Russia, higher food and fuel prices, reduced remittances and heightened volatility in global financial markets are expected to widen the current account deficit in the coming months, drive up inflation and dampen economic growth. While there is considerable uncertainty about the extent of the impact on Armenia, as the situation is still evolving, our preliminary estimate is that the economy could grow by around 1.5% in 2022, at a much slower pace than previously expected.” Arvanitis said.

The IMF had predicted last December that the Armenian economy would grow by 5.3% in 2022, and by 5% in 2023.

“Armenia’s economy continued to recover, recording a growth of 5.7% in 2021 and continuing strong growth in early 2022. Annual inflation in the consumer price index declined steadily, hitting 6.5% in February, helped by tightening monetary policy. Fiscal policy has helped mitigate the impact of shocks on the economy over the past two years but remains tied to the broader goal of debt sustainability, and tax policy and administrative reforms continue to broaden the tax base,” he said. 

The IMF estimates that the budget deficit narrowed to 4.7% of GDP in 2021, mainly due to cuts in government spending. 

“The external position has strengthened, especially in 2021, as the current account deficit narrowed during the COVID-19 pandemic, while remittances remained strong and eurobond issuance and SDR placements boosted international reserves. The banking system has remained fairly capitalised and liquid, and asset quality has improved,” Arvanitis said in a statement.

The economic growth of Armenia in the state budget for 2022 is provided for in the amount of 7%, and inflation is set at 4% (± 1.5%). Minister of Economy Vahan Kerobyan noted in January that the government predicts that the country's economy will grow by 7% in 2022, while the central bank in March predicted a 1.6% growth in the country's economy in 2022.

In the January report of the World Bank “Prospects for the World Economy” (Global Economic Prospects, January 2022), the forecast for the growth of the Armenian economy for 2022 was 4.8%, and for 2023 5.4%. 

The EBRD, in its Regional Economic Outlook report for November last year, predicted that the Armenian economy would grow by 5% in 2021 and by 5.3% in 2022.

Rating agency Fitch Ratings predicts a recovery in Armenia's real GDP growth to 5.5% in 2021, a slowdown to 5.3% in 2022 and to 4.7% in 2023. 

Standard & Poor's expects real GDP in Armenia to grow by 6.3% in 2021 and by 4.6% in 2022.

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