Republic of Armenia
Аrmenia became a full-fledged member of EDB in April 2009. It considers transportation infrastructure, electric power industry, agriculture and financial markets development to be priority lines of the Bank’s activities. Improvements in these sectors will promote sustainable economic growth of Armenia’s economy and allow to expand trade relations with other Bank’s members.
After nine months of stable GDP growth stimulated by internal shocks on the supply side in agriculture (expansion of areas under crops, greenhouse cultivation development, favourable weather conditions, etc.) and mining (launch of the Tekhut copper and molybdenum plant), Armenia's economy slowed down in Q4 2015. GDP growth was 1.9% in annual terms and 3% over the year (3.4% in 2014). With high growth rates in agriculture (13%) and industry (5.2%, due to a growth of 51.5% in metal ore production), the slowdown was caused largely by a persistent decline in trade (by 8%) and processing (5.6%) and practically zero growth in construction (0.3%) and services (0%). These sectors performed poorly due to weaker domestic demand (consumption and investment) resulting from a sharp decline in money remittances (-30% year-on-year, or from 15% of GDP in 2014 to 11.4% of GDP in 2015), in particular from Russia, and reduced bank lending (-3.1%).
The balance of payments improved in Q4 2015. International reserves increased by US $146 million over the quarter (US $1.8 billion as at year-end 2015) and the dram appreciated in real and nominal terms. The current account continued to improve (-2.1% of GDP over the first nine months of 2015 as against -9.8% over the same period of the previous year). In 2015, the balance of trade deficit declined to 11.2% of GDP (compared to 20.7% of GDP in 2014) due to positive shocks in agriculture and mining. Real exports in these sectors increased significantly and compensated price reductions. Nominal exports decreased by 2.1% while imports fell by 26.6%. An important factor in ensuring the positive balance of payments over the year was active foreign borrowings.
Taking into account that GDP growth is ensured by several sectors only and as a result of shrinking foreign trade and some fiscal changes, fiscal revenues went down in Q4 (including VATs and excise duties). The increase in revenues over the year was a mere 0.9%. Revenues were backed, to a significant extent, by higher customs duty and income tax collections. Expenditure growth decelerated in Q4 due to economic slowdown. It stood at 10.7% at year-end and was formed by increases in current expenditure aimed at stimulating the weakening domestic demand and public debt servicing costs. The government budget deficit grew to 2.9% of GDP (from -0.7% of GDP in 2014).
Inflation remained low (3.7% over the year, on average) and declined to 1.7% in annual terms as at end-December 2015. The key factors in ensuring low inflation were the deflationary external environment, a stringent monetary policy (high interest rates and reduced mass supply), the weak domestic demand, and the government’s efforts to ensure dram stability. Because of reduced lending, the banking sector's revenues turned negative (with a ROA of -0.5% and ROE of -3.5%); yet, this did not hinder reduction in non-performing loans by 7.8% as at year-end.
EDB’s priorities in Armenia
In its activity in Armenia, EDB highlights the following priority areas for 2013–2017:
• Infrastructure projects aimed at reducing the country’s transport dependence and ensuring its energy security.
• Export growth that can be generated through investment financing of projects in its mining, metals, and processing industries, and its priority sectors identified in the “Strategy of Export-Led Industrial Policy of the Republic of Armenia”.
• To ensure the country’s food security and improve its external competitiveness, EDB will support projects in the agro-industrial sector involving modernisation and introduction of modern technologies, as well as creation of vertically integrated agro-industrial enterprises with an export potential. EDB will also support projects to facilitate food imports, primarily from EDB member states, on conditions acceptable for Armenia.
• Financing of the banking sector will continue in the framework of targeted programmes aimed at supporting small and medium business development, and export and import operations with other EDB member states.