Republic of Armenia
Armenia became a full member of Eurasian Development Bank in April 2009. Its contribution to the Bank’s capital is US $100,000.
In January-September 2016, Armenia ceded its leading GDP growth position among the EDB countries it maintained in the first six months of the year. This was due to a 2.6% reduction in its GDP in Q3, as compared year-on-year, resulting from a significant decrease in gross agricultural product (due to sector saturation because of high yields in 2015) and the continued decline in construction. Economic activity rates that went down over July-October to a six-year record low of minus 7.8% in October 2016, compared year-on-year, regained growth in November. This allows expecting partial recovery in economic growth before the end of 2016. As for the use of revenues, exports remained the main driver of economic growth in Armenia. In Q3 2016, exports grew by 23.9% year-on-year. Overall, in January-September 2016, exports increased by 19.6% and imports declined by 0.8%, compared to the respective period of the previous year. The overall increase was largely to due to growing exports to the EAEU countries.
The stimulating monetary policy launched in early 2016 and lower external deflation pressure slowed deflation in the Armenian economy in September-December 2016. As a result, annual deflation was 1.1% in December. Therefore, actual deflation rates continue to be lower than expected by the Central Bank (4% for 2016).
To support economic activity and reduce deflation burden, the Central Bank decided once again to reduce the refinancing rate from 27 December by 0.25 percentage points, to 6.25%. Since May 2016, the Central Bank reduced the rate six times, from 8.75% to 6.25%. If there are no additional internal or external shocks, the Central Bank may continue to soften monetary conditions.
With the significant growth in the physical volumes of exports and improved trade conditions, the current account deficit fell to US $110 million (1.5% of GDP) in January-September 2016, from US $185 million (2.5% of GDP) the year earlier.
Remittances from Russia continued to decline, to 12.7% in January-November 2016 year-on-year (down 35.1% in 2015 and 14.8% over the first six months of 2016). The effects of lower remittances on domestic demand are compensated in part by stimulating fiscal policies. With the recovery of economic activity in Russia, it is expected that remittances from Russia will begin to grow again.
In January-September 2016, the budget deficit was AMD 93.6 billion, up 40% year-on-year. The total decline in budget revenues was 0.8%, due to lower value added tax collection (down 11.6% over the period, as compared year-on-year) and a 17.8% decrease in non-tax revenues. The growing budget deficit was compensated to an extent by greater income tax (by 5.4%) and profit tax (28.6%) collection. The total fiscal expenditure in January-September 2016 increased by 2.2% year-on-year as a result of increases in interest payments on the government debt, as well as in social benefits and pensions, and a significant growth in subsidies. The factors restraining deficit growth were reduced capital expenditure (by 34.6%) and expenses on the purchase of goods and services (by 35.4%). The budget deficit is expected to exceed the planned 4.1% of GDP to some extent as at the end of 2016.
EDB’s priorities in Armenia
EDB’s priority areas of operation in Armenia in 2013-2017 are as follows:
- Infrastructure projects to reduce transport dependency and ensure energy security
- Export enhancement by providing project and investment finance for mining, metallurgical and processing projects as well as other sectors of priority for Armenia listed in Armenia’s export-oriented industrial strategy
- To ensure food security and improve the country’s external competitiveness, the Bank will support agricultural projects envisioning modernisation and the introduction of new technologies, as well as the creation of vertically integrated agricultural enterprises with export potential. The Bank will also support food imports, primarily from the Bank’s member states, on conditions acceptable to the country.
- Further financing of the banking sector by means of targeted programmes supporting SMEs and export and import transactions with the Bank’s member states