Armenia’s economy has undergone a profound transformation since independence in 1991 Sustained growth, ambitious first generation transition reforms, as well as inflows of capital and remittances have created a market-oriented environment. However, the global financial crisis of 2008/09 had a significant negative impact on the country and eroded some of the welfare gains.
Double digit growth rates of pre-crisis period were replaced by an average 4.0% rate after the crisis. A moderate 3.2% growth in 2013, was followed by 3.5 percent in 2014 which then slowed down to 3 percent in 2015. Positive results from agriculture, mining, and tourism were diminished by sluggish manufacturing and other services. In the medium term, it is expected that economic growth will slow down further to approximately 2-2.5% for the next years before it slowly recovers to the 2015 level of 3 percent by 2018. To support economic activity the government implemented a relatively large fiscal stimulus in 2015 which expanded the fiscal deficit to about 4.9 percent of GDP and pushed up the public debt to nearly 50 percent of GDP. To restore a sustainable macroeconomic framework the government will need to embark on medium-term fiscal consolidation path and reduce the deficit to below 3 percent by the end of the medium term.
The key challenge for the government is to sustain growth in an unfavorable external environment within the constrained fiscal space. The country is confronted with the need to maintain a sustainable fiscal framework in the face of increased debt level and debt service obligations, falling foreign investments and compressed public investments, and sluggish economic growth.
With an estimated per-capita GDP of US$ 3,898 (GNI, 2015), Armenia is a lower middle-income country. Remittances from migrant workers that play an important role in Armenia’s economy, dramatically decelerated in 2015 as the Russian economy entered into recession severely constraining the domestic demand which in turn affected the country’s import of consumer goods. The latter led to a substantial decline of imports in 2015 and this trend continued throughout the beginning of 2016 and helped to improve the trade and current account balances. The improved current account balance is expected to be observed throughout the medium term as exports picks up and the decline in remittances bottom out in 2016.
The effect of the global economic crisis on poverty in Armenia has been dramatic—the national poverty rate increased from 27.6 percent in 2008 to 35.9 percent in 2009 and down to 30 percent in 2014. The geography of poverty in Armenia shows substantial gaps between the capital city Yerevan (25.6 percent), rural areas (31.7 percent), and other urban areas (39.4 percent). Income from labor markets, in combination with remittances and public transfers – such as well targeted social expenditure and pensions - contributed substantially to poverty reduction amidst a languished economic growth of the post-crisis period. Despite strong agricultural growth, the domestic labor market deteriorated due to limited job creation in other sectors compounded by the large-scale return of migrant workers from Russia. The unemployment rate rose from 17.5 percent in Q3 2014 to 18.2 percent in Q3 2015.
Last Updated: Apr 01, 2016