Armenia’s economy has undergone a profound transformation since independence. Sustained growth, ambitious reforms, as well as inflows of capital and remittances have created a market-oriented environment. However, the global financial crisis impacted significantly the market of the country.
Double digit growth rates of pre-crisis period were replaced by a 4.0% rate after the crisis. Following a moderate 3.2% growth in 2013, it slowed down to 2.1% in 2015. Positive results from agriculture, mining, and tourism were offset by sluggish manufacturing and other services. In the medium term, it is expected that economic growth will slowly recover but still remain below the newly estimated potential of 3.5% per annum.
The key challenge for the government is to sustain growth in unfavorable external environment with limited space for a fiscal stimulus. The country is confronted with the need to maintain a sustainable fiscal framework in the face of increased debt service obligations, falling capital investment, and slowing economic growth.
With an estimated per-capita GDP of US$ 3,830 (GNI, 2014), Armenia is a lower middle-income country. Remittances from migrant workers, that play an important role in Armenia’s economy, decelerated in the second half of 2014 as macroeconomic performance in Russia deteriorated, severely constraining demand for imported consumer goods. With exports and remittances dependent on international prices for commodities, the Armenian economy becomes more exposed to the balance of payments shocks, as these prices are on declining trend now.
The effect of the financial crisis on rural and urban poverty has been dramatic—the poverty rate increased from 27.6% in 2008 to 32% in 2013. The geography of poverty in Armenia shows substantial gaps between the capital city Yerevan (25.6%), rural areas (31.7%), and other urban areas (39.4 percent). The role of targeted social expenditures and pension increase is to result in substantial poverty reduction gains amidst a languished economic growth of the post-crisis period.
Last Updated: Nov 10, 2015