Overview

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

The World Bank Group’s Country Partnership Strategy (CPS) for 2014-2017 is focusing on the most binding constraints to private sector led sustainable growth through strengthening competitiveness and job creation. Simultaneously, the strategy aims at consolidating the impact of social services.

In addition to investment projects and analytical work, the Bank continues its support through a number of policy reforms supported by the series of four Development Policy Financing (DPF) Operations and the related Financial Sector Advisory Technical Assistance. More specifically the reform package supported by the current DPF series covers inspection reform, tax reform through a unified tax code, environmental legislation pertaining to mining waste management, introduction of consolidated supervision for banks and financial institutions, introduction of integrated social services, secured transaction reform, disclosure of information on ultimate beneficial owners for banks, and upgrading the insolvency/foreclosure legislation. In addition, the Bank provides technical assistance to the Ministry of Finance to enhance its capacity in financial sector regulation and pension reform oversight.

As of April 2016, The World Bank’s portfolio in Armenia performs satisfactorily and consists of 19 operations with a total commitment of US$642.2 million. In private sector, the bank is supporting the strengthening of Government’s capacity to promote exports and attract investment. In the energy sector, the aim is to improve the financial stability of the sector, rehabilitate core infrastructure and thus improve reliability, and enhance energy efficiency of public facilities. Through support to agriculture, the program helps enhance farmers’ competitiveness by addressing productivity and supply constraints. The interventions in ICT have led to the increase in the share of the population with access to a computer, a share that more than tripled between in the last five years. The education sector work is targeting quality and relevance issues in secondary general and higher education, making the system inclusive from very early on. The projects in the health sector made more accessible, high-quality, and sustainable health care services available to the population across the country.

Apart from lending instruments, the Bank is engaging in the country though grant projects, trying to boost the capacity in service delivery in a number of key areas. An active program of 35 trust fund operations totaling US$31 million is supporting institutional capacity building, project preparation, and activities in key reform areas, as well as financing stand-alone grant projects.

Last Updated: Apr 01, 2016

The World Bank’s impact in Armenia has been felt across many sectors including roads, water, agriculture, health, irrigation and rural development. Recent development results in Armenia include:

Improving Rural “Lifeline” Roads:

The most isolated communities in twelve regions are benefitting from improved roads through Lifeline Roads Improvement Projects. The livelihoods of people living in 139 communities have benefitted from the rehabilitated roads, opening potential avenues for agriculture, tourism industry and economic revival. Since 2009, 433 km of roads linking villages to main highways have been rehabilitated while creating over 40,536 person-months of employment in affected rural areas.

Empowering Communities through Improved Infrastructure:

Over the last decade, a series of projects and additional financing operations supporting the Armenia Social Investment Fund have supported small-scale infrastructure investments that also helped generate employment and mitigate the impact of the crisis. It has financed 319 community infrastructure micro-projects, covering more than 130 schools, 88 community and cultural centers, 44 kindergartens, 43 health, water, sanitation assets, among other local priorities. Overall, about 1, 6 million people have benefitted from it along with 719,705 job-days of employment and US$11.76 million in wage income.

Improving Access to Water:

The quality, reliability, and efficiency of water supply services have improved dramatically for Yerevan, the capital and largest city of Armenia. The Bank has supported the government of Armenia in providing a safe and stable water supply and reducing environmental pollution through two water and wastewater management projects. In Yerevan households are ensured with 23 hours water supply that is fully safe. In addition, the average number of daily hours of drinking water service outside the capital city increased from an average of six hours per day in 2004 to 17 hours per day in 2011.

Modernizing Healthcare:

Through two phases of the Heath Systems Modernization Project over two million Armenians have better access to modernized facilities and quality health care in 14 newly constructed/renovated regional medical centers provided by retrained physicians and nurses.  In the regions, a small number of specially trained physicians in centralized, renovated regional medical centers now provide a wide range of health care services with state-of-the-art equipment. Overall, 90.4 percent of the population is now satisfied with the primary healthcare with 95.2 percent stating that hospital services in the regions are of high quality.

Improving Agriculture:

Irrigation is slowly changing the landscape of Armenian agriculture and improving the lives of farmers. Instead of growing wheat or barley, thousands of the country's small farmers have been planting higher value crops that need more water but ultimately yield more cash. The transformation comes thanks to investments supported by the World Bank over many years in the country's irrigation and agriculture. Additionally, 71 irrigation dams were brought up to international safety standards, reducing the risk of dam failure and flooding for about 570,000 people living downstream from the dams. Besides, the improvement of productivity and sustainability of pasture-based livestock farms in mountainous communities is being supported through the development of cooperatives and associations and the introduction of innovative community-based pasture/fodder-based livestock production practices. As a result, milk productivity on average has increased by about 14 percent and the cattle growth rate has increased by 12 percent. 


LENDING

Armenia: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments