Armenia

Armenia’s economy has undergone a profound transformation since independence in the early 1990s. Sustained growth, ambitious reforms, and external inflows of capital and remittances have created a market-oriented environment that is highly receptive to trade, capital, and technological innovation.

The global financial crisis had a major impact on Armenia. Before the crisis, the growth rate neared 14%. Now, economic growth is gradually picking up from 2.1% in 2010 to 4.6% in 2011 driven mainly by the mining sector and, to a lesser extent, agro-industries.

The central challenge for the government is to mitigate the economic and social impacts of the global crisis for the mid-term, while continuing policy and institutional reforms essential for recovery and long-term development. Increasing the economy’s resilience to external shocks and creating new opportunities for development are important priorities.

With a per-capita GDP of US$ 3,200 (GNI, 2010), Armenia is a lower middle-income country. Remittances from migrant workers, which play an important role in Armenia’s economy, reached 12.1% of GDP in 2011. With exports and remittances dependent on international prices for commodities, the Armenian economy is vulnerable to adverse shock to terms of trade from global developments.

The effect of the financial crisis on rural and urban poverty has been dramatic—the poverty rate increased from 27.6% in 2008 to 35.8% in 2010. The poor have been supported through targeted social expenditures and pension increases, and as growth picks up the number of people living in poverty is expected to fall.

Armenia’s energy sector has moved from severe crisis to stability thanks to a combination of policy, legal, regulatory and institutional reforms. Remaining challenges include an emerging supply gap, and maintaining energy supply reliability and affordable tariffs.

Armenia is a land-locked country with limited transport routes making the road network essential for sustainable economic development. A key Government objective has been to improve rural roads that link villages to main highways. These roads are called “lifeline” roads and comprise some 3,014 km of Armenia’s 7,704 km non-urban roads. With World Bank support, the Government has already improved 290 km of lifeline roads while also creating temporary employment in road construction. By the end of 2013, 140 additional km will be rehabilitated.

In the past decade considerable progress has been made in improving access, reliability and quality of drinking water and its infrastructure. The use of Public Private Partnerships (PPP) in the water and wastewater sector in Armenia has been an example of progressive sector development.

Agriculture plays an important role in employment and rural incomes, domestic food supply, and a source of expansion for food products exports. Weather vulnerability and marketing challenges have caused agriculture growth rates to fluctuate over the last decade, contrary to the steady growth pattern of the whole economy. Strengthening preparedness for natural disasters and climate change is a critical issue as Armenia is exposed to the impact of climate change through intensified droughts, landslides and hailstorms that affect rural communities and agriculture.

The Government has made considerable progress in education reforms by establishing a fully functional Assessment and Testing Center (ATC) that introduced a centrally administered unified examination system, which resulted in a more equitable and transparent system for university entrance. Education reforms also included the new National Curriculum, school-based assessment, use of Information and Communication Technology (ICT) in schools, and effective in-service training system.

Information Technology (IT) in general has become one of the important sectors of the Armenian economy, contributing to the technological innovation and productivity growth in the country.

The Government is in the midst of major healthcare reforms that focus on strengthening Primary Health Care (PHC), optimizing the extensive health services networks, enhancing health system governance and improving provider payment methods. The ultimate goal is to improve key health indicators of the population, in which important steps have been taken but further progress is needed.

The World Bank Group’s Country Partnership Strategy (CPS) for 2009 -2012, extended until 2013, is anchored on two strategic objectives: addressing vulnerability (for the short-term) and strengthening competitiveness for post-crisis growth (for the long-term).

In addition to investment projects and analytical work, the World Bank has proposed a series of three annual Development Policy Operations (DPO) to protect the poor and support greater human capital development, and to improve competitiveness by encouraging better governance and fostering a more favorable investment climate.

Armenia was one of the first two countries that benefitted from a special fast track facility set up by the World Bank Group to help the world’s poorest countries cope with the impact of the global financial crisis.

The Board of Directors approved a package of three operations—the Lifeline Roads Improvement Project, the Additional Financing for the Social Investment Fund, and the Additional Financing for the Rural Enterprise and Small Scale Commercial Agriculture Development Project—that helped Armenia mitigate the impact of the crisis on the country’s economy and the well being of its population.

Throughout FY2009-2011, the Bank made available around US$ 440.6 million for various projects and provided general support during the eurozone crisis. Since joining the World Bank in 1992 and IDA in 1993, the total IDA and IBRD commitments to Armenia amount to US$ 1,624 million for 55 projects.

As of June 2012, the Bank is financing 14 projects in Armenia totaling US$ 383.1 million, which address needs in various sectors including roads, energy, agriculture, education, health, irrigation, rural development, and public administration.

The World Bank’s impact in Armenia has been felt across many sectors including roads, energy, agriculture, education, health, irrigation, rural development, public administration, and judiciary.

Recent development results in Armenia include:

Improving Rural “Lifeline” Roads:
The most isolated communities in Armenia are benefitting from improved roads that can bring in tourists and chances for economic revival. The Lifeline Roads Improvement Project has reconnected Armenia’s isolated rural communities to their urban centers. Since 2009, 290 km of roads linking villages to main highways have been rehabilitated while creating over 27,000 person-months of employment in affected rural areas. By the end of 2013, 140 additional km will be rehabilitated.

Reforming the Energy Sector:
Second generation energy reforms in Armenia focused on the use of safe, clean and affordable heating and renewable energy generation. IDA-supported reforms drove up the share of urban households using safe and clean gas-based heating from 13% in 2005 to 71% in 2010. Gas-related explosions, poisonings and fires reduced four-fold. Privately owned renewable energy generation grew from 137 GWh to 417 GWh.

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 International Development Association (IDA) has supported the government of Armenia in providing safe and stable water supply and reducing environmental pollution through two water and wastewater management projects. Over 332,000 households in Yerevan have benefitted from improvements in the duration of water supply and water quality.

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 System Modernization project about 2.5 million Armenians have better access to modernized facilities and quality health care 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.

Improving Agriculture through Irrigation:
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 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 water rights systems. 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.