Overview

  • Country Context

    ARMENIA

    2017

    Population, million

    3.0

    GDP, current US$ billion

    11.6

    GDP per capita, current US$

    3.813

    Poverty Rate (US$5.50/day 2011PPP terms) (2016)

    43.5

    Life Expectancy at birth, years (2015)

    74.2

    Armenia’s transition from a semi-presidential system to a parliamentary republic is nearing completion. The new president was elected in March 2018 by the Parliament rather than by popular vote, as envisaged by the amended Constitution.

    In 2017, GDP growth in Armenia outperformed expectations, recording the highest rate of growth in the past decade at 7.5% after a flat economic performance in 2016. Growth was driven mainly by a recovery in the external environment and supported by a strong rebound in domestic demand. Consumption benefited from higher incomes and a recovery in remittances, particularly due to the moderate recovery in Russia.

    The economic outlook remains positive. The strong economic performance in 2017 suggests a window of opportunity to tackle and accelerate the challenging reforms that will be required for Armenia to unleash a new export-driven growth model that it is both inclusive and sustainable over the medium term.

    On the back of sustained favorable external economic conditions and subject to robust structural reforms, medium-term growth is forecast to be around the potential growth rate of 4%, based on private sector, export-led activity. In particular, the agribusiness, information and communications technology (ICT), and tourism sectors are expected to deliver solid growth as efforts to increase competitiveness and connectivity start to deliver results. 

    Last Updated: Apr 17, 2018

  • Strategy

    Number of active projects

    15

    Lending

    $573.4 million

    IBRD

    12 loans ($472.0 million)

    IDA

    5 credits ($92.9 Million) (3 stand-alone credits and 2 blend with IBRD)

    SREP

    1 grant ($8.55 million)

    For 25 years, the World Bank Group has been a key partner for Armenia, with a sustained history of successful sectoral investments and an equally deep history of policy reform dialogue.

    The new Country Partnership Framework (CPF) for FY18–FY22, soon to be discussed by the Board, will support the rebalancing of Armenia’s economy toward a new growth model over the 2018–22 period.

    The World Bank and International Finance Corporation (IFC) have a rich and diversified portfolio in Armenia, with finance mobilized from a range of concessional sources using diverse instruments.  The World Bank Group is increasingly focused on sharing country knowledge and operational experience to leverage other development partners’ resources for effective public investment.

    KEY ENGAGEMENT

    Events such as the 1988 Spitak earthquake illustrate the devastation, economic damage, and loss of human life that can result from natural disasters. Due to Armenia’s aging infrastructure, the country remains highly vulnerable, and a large-scale disaster would likely result in a high number of casualties and significant damage to public and private assets.  

    One of the most vulnerable sectors is education, as 90% of schools were built prior to the first Seismic Code that was adopted in 1994. To address this issue, Armenia has made the seismic safety of schools a national priority. Using data and analysis provided by the World Bank and the United Nations Children’s Fund (UNICEF) and the seismic retrofitting experience of high schools financed by the Bank’s Education Improvement Project, the Government launched the national Safe School Improvement Program (SSIP) in 2015. This was Armenia’s first effort to address the seismic vulnerability of school buildings at scale.

    The current target of the SSIP is to improve the safety of 426 schools - 31% of the country’s schools. As part of the Armenia National Disaster Risk Management Program (NDRMP), the World Bank has supported this effort by developing technical guidelines for the retrofitting and reconstruction of schools and providing training to government officials, engineers, and private contractors. The Government has committed to using these new guidelines to update Armenia’s normative documents, and in parallel, the program will provide technical assistance to develop a road map for upgrading Armenia’s seismic building codes following the adoption of new zoning maps developed under the NDRMP.

    In addition to supporting improvements in the physical resilience of schools in Armenia, the program is also leveraging the country’s existing information technology platforms to promote awareness of vulnerabilities across society. Through the Dasaran.am platform, the program has developed an educational e-Learning module aimed at strengthening disaster risk preparedness, particularly among the younger generations, through innovative experiential learning. The educational module was launched in October 2017 and within six months had been played almost 750,000 times by 48,350 individual players. Currently, a scale-up of the e-Learning module is under development to include mobile and multi-language versions on the iOS and android platforms.

    The program has prepared a national-level Probabilistic Seismic Hazard Assessment aimed at enhancing Armenia's seismic hazard information and updating the national seismic zoning maps adopted by the Government in spring 2018. The Bank has shared a Disaster Risk Fiscal Diagnostic Report to help the Government better understand the fiscal impacts of disasters and provide policy options for disaster risk financing and insurance. This work is now being followed by the development of a methodology to improve post-disaster damage data collection to ensure better informed decision making. 

    Finally, with growing threats from climate-related hazards, such as droughts, floods, and hail, the NDRMP has undertaken a technical assessment of the Government’s hydro-meteorological and forecasting needs to facilitate better disaster preparedness and decision making. The program also developed a strategic roadmap for the modernization of weather, water, and climate services in Armenia according to three different scenarios. The NDRMP will be supporting implementation of the scenario that provides the best weather and hydrological forecasting capability for the AHS, as well as improved access to forecasts by public and government stakeholders and better support to the early warning system in Armenia. 

    Last Updated: Apr 17, 2018

  • Economy

    RECENT ECONOMIC DEVELOPMENTS

    In 2017, GDP growth in Armenia outperformed expectations, recording the highest rate of growth in the past decade at 7.5% after a flat economic performance in 2016. Growth was driven mainly by a recovery in the external environment and supported by a strong rebound in domestic demand. Consumption benefited from higher incomes and recovery in remittances, particularly due to the moderate recovery in Russia. On the production side, growth in 2017 was driven by a significant expansion in trade (16%), industry (10%), and services (9%). The construction sector showed modest growth (3%) after continuous construction over the past several years, though the output remains below its 2008 pre-crisis level. The agriculture sector shrunk by 4% due to unfavorable weather conditions. The high pace of growth continued in the first two months of 2018, and economic activity grew by about 9% year-on-year.

    The period of deflation came to an end in 2017 and inflation began rising, reaching an annual rate of 2.6% by year-end, within the Central Bank of Armenia (CBA) inflation target of 4% (+/- 1.5 percentage points). Recovering domestic demand, gradually rising commodity prices, and excise tax hikes resulted in higher prices for food, beverages, cigarettes, and transport. Inflation continued to rise in 2018, reaching 3.3% in February, mostly pushed up by a significant increase in petrol and diesel prices, as a result of the upward adjustment in excise tax rates that became effective with the new tax code in 2018. Another factor contributing to inflation in January 2018 was the increase in customs duties for some 40 types of imported products as a result of Armenia’s membership in the Eurasian Economic Union (EEU), which sets higher uniform tax rates for a long list of imported items from countries outside the union.

    The fiscal deficit narrowed slightly from 5.5% of GDP in 2016 to 4.7% in 2017 due to a contraction in current expenditures as a percent of GDP, though the deficit remained wider than planned. Tax collections increased by 7.3%, driven by excises, customs duties, and environmental taxes. Current spending was lower than the previous year by 1%, while capital expenditures grew by 36%, mostly due to the acquisition of machinery and equipment. At the end of 2017, the fiscal rule outlined in the Public Debt Law was revised to help avoid pro-cyclicality. The amendments also introduced specific expenditure rules that become effective as public debt levels reach certain thresholds. Government debt at the end of 2017 reached AMD 3 trillion (about 55% of GDP).

    The current account deficit continued to narrow for a third consecutive year and is estimated to have fallen to under 2% of GDP in 2017. The improvement in the current account was driven by a strong increase in export earnings (up 25% year-on-year), particularly from minerals and processed food products, robust growth in tourist arrivals, exports of other services, such as ICT, and an improvement in the income account. With the recovery of domestic demand, imports also grew significantly (28%) and partially offset the strong inflows. The import of machinery and capital goods comprised 15% of total imports in 2017. Exports by destination show that in 2017, the share of exports to Russia and the European Union increased compared to the same period in 2016, while the share of exports to Canada, Iran, and Iraq fell.

    The banking sector remains well capitalized and liquid. The capital adequacy ratio was 18.6% on average for the banking system at end-2017, well above the minimum requirement of 12%. At the end of 2017, the non-performing loan ratio stood at 5.5%, its lowest level since the 2014 Russian crisis. The stock of credits and deposits grew by 10 and 9%, respectively. The dram lending and deposit rates decreased by 350 and 260 basis points over the course of 2017. Dollarization ratios for bank deposits and loans declined slightly but remained high at around 60%.

    The economic recovery in 2017 is expected to have supported a further reduction in poverty rates, which have been on a declining trend since the global economic crisis. The absolute poverty rate (measured at the 2011 purchasing power parity [PPP]-adjusted US$3.2/day poverty line) is estimated to have fallen from 14.1% in 2016 to 11.6% in 2017.

    ECONOMIC OUTLOOK

    The economic outlook remains positive. The strong economic performance in 2017 suggests a window of opportunity to tackle and accelerate the challenging reforms to make the growth inclusive and sustainable in the medium term. On the back of sustained favorable external economic conditions and subject to robust structural reforms, medium-term growth is forecast to be around the potential growth rate (4%), based on private sector, export-led activity; the agribusiness, ICT, and tourism sectors in particular are expected to deliver solid growth as efforts to increase competitiveness and connectivity start to deliver results. Inflation is expected to edge up in the near term, particularly due to higher customs duties and excises on fuels starting in 2018 envisaged in the new Tax Code, though it is projected to remain within the CBA inflation target range.

    Implementation of the upgraded fiscal rule (approved in December 2017) will result in stronger discipline for current spending and provide some room to increase growth-friendly capital expenditures, while also stabilizing and eventually lowering the public debt.

     

    Macro Poverty Outlook (PDF in Armenian)

    Last Updated: Apr 17, 2018

  • Highlighted Project

    Armenia’s Development Strategy 2014–2025 sees competitiveness and innovation as key to transforming the country into a knowledge-based economy. 

    The E-Society and Innovation for Competitiveness (EIC) Project has helped to expand and deepen Internet penetration and access to computers/IT devices among Armenia’s population and to foster enterprise innovation and the establishment of an IT/knowledge-intensive industry in the country. In 2010, only 15% of Armenia’s population had Internet access. By 2015, close to project completion, this indicator had reached 58.2% and continues to grow. More specifically, project results included: 

    • 344 remote villages across the country benefited from increased access to the Internet through a wireless connection. Broadband penetration was provided to 41% of residential rural households. 37,171 people received credits to purchase personal computers and other  ITC devices through the “Computer for All” Program. 
    • Through the “Digital Citizen” program, the Government strengthened procedures/mechanisms to ensure Internet security by establishing a Certification Authority that by 2016 had issued over 1 million user ID certificates, i.e., to one-third of Armenia’s population. 
    • The Gyumri Technology Center (GTC) and Vanadzor Technology Center (VTC) were established and are providing training to businesses. GTC has provided know-how and advisory services to 102 multinational and local start-ups, firms, and entrepreneurs, trained over 2,000 persons, and supported the incubation of young firms. 50% of the trainees/supported entrepreneurs were women. 
    • An Armenia Silicon Valley Representation Office was established that helped to facilitate US$3 million in sales and investments to Armenian tech companies and to send 38 Armenian IT companies to Silicon Valley for study tours. 

    The E-Society project also provided financial, advisory, and promotional services to support innovation: 31 grants totaling US$1.2 million were awarded to technology start-ups in Yerevan, Gyumri, and Vanadzor, and 11 projects received financing totaling US$1.6 million from the Early-Stage Venture Fund.

     

    Active Projects - One Pagers (PDF)

    Last Updated: Apr 17, 2018


LENDING

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

*Amounts include IBRD and IDA commitments



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Country Office Contacts

Yerevan, Armenia
9 Grigor Lousavorich St., Yerevan 0015, Armenia
+374-10-52-09-92
yerevan@worldbank.org