The World Bank in Armenia

Country Context

Armenia’s economy has shown resilience to recent shocks thanks largely to prudent macroeconomic management – a flexible exchange rate, active inflation targeting regime, effective fiscal rule – and a sound financial sector. Although the economy has performed better than anticipated earlier in 2022, geopolitical challenges continue to weigh on Armenia’s medium-term growth prospects.  

Shortly after independence in 1991, Armenia became a member of the World Bank in 1992 and joined IDA in 1993. Since then, over three decades of close cooperation, Armenia has experienced a remarkable economic performance and experienced a sevenfold increase in its GPD per capita. In 2014, Armenia successfully graduated from IDA to IBRD as a recipient country and became an Upper Middle-Income economy in 2019.  

Despite these many achievements, however, Armenia’s economy continues to face structural challenges, such as the need for further improvement in the business and investment environment, high unemployment, lingering labor skills mismatches, and weak firm competitiveness. 

Last Updated: Oct 10, 2022

Strategy

For 30 years, the World Bank Group has been a key partner for Armenia, with a sustained history of successful investments in various sectors of the economy and an equally deep history of policy reform dialogue. 

The current Country Partnership Framework (CPF) for FY19–23 focuses on the rebalancing of Armenia’s economy toward a new growth model focused on boosting exports, enhancing human capital, and sustainably managing natural resources and the environment. The Performance and Learning Review (PLR), delivered in May 2022, proposed an adjustment to the CPF program to catch-up on the delayed implementation of planned human capital reforms and to increase the focus on climate and environmental sustainability. The CPF is well aligned with the Government Program for 2021–26, approved in August 2021.

The World Bank and the International Finance Corporation (IFC) have a rich and diversified portfolio in Armenia and have financed projects across a range of sectors, including financial markets, manufacturing, agribusiness, services, and mining. The World Bank Group is also focused on sharing country knowledge and operational experience to leverage other development partners’ resources for effective public investment.

Key Engagement

The World Bank is helping boost the quality of Armenia’s education system, including through the Education Improvement Project, which is improving the conditions for learning across educational levels by extending preschool coverage, introducing seismic stability and other infrastructure improvements to high schools, providing laboratory equipment, informing curriculum revisions, and improving the relevance and quality of higher education institutions.

As of today, the outcomes of the project include 136 new preschools in rural communities, 258 trained preschool teachers, 13 retrofitted high schools, and 18 grants to higher education institutions through the Competitive Innovation Fund. As a result, these institutions provide more appropriate teaching and learning environments, including safer infrastructure, adequate ICT equipment and digital teaching and learning materials. 

Under the EU4Innovation Trust Fund, the World Bank is helping improve the quality of STEM education, through modernized teaching and learning materials. By September 2023, Armenia had a fully revised STEM curriculum for middle and high schools (grades 5 to 12), improved learning materials, school-based STEM laboratories and subject standards as well as enhanced student-centered instructional methodologies/teaching methods.

Through a recently approved TEACH small grant, the Bank will be supporting the National Center for Education Development and Innovation (NCEDI) in scaling-up classroom observations in the country. 

Last Updated: Oct 10, 2022

Recent Economic Developments

Contrary to expectations, Armenia experienced GDP growth of 11 percent during the first half of 2022 compared to the same period in 2021. This strong growth performance was mostly driven by growth in services, particularly tourism, finance, and IT.

High demand, along with elevated international food and fuel commodity prices, pushed Inflation to 10.3 percent in June 2022, with food and fuel price increases accounting for two-thirds of total inflation.  

The budget balance has also fared better than expected. Along with strong economic performance, the budget revenue collection overperformed by 7 percent. Combined with an under-execution of expenditures (two-thirds of it due to current expenditure savings and a third due to capital expenditures), this has resulted in a budget surplus of 0.9 percent of GDP in the first half of 2022, compared to a planned deficit of 1.5 percent. This resulted in a sharp reduction in public debt from 63.4 percent of GDP end-2021 to 50.2 percent end-June 2022, benefiting also from a 15 percent dram appreciation in the first half of 2022.  

On the external front, the trade deficit widened in the first half of 2022. Growth in goods imports outpaced exports, due to a stronger recovery in the import of goods and higher import prices. This was partly compensated by increases in service exports and total net money transfers from abroad. These results have boosted international reserves to 4.6 months of imports cover (as end June 2022).   

Economic Outlook

The strong economic performance in recent months has led to an upgrade of the growth forecast for 2022 to 7 percent. Inflationary pressures are expected to ease in late 2022 and in the coming years, as external price pressures subside and inflation targeting helps keep expectations anchored.    

The budget deficit is expected to be lower than planned in 2022 (at around 2 percent of GDP). As the economy decelerates in 2023, the fiscal stance may loosen, with consolidation expected to continue in 2024 and 2025.

Government debt is expected to decline by the end-2022, below the fiscal rule’s statutory limit of 60 percent of GDP. The CAD is projected to widen in 2022 due to weaker external demand and rising import prices, and will remain elevated in the medium term, at above 6 percent of GDP.

Last Updated: Oct 10, 2022