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OPINION January 21, 2021

In Armenia, Human Capital Investments are the Key to Resilient Growth in the Era of COVID-19


Photo Credit: World Bank Office Yerevan

Following the launch of the Human Capital Project in 2018, the government of Armenia and the World Bank undertook a systematic diagnosis of the constraints to human capital development. We report our findings in Survive, Learn, Thrive: Strategic Human Capital Investments Toward a More Prosperous and Inclusive Armenia, which identifies catalytic investments that can help Armenia’s children and youth compete in the global marketplace of tomorrow.

Fadia M. Saadah, World Bank Human Development Regional Director for Europe and Central Asia, reflects on the opportunity to build back better in the era of COVID-19 through human capital formation and activation in Armenia.

Q. What do you see as the main challenges facing human capital formation and activation in Armenia?

In many ways, Armenia has made significant improvements in ensuring health and learning through access to services. Enrollment in primary and middle school is above 90 percent, 100 percent of childbirths are attended by a skilled health care provider, and improvements in targeting of social transfers have helped reduce poverty and increased access to education and health care in low-income households. Between 1990 and 2017, life expectancy increased from 73.3 years to 78.7 years for women and from 66.7 years to 72.4 years for men.

There is still room for improvement, however. Armenia’s Human Capital Index is 0.58, meaning that a child born today in Armenia would be 58 percent as productive as she could have been as an adult if she had enjoyed full health and had benefited from a complete education. Learning outcomes also vary widely by gender and income, high out-of-pocket payments reduce access to health care services, and labor market programs that are necessary to activate human capital are few and small-scale.

The gains of the past two decades are at risk because of the COVID-19 pandemic, which is projected to lead to a contraction of real gross domestic product of 6.3 percent in 2020. Poverty rates are projected to rise and competing needs for public spending will reduce fiscal space for health and education.

Q. What strategic investments do you recommend in the short and medium term for Armenia to confront the challenge of recovering from the COVID-19 pandemic while investing in human capital development?

The report highlights the importance of human capital investments for economic growth in Armenia. Given the COVID-19 pandemic, the objective of reforming health, education, social protection, and jobs systems is linked to the urgent task of increasing resilience to future shocks.

In the health sector, doing so will involve establishing comprehensive surveillance systems, investing in quality primary health care, and reforming health financing to ensure that people have access to services through a financing scheme that provides incentives to reduce out-of-pocket payments and improve health. COVID also revealed the important role for technology in the social sectors. Telemedicine and other digital tools, for example, offer opportunities to close gaps in physical access to care during and after the pandemic.

The COVID pandemic created challenge for and risks to learning outcomes, which will have long-term impact on human capital. There is an urgent need to recover the losses in learning. Health protocols that prevent the spread of infections will need to be implemented so that schools can reopen safely.

At the same time, Armenia will need to support teachers with training and other tools to provide high-quality distance learning. Counselling, academic remediation, and financial incentives can help keep children and young people enrolled in schools and improve learning outcomes.

To ensure that no families are left behind, Armenia can build on the successes of the social protection system through the integrated social case manager program, which links poor and vulnerable households with social services. Jobs are another vehicle for activating human capital. Continued efforts to equip the workforce with skills that match evolving labor demand and job-matching interventions are important. A range of mechanisms, including web-based jobs portals, can link job seekers to employers in high-productivity sectors.

The report follows the narrative of a hypothetical family, the Harutyunyan’s, whose health, learning, and employment outcomes significantly improve with the implementation of catalytic human capital investments. It shows that if Armenia ensured complete education and healthcare, long-run per capita gross domestic product could be 1.75 times higher than it is today. Armenia is an early adopter of the Human Capital Project, an indication of the strong political commitment to rise to the challenge.

Q. The World Bank has partnered with Armenia on landmark reforms since independence. How do you see the engagement evolving over the next few years?

The report provides a starting point for developing, planning, and financing an intersectoral agenda to harness human capital. The World Bank Group remains committed to providing technical and financial support for operationalizing and implementing this ambitious strategy. We highlight important areas of engagement in education, health, social protection, and jobs below.

Education: The ongoing Education Improvement Project (EIP) is supporting the government’s efforts to create a network of stakeholders for accelerating knowledge creation and innovation; teach students job-relevant skills; and remove barriers to labor market participation, through increased access to early childhood education and care in rural areas to support working mothers.

A project funded by the European Union (EU4Innovation Project) that is being implemented with World Bank support contributes to the government’s efforts to develop and pilot modern teaching approaches, with the potential to be scaled up where successful. The project will also help identify cost-efficient interventions to address bottlenecks that prevent students from enrolling and performing well in STEM (science, technology, engineering, and math) subjects.

Health: World Bank Group engagement in health dates to 1997, with the Health Financing and Primary Health Care Development Project. The ongoing Disease Prevention and Control Project (DPCP) supports the government’s efforts to strengthen the prevention, early detection, and management of selected noncommunicable diseases at the primary health care level and increase the efficiency and quality of selected hospitals.

The DPCP also facilitates the emergency procurement of equipment and supplies for case management, as part of the COVID-19 response. Officials at the highest levels of government in Armenia recognize the urgent need for investments in health services to improve quality and ensure that every citizen has access to essential health care.

Toward that end, the World Bank Group has worked closely with counterparts to engage on policy issues and provide technical support in areas such as reforms to improve purchasing decisions and public financial management, strengthen primary healthcare, ensure integration between primary and specialist care, and inform efforts to expand fiscal space for health. This support can inform the next generation of reforms in Armenia, a country that is considered an innovator in health reforms among the former Soviet republics.

Social Protection and Labor: The ongoing Social Protection and Administration Project (SPAP II) supports the government’s efforts to create integrated service centers; develop monitoring and evaluation systems to administer social protection programs; and establish a unified information system to facilitate program management, monitoring, and evidence-based policy and decision making.

Through the Japan Social Development Fund, the World Bank Group is working with the government to upgrade Armenia’s social case management methodology and operational procedures. It is also providing small business grants to poor and vulnerable individuals to facilitate their graduation from public support and self-sufficiency.

Ongoing technical assistance and policy dialogue will continue to support better targeting of social assistance; the digitalization of social protection payment systems; and policies to support the integration into the labor market of returning migrants, women, and other vulnerable groups.