Armenia

Armenia is an upper-middle-income country nestled in the South Caucasus region at the crossroads of Europe and Asia. Despite being landlocked and facing regional connectivity challenges, the country has made notable progress in digital innovation, education, infrastructure, and democratic governance.

Armenia has experienced significant socio-political and economic shocks in recent years, includingthe COVID-19 pandemic, the military conflict with Azerbaijan in 2020, the refugee crisis at the end of 2023, and the impact of the conflict in the Middle East.

That sudden influx of refugees in 2023 has placed new demands on the state, requiring the expansion of housing, jobs, social services, and psychological support. Despite this pressure, the economy has shown notable resilience, supported by prudent macroeconomic management, namely inflation targeting, fiscal responsibility, and sound financial sector oversight.

Armenia became a donor to the International Development Association (IDA) in March 2023—just nine years after graduating from IDA support and four years after achieving upper-middle-income country status. Today, Armenia is navigating a transformative phase of peacebuilding, internal reforms, and foreign policy realignment.

The country is deepening its engagement with Western partners, while also seeking to stabilize regional relations. The Washington Declaration of August 2025 and the subsequent launch of the Trump Route for International Peace and Prosperity (TRIPP) in early 2026 marked an important step in Armenia’s economic and diplomatic landscape. The US-led initiative establishes multimodal transit connectivity through Armenian territory, linking Azerbaijan to its exclave Nakhchivan. Additionally, ties with the European Union have deepened significantly, as Armenia is currently in an active visa liberalization dialogue with the EU, and the inaugural Armenia–EU Summit scheduled for May 2026.

The government is advancing governance and institutional reforms while strengthening education and healthcare systems, supporting the integration of vulnerable and displaced populations, and enhancing connectivity to foster long-term, inclusive growth.

Growth in 2025 once again outperformed expectations, signaling the economy’s short-term resilience following the phasing out of the positive impact of re-exports in the prior years. Economic growth reached 7.2% in 2025, mostly driven by private consumption (10.7%) and investment (15.6%). On the supply side, growth was led by services (5.9%) and construction (21% ). Structural constraints like connectivity gaps, weak competition, and shortages of high-skilled labor, continue to hinder private investment, firms’ growth, and the creation of quality jobs.

The growth is projected to ease to 5.3% in 2026 and converge to 5% in the medium term. The projections assume a temporary disruption to energy and fertilizer supply and are subject to considerable uncertainty. Unemployment fell to 11.8% in the third quarter of 2025. Inflation picked up and reached 4.3% (yoy) in February 2026.

The Armenian dram (AMD) appreciated 1.5% vis-à-vis the USD in 2025, while it depreciated 2.8% against the EUR. The Central Bank of Armenia intervened and purchased about $1.8 billion in 2025. This, along with the issuance of a Eurobond in March and receipts of loans at end 2025, increased gross reserves to $5.1 billion, (3.9 months of imports). The current account deficit is expected to widen to around 6% of GDP in 2025, with exports of goods weakening faster than imports. In the medium term, it is expected to reverse course and narrow to 4.8% of GDP in 2028 as trade flows normalize. The fiscal deficit is projected to widen from 3.5% of GDP in 2025 to 3.9% in 2026 reflecting also the pension increase announced and thereafter, consolidate gradually to 3.6% by 2028, as spending moderates.

Downside risks to the outlook include uncertainty surrounding the 2026 parliamentary elections and potential escalation in geopolitical tensions. In addition, the conflict in the Middle East could lead to persistently elevated energy and food prices and trade disruptions, thereby weighing on trade, tourism, investment, and overall growth. On the upside, normalization of relations with neighbors, deeper regional connectivity, and new strategic investment commitments could support faster growth.

The current portfolio includes the following projects:

• A $40 million additional financing for the Education Improvement Project to improve school readiness of children entering primary education,  enhance general-education facilities and resources, and strengthen higher-education quality and relevance.
• A $25 million loan for Fourth Public Sector Modernization Project to improve the efficiency of and access to selected public services for businesses and citizens.
• A $9 million grant from the Green Environmental Fund and Swedish Government for the Armenia Resilient Landscapes Project (May 2024) to increase the area under sustainable landscape management and promote sustainable economic activities to communities in targeted landscapes in Armenia. A $40 million loan for the Enabling the Energy Transition Program for Results (May 2024) to integrate renewable energy into the power grid and strengthen the financial sustainability of the transmission company.
• A $109.4 million loan for the Enabling Universal Health Coverage Program for Results (June 2024) to improve primary healthcare quality, enhance spending efficiency, and reduce financial barriers to access.
• A $100 million loan for the Tourism and Regional Infrastructure Project (April 2025) to improve access to climate-resilient infrastructure and strengthen tourism investments in seven regions.
• A $80 million loan for the Water and Irrigation Services Enhancement Program (June 2025) launching a 10-year initiative to expand access to irrigation and drinking water in rural areas, create jobs, and build water resilience. The program will mobilize $435 million in total, including $330 million from IBRD and co-financing from France, the EU, and the Government of Armenia.
• A $250 million loan for the Armenia Housing Response and Mortgage Market Enhancement Project (December 2025) to improve refugees’ access to housing solutions and deepen the mortgage market.
• A $200 million loan for the Armenia Economic Transformation Development Policy Operation (March 2026) to support modernization of the investment and business environment, strengthen competition and consumer protections, and embed resilience into the country's fiscal and regulatory systems.