Armenia

EDB investment portfolio

06/30/2017

9 projects

$150 million

2.7% of the total

EFSD investment portfolio

06/30/2017

4 projects

$512.2 million

9.3% of the total


Armenia became a full member of Eurasian Development Bank in April 2009. Its contribution to the Bank’s capital is US $100,000.

Trends

GDP

In 1Q 2017, Armenia’s GDP growth rate was 6.5% compared with the same quarter of the previous year, according to preliminary data. Stimulative monetary policy measures in 2016 and 1Q 2017, as well as a considerable increase in the inflow of remittances in 2017, contributed to a recovery in consumer demand. The economic growth of countries which are key trading partners, together with an increase in the global prices of key goods exported by Armenia amid maintained price competitiveness of Armenian goods in foreign markets, all supported exports. The latter’s growth rate in physical volumes was 18.2% in 1Q 2017 compared with 1Q 2016.

In May 2017, the economic activity indicator increased compared with the equivalent month of 2016 by 8.9% (in April 2017 the rise was 3.4%). Overall, YoY growth in the economic activity indicator was 6.4% in January – May 2017. The key factors maintaining high economic activity in April – May were:

on the use of income side: more active household lending in drams (the increment for January – May 2017 was 8.3% compared with the same period of 2016, after 0.2% a year before), together with a significant increase in the inflow of labour migrants’ remittances, supported consumer demand, which was reflected in both retail turnover trends (9.5% YoY growth in May 2017) and the value of imported goods (61.7% in May 2017 against 2016). Goods exports, supported by the dram’s weakened real effective exchange rate and economic recovery in Russia, continued to grow.

on the value added side: the improved trading conditions against a background of growing domestic and external demand helped maintain the high growth rates in manufacturing, trade and services (growth in May 2017 of 20%, 15% and 14.3%, respectively, against May 2016). The construction and agricultural sectors contributed negatively to economic activity trends (reductions in May 2017 of 9.3% and 4.8%, respectively, against May 2016).

Inflation

A positive annual growth rate in the consumer price index was registered in April, for the first time since November 2015 (1.2% against April 2016). The rate increased further in May to 1.6% compared with May 2016. The accelerated inflation contributed to a recovery in consumer demand, increases in prices for agricultural products, stabilization of inflation expectations, and a weakening in the dram’s effective exchange rate. As a result, despite the 0.3% deflation in 1Q 2017, inflation reached plus 0.4% over the first five months of the year compared with the corresponding period of 2016 (deflation was 2.1% in January – May 2016).

The core inflation indicator used by the Central Bank of Armenia showed zero change in May 2017 year-on-year, rising above a negative value for the first time since December 2015.

Exchange Rate

The nominal effective exchange rate of the dram has weakened by 3.2% since the beginning of 2017 (December 2016 to April 2017). The real effective exchange rate for the same period declined by 1.6%. The real exchange rate of the dram for January – April 2017 depreciated by 3.7% compared with the corresponding period in 2016. The real effective rate movement together with the recovery in external demand and increasing export prices contributed to growing exports of Armenian goods. The growth rate in January – May 2017 was 20.9% compared with the corresponding period of the previous year.

The nominal exchange rate of the dram to the Russian rouble has weakened by 8.7% since the beginning of the year (December 2016 to May 2017 – in January to May 2017, the depreciation was 23% year-on-year). Against that background, exports of Armenian goods to Russia in January – May 2017 increased by 25.8% compared with January – May 2016. Meanwhile, the dram’s nominal exchange rate to the US dollar remained stable in January – May 2017.

In 1Q 2017, the current account deficit was USD 86.2 million (in 1Q 2016 the deficit was USD 115.9 million). The declining current account deficit was driven by the growing volume of net labour migrants’ remittances, an improved services balance (above all, due to construction and information services) and an increase in proceeds on the primary income account. Despite the improvement in the current account, the negative balance of trade in goods in 1Q 2017 was USD 220 million, growing by USD 43.7 million year-on-year (in January – May 2017, the foreign goods trade deficit increased to USD 678.3 million). The increasing negative trade balance is driven by faster growth in goods imports compared with exports amid improving consumer demand in Armenia. The recovery of economic activity in Russia and strengthening of the Russian rouble in April – May 2017 had a further effect on the inflow of individuals’ remittances. According to the Central Bank of Armenia, individuals’ remittance volumes grew in dollar terms by 23.5% compared with the same period last year. The growth in remittances has a positive effect on consumer demand and is still contributing to a reduction in the current account deficit in the balance of payments.

In January – May 2017, remittances grew by 18.5% year-on-year, including an increase of 17.7% from Russia. The positive Russian economic growth trend is expected to continue in the second half of 2017 and to contribute to a further increase in individuals’ remittances to Armenia.

As of the end of May 2017, Armenia’s currency reserves amounted to USD 1,982.2 million, down USD 221.9 million from the beginning of the year. The reduction in currency reserves was due to the repayment of foreign liabilities by both banks and corporates.

Fiscal Policy

The fiscal policy in January – May 2017 was conservative. The recovery in economic growth is leading to an increase in budget revenues (the increment in January – May 2017 was 7.2% year-on-year), primarily due to growth in proceeds from VAT, excise taxes and payments for use of natural resources. Budget expenses for the same period were almost unchanged: the increase in expenses on state debt servicing and payment for labor was compensated for by reduced economic subsidies and expenses on the acquisition of goods and services.

As a result, the state budget deficit was AMD 40.1 billion in January – May 2017, down AMD 30.2 billion (or 43%) YoY. According to the budget rule, the budget deficit in 2017 must not exceed AMD 152 billion.

Armenia’s public debt as of the end of May 2017 was USD 6.1 billion, increasing in April – May 2017 by 1.6% (growth was 2.6% since the beginning of the year, or USD 152.9 million). The growth in public debt was primarily due to higher debt liabilities of the government and the Central Bank (77.7% of the overall debt increase since the beginning of the year). Monetary Policy

Amid accelerating inflation in April – May 2017 and continued recovery in consumer demand, the Central Bank of Armenia left the base rate unchanged at 6%. Taking into account the time lag between taking monetary policy measures and their effect on the economy, the influence of the considerable reduction of interest rates in 2016 on inflation and economic activity is expected to continue into subsequent quarters.

The high yield on deposits in drams compared with foreign currency deposits has contributed to a gradual reduction in the economy’s dollarization. The dollarization level of residents’ bank deposits as of the end of May 2017 was 58.7%, dropping by 3.1 pp YoY, including a decline in dollarization of households’ term deposits of 5.2 pp. However, despite the declining dollarization of the economy, its level still remains high, limiting the effectiveness of current monetary policy.

EDB’s priority areas of operation in Armenia in 2013-2017 are as follows:

  • Infrastructure projects to reduce transport dependency and ensure energy security.
  • Export enhancement by providing project and investment finance for mining, metallurgical and processing projects as well as other sectors of priority for Armenia listed in Armenia’s export-oriented industrial strategy.
  • To ensure food security and improve the country’s external competitiveness, the Bank will support agricultural projects envisioning modernisation and the introduction of new technologies, as well as the creation of vertically integrated agricultural enterprises with export potential. The Bank will also support food imports, primarily from the Bank’s member states, on conditions acceptable to the country.
  • Further financing of the banking sector by means of targeted programmes supporting SMEs and export and import transactions with the Bank’s member states.

Yerevan Representative Office

Адрес:
Erebuni Plaza Business Centre, office 811, 26/1 Sargsyan St., Yerevan, 0010, Republic of Armenia