The Armenian economy is recovering faster than expected.

The Armenian economy is recovering faster than expected. post thumbnail image

Armenia’s economy is recovering from its first significant recession since the early 1990s at a faster rate than anticipated, aided by a global recovery. According to official data, the Armenian economy grew by 6.7% in the first six months of this year, exceeding even the most optimistic government expectations. The Armenian authorities now anticipate full-year growth of between

Armenia was one of the worst-affected countries during the global recession, with GDP declining by as much as 14.4 percent last year after a decade of consistent growth. The country’s main export commodity, base metals, and multimillion-dollar remittances from Armenians working abroad were all factors in the downturn. It would have been much deeper

In the fourth quarter of 2009, year-over-year negative growth came to a halt and moved into positive territory. From January 2010 through January-May, it increased from 2.2 percent to 8.8 percent in a linear progression. Because of extremely unfavorable weather conditions, agriculture production fell by more than 12% in June.

The surge in production was also felt to a lesser extent in the country’s export-oriented manufacturing industries, such as food and diamond processing. As a result of this, Armenian exports rose by 56 percent to $443 million during the six-month period. Construction and service sectors other than retail trade recorded lower growth rates according to the National Statistical Service.

The recovery is also aided by an increase in cash transfers from Armenian migrant workers abroad. According to the Armenian Central Bank, non-commercial remittances, which accounted for roughly 14% of GDP in January-May, rose by over 10% to 380 million dollars during that period. The improved economic climate prompted the Armenian government to declare.

“We’ve entered a new phase of established economic growth,” Finance Minister Tigran Davtian announced to the press (Arminfo, July 4). “The economy is still in a serious bind,” Hrant Bagratian, a former Prime Minister who now belongs to the Armenian National Congress’s main opposition group.

However, the IMF, which relies on official statistics, simply agreed with the government’s assessment of a strengthening economic condition. “The Armenian economy is coming out of a severe downturn,” Murilo Portugal, the IMF’s deputy managing director, said in a June 28 statement announcing the release of a new loan package worth $395 million for Armenia.

The fund ended the $830 million lending program it had started in March 2009 to help the government of Yerevan cope with the recession. They have received $560 million worth of loans since then under that scheme. Portugal said that Armenia’s ongoing economic recovery is forcing a shift in government economic priorities.

Mark Lewis, another senior IMF official, stated in May that Armenian economic expansion would be hampered by poor and arbitrary tax collection and “powerful oligopolies” that he said are important to the country’s economy. He repeated IMF assertions that Armenia’s government revenue is “very low by international standards,” both absolutely and compared to other countries.

The latter IMF statement, which quotes Portugal, notes that the government has established a “wide tax administration reform” plan and committed to implement other “wide-ranging structural changes” to improve Armenia’s poor business environment. The country’s technocrat Prime Minister, Tigran Sargsyan.

However, his reform record thus far has been spotty, with many government-linked Armenian businesspeople still receiving special treatment from tax authorities and underreporting their profits. They’ve also effectively monopolized lucrative types of trade, such as fuel and food imports.

The republic’s first-half tax receipts increased by 23% to $785 million, resulting in a state budget of $286.2 billion drams (or 1.3% of GDP). According to data from the Armenian finance ministry, major increases in revenue from value-added tax accounted for much of this growth, whereas corporate profit tax revenues decreased.

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