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Has Armenia's Economy Bottomed Out?


Armenian Finance Minister Tigran Davtian

Armenian Finance Minister Tigran Davtian

Official statistics suggest that after seven consecutive months of negative economic growth, the Armenian economy has begun to recover. But some prominent former officials are skeptical.

In late September, Armenian Finance Minister Tigran Davtian told journalists that the Armenian economy grew by 0.1 percent in August, Noyan Tapan reported. That means, Davtian explained, that "we have already reached the lowest point of the decline, after which, hopefully, a slow recovery of the economy will begin."

He predicted that the 18.5 percent decline in GDP registered since the beginning of 2009 would average out to 15 percent by the end of the year, and that economic growth in 2010 would be between 1-1.5 percent. One month later, on October 28, Davtian reported 4.8 percent growth in September compared with the previous month.

Mark Lewis, head of an International Monetary Fund group of experts who visited Armenia in early September, similarly predicted that the Armenian economy would expand by 1.2 percent next year. He said the growth will be primarily driven by rising international prices of nonferrous metals (Armenia's No. 1 export item) as well as domestic services and agriculture.

By contrast, former Central Bank Chairman Bagrat Asatrian predicted on September 24 that the economic decline would continue in 2010, with a resumption of growth only in 2011.

Lewis praised the Armenian government's "very good performance" in coping with the crisis. He further noted that the economy would significantly benefit from the anticipated reopening of the Turkish-Armenian border. He argued that an open frontier with Turkey would open a new and lucrative market to Armenian exporters, reduce the cost of imports, and foster regional economic integration.

But the Armenian government was constrained to seek $1.5 billion in emergency loans from international financial organizations to make up for a 16 percent drop in budget revenues (taxes and other duties) that in turn resulted from the steep fall in GDP. Davtian admitted on October 28 that the country's foreign debts have almost doubled to reach 30 percent of GDP. At the same time, despite those loans, Armenia will end the year with a projected budget deficit of 7.5 percent.

Consequently, budget spending for 2009 has been revised downward by some 15 percent, from 945 billion drams ($2.45 billion) to 900 million drams ($2.33 billion). The draft budget for 2010, which the government approved on September 28, projects 859.6 billion drams in expenditures, the first year-on-year drop in the country's spending targets in over a decade. Specifically, military spending will be cut by 22 percent, from 149 billion to 116 billion drams.

Former Prime Minister Hrant Bagratian predicted on November 2 that the government will fail to meet spending targets for 2010 without securing further loans -- which Finance Minister Nerses Yeritsian said on October 9 it does not plan to do.

Bagratian, who served as prime minister from 1991-96 under then-President Levon Ter-Petrossian and is now a member of the latter's Armenian National Congress, further argued that the serious contraction in the Armenian economy since January was caused less by the global economic crisis than by heavy dependence on construction, especially of luxury projects, and by the stranglehold exerted by economic monopolies.

In August, the National Statistics Service released data showing that construction fell year-on-year by 55 percent and industry by 12 percent.

About This Blog

This blog presents analyst Liz Fuller's personal take on events in the region, following on from her work in the "RFE/RL Caucasus Report." It also aims, to borrow a metaphor from Tom de Waal, to act as a smoke detector, focusing attention on potential conflict situations and crises throughout the region. The views are the author's own and do not represent those of RFE/RL.

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