By Mark Dovich
The coronavirus pandemic continues to wreak havoc on markets worldwide. In Armenia, an average growth rate of -3.5 percent is forecast for 2020.
According to the European Bank for Reconstruction and Development (EBRD), a multilateral developmental investment bank founded after the collapse of the Soviet Union in 1991, countries in Eastern Europe and the South Caucasus are expected to be “severely impacted” by the crisis due to the “tightening [of] global financial markets, strong pressure on domestic foreign exchange markets, and reduced foreign demand for exports” from the region.
The International Monetary Fund (IMF), too, has projected global growth to fall to -3.0 percent in 2020 and per capita incomes to decline in more than 170 countries around the world. According to the IMF, it is the first time that both developed and developing countries have experienced economic recessions at the same time since the Great Depression nearly a century ago.
Similarly, during a press conference in late April, Atom Janjughazyan, Armenia’s Minister of Finance, announced the government would be revising the country’s predicted growth rate this year down to -2.0 percent from an original forecast of 4.9 percent. As a point of comparison, Armenia’s economy expanded by 7.6 percent in 2019. If the forecast holds, it will be the first time the country’s economy has contracted since the global financial crisis of 2009.
According to Janjughazyan, tax earnings, which comprise the vast majority of government revenues in Armenia, are expected to be particularly hard-hit. Additionally, the government’s external debt is likely to rise this year, though Janjughazyan emphasized that Armenia continues to be considered a country with relatively low levels of external debt. Finally, exchange rates for Armenia’s currency, the dram, have proven relatively stable against the U.S. dollar so far.
The sobering announcement challenges previous predictions that Armenia would enjoy positive, though modest, economic growth in 2020 despite the economic ramifications of the ongoing global coronavirus crisis.
A recent EBRD report highlighted two additional factors that are likely to affect Armenia’s economic outlook. First, the global economic downturn has resulted in significant declines in commodity prices, particularly hydrocarbons and metals. Armenia’s economic wellbeing is quite sensitive to these prices, as the mineral industry represents a majority sector of the country’s economy. About 30 percent of Armenia’s total exports are in copper ore, with another roughly 30 percent of the country’s exports in other ore concentrates, metals, and gems, particularly gold and molybdenum.
Second, the EBRD predicts that a considerable drop in remittances as a result of the global economic crisis will put pressure on household disposable incomes in Armenia this year. The country’s economy remains heavily dependent on remittances from Armenian migrant workers and Armenian diaspora communities. Armenia receives roughly two billion U.S. dollars every year in remittances, which represent about 15 percent of total GDP.
A third critical factor is Armenia’s substantial economic connection to Russia, which means that any economic developments in Moscow have meaningful ripple effects in Yerevan. Since 2015, Armenia has been a member of the Eurasian Economic Union, a Russia-led economic union that unites five post-Soviet countries in an integrated single market. Trade with Russia accounts for about 25 percent of Armenia’s total turnover, making Russia Armenia’s largest external market. In addition, nearly half of the remittances sent to Armenia every year comes from Russia.
Accordingly, the collapse of global petroleum prices, to which Russia’s economic wellbeing is strongly tied, is likely to hit Armenia as well. As a result, Russia’s economy is expected to contract by 4.5 percent this year, according to the EBRD. Compounding these issues, Russia has now recorded the world’s second-largest number of coronavirus infections after the United States, with over 250,000 cases.