OUTLOOK 2020 Armenia

OUTLOOK 2020 Armenia
Khor Virap monastery with Mount Ararat in the background, located near Armenia's closed border with Turkey.
By bne IntelliNews January 15, 2020


The World Bank expects Armenia to record growth of 5.1% in 2020, according to the latest edition of its Global Economic Prospects report issued on January 9. In the previous edition of the report, issued in June last year, it anticipated 5.3%. The institution estimated that in 2019 growth in Armenia, firmed by a recovery in copper and other mining production, stood at 6.9%, an improvement of 2.7pp on what it anticipated six months ago.


Armenia (green) vs Central Asia & Caucasus, GDP growth. Source: World Economic Outlook, IMF DataMapper.

In October, the International Monetary Fund (IMF) said Armenia could anticipate its 2019 economic growth to come in at 6.0%, following 2018’s 5.2%. Its forecast for Armenian GDP growth in 2020 was 4.8%. The anticipated figures were released in the latest edition of the IMF’s World Economic Outlook.

Armenia’s central bank on December 10 maintained its key interest rate unchanged at 5.50%. Looking at Armenia’s annual consumer price inflation, following 2018’s 2.5%, the IMF foresaw 1.7% and 2.5% in 2019 and 2020, respectively. It also predicted that Armenian unemployment would stick at around 18% for the 2018-2020 period, though possibly fall by a few basis points, and that the country’s current account deficit as a percentage of GDP would decrease from 9.4% in 2018 to 7.4% in both 2019 and 2020.


As this year got under way, Armenia, a small, impoverished country with a population just short of 3mn, was informed by its prime minister, Nikol Pashinian, that it has surpassed neighbouring South Caucasus country Georgia, home to a population of 3.99mn, in terms of GDP per capita. Pashinian, who has led Armenia since its revolution in the spring of 2018, said: “Folks, remember when I said from the parliament floor that with 2019’s results we would surpass Georgia by GDP per capita indicator, and in 2020 also Azerbaijan. The IMF has officially affirmed this assessment: with the results of 2019 we have surpassed Georgia, and in 2020 we will surpass Azerbaijan, and become the leading country of the South Caucasus.”

An ongoing threat to Armenia’s prosperity is depopulation. In November, it was reported that Armenia has five years on present trends before it will register a declining population, with the mortality rate on course to exceed the birth rate. The country recorded a fall of 11,700 in its population as of October 1. Around 20-25% of the 1990s generation emigrated. Among 20-40-year-olds, the demographic balance is skewed—there are 60,000 men ‘missing’ from the country. 

Unemployment remains a big turn-off in Armenia, although last year saw some progress in the provision of jobs. The unemployment rate stood at 17.7% by the end of the second quarter, compared to 21.9% in the first quarter, an all-time high. In March, Banks.am, an information service on the country’s financial market, cited two reports in concluding that almost half of young people in Armenia, 41%, are economically inactive. Higher education wasn’t seen as a guarantee of employment: 53.8% of the inactive labour force were young people with higher education, quoted research found. 

In late November, the IMF’s resident representative in Yerevan cautioned that Armenia’s high growth was “narrowly-based” and largely driven by private consumption rather than rising investments or exports. Nevertheless, Yulia Ustyugova said that the Armenian economy was on course to beat IMF forecasts and grow by at least 6.5% in 2019.

In September, the Asian Development Bank (ADB) raised its 2019 growth outlook for Armenia to 4.8% from 4.3%. Also, in its Asian Development Outlook 2019 Update, it stuck with its anticipated 2020 GDP expansion of 4.5% in Armenia. The GDP expansion now expected was “in light of strong rises in services and private consumption”, the development bank said. On the demand side, private consumption expanded by 14.0% in the first half, said the ADB, “encouraged by moderate inflation, positive consumer sentiment, and low interest rates that boosted consumer borrowing”.

Armenia is critically dependent on the Russian economy in two ways: First, as a trade partner (in 2018 exports to Russia accounted for about 28% of Armenia’s total goods exports, with a quarter of Armenia’s imports coming from Russia); and second, as the main destination for workers migrating abroad. This makes Armenia vulnerable to any economic shocks that hit the Russian economy. Another vulnerability is the lack of trade with two prosperous neighbouring markets that if accessible would add sorely lacking resilience to Armenia economy. Armenia’s borders with Turkey and Azerbaijan are closed because of political disputes. Although Armenia imports a not-insignificant amount of Turkish goods ($253mn worth in 2018, according to the IMF), they must transit through Georgia. 

In October, it was reported that Armenia is the only member of the Moscow-led Eurasia Economic Union (EEU) to see the share of its trade with nations of the bloc rise over the past two decades. In 2000, trade with the countries that would become the EEU accounted for 15.6% of Armenia’s total foreign trade turnover; this rose to about 27% by 2018. Trade with Russia dominates: of Armenia’s $2bn trade with the EEU in 2018, trade with Russia accounted for about $1.92bn. 

In November, the European Bank of Reconstruction (EBRD) released its 2019 “Transition scores for six qualities of a sustainable market economy” and its latest overall “Transition Report 2019-2020” for the 37 economies it invests in. Armenia, noted the report, has embarked on a major reform of its tax regime and in May approved a restructuring package aimed at increasing the effectiveness of government operations. As part of that restructuring, the number of ministries was cut from 17 to 12, with some being turned into government agencies. The reform helped bring about an improvement in the “market economy transition scores” awarded to the country by the development bank.

In July, in a call to re-industrialise, Pashinian pointed out that during the last 30 years since the collapse of communism industrial zones had become commercial spaces in Armenia and said that the country "should reclaim its own glory as an industrial country. The new one will not be like the old industry, but we have enough intellectual potential, we will be able to gradually develop that potential with educational reform”.

Pashinian’s government plans to raise the share of investment-to-GDP to 23-25% in the next four years from around 20% now and increase the share of exports to 43-45% of GDP from 37%.

Two weeks into the new year, Yerevan announced a more than 16% rise in its tax revenues in 2019 and said a further increase would be pursued this year. The head of the State Revenue Committee said the tax and customs services collected just over Armenia dram (AMD) 1.5 trillion ($3.14bn) in various taxes, exceeding the committee’s target by AMD62.4bn. Tax raids have become far more common under the post-revolution government, not to mention regulatory inspections of companies that have failed to roll out investments contractually promised to officials.

Armenia (green) vs Central Asia & Caucasus, Current account balance, % of GDP. Source: World Economic Outlook, IMF DataMapper.


Armenia can aim for billion-dollar export sales over the next 10 to 20 years in several activities that, if properly leveraged through effective investment promotion, could help concretise the economic revolution promised by the country’s authorities—that was among the key conclusions of an investment policy review (IPR) of the country conducted by the United Nations Conference on Trade and Development (UNCTAD).

The IPR of Armenia highlights the country’s potential across a range of industries including the booming high-tech industry, tourism, textile and garments, wine, agri-business and pharmaceuticals. It also explores nascent activities for billion-dollar club candidates—industries with potential but for which it is too early to set such export targets. These include business process outsourcing, regional logistics and food safety, aircraft repair and maintenance, regional financial services and higher education.

“Our country is ripe for an economic revolution based on high-tech and innovative activities and we are working to modernise the business environment,” Armenia’s ambassador to the UN in Geneva, Andranik Hovhannisyan, said after the release of the IPR.

Danish platform Valuer, specialised in start-ups and innovations, said last March that business leaders have started to view Armenia as a technological and innovative hotspot. Valuer made a list of 25 cities with the best start-ups, and Yerevan ranked 6th. Self-described as the “Silicon Mountains”, the number of software startups in Armenia quadrupled between 2015 and 2017 to reach approximately 280.

Armenia’s push to strengthen its tourism performance, particularly as a “new destination” for foreign tourists, in November received a boost from Gallup International’s latest Law and Order report which concluded that the country is among the world’s safest nations. An estimated 89% of respondents reportedly said they feel absolutely safe in Armenia. That meant the country shared the 6th-7th positions with Switzerland.

Wizz Air, Hungary's low-cost airline, said in December it was expanding into Armenia. It planned to follow Irish low-coster Ryanair, which in October announced it was starting flights to the country.

On a bum note, the Armenian Civil Aviation Committee was in December put under heightened scrutiny because of signs of a decrease in safety oversight, the European Commission announced in an EU Air Safety List update.

Mining is vital to Armenia's economy. Pictured is the open-pit Teghut Copper-Molybdenum Mine in northern Lori province (Credit: Serouj (courtesy of Diana Smbatyan)).

In mining, September saw Armenia’s Prime Minister Nikol Pashinian warn environmental activists that they must stop “demonizing” the country’s broader mining industry. He particularly took aim against environmentalists campaigning against the Amulsar gold mining project, claiming they were misleading the public. Environmentalists have obstructed British-American company Lydian International in at Amulsar, warning of toxic and even radioactive pollution, which the miner denies. The mining industry accounted for more than 40% of Armenian exports and would be the country’s sole reliable source of hard currency in the event of a renewed war with Azerbaijan, Pashinian pointed out. “Therefore, demonizing mining means dealing a blow to our national security,” he declared. “Let’s leave mining alone… There is hardly a civilised country in the world where there is no mining industry,” he added.

In energy, Abu Dhabi Future Energy Company (Masdar) has entered into an agreement with the Armenian National Interests Fund (Anif) to develop solar power projects with a total capacity of 400 megawatts (MW). The project is seen as bringing investment of between $300mn and $320mn. Armenia is targeting the generation of around a third of its electricity from renewable sources by 2025. As things stand, it has around 2,800MW of installed power capacity, evenly distributed between nuclear, hydro and thermal generation from imported natural gas.

Towards the end of last year, Armenia said it was negotiating a purchase of natural gas from Turkmenistan as part of a gas swap deal with Iran. Such a use of the swap system indicates that the Turkmen will supply gas to northern provinces of Iran, while the Iranians, in turn, will supply gas to the Armenians.

US-based energy company ContourGlobal, meanwhile, plans to invest AMD27.5bn (€51.7mn) in the modernisation of the Vorotan hydropower cascade in Armenia, it was announced at a government meeting in October. Vorotan has long been one of Armenia’s main electricity generation facilities; construction of the first hydropower plant of the cascade started back in 1961. Today the complex of three hydroelectric power stations has overall capacity of 404.2 MW and an average annual power generation of 1.15bn kWh, according to ContourGlobal.

In nuclear, the Metsamor nuclear plant and its future remain a divisive topic in Armenia, where it is located in an earthquake zone. Thirty years ago, the plant was swiftly closed after the 6.8 magnitude Spitak earthquake devastated Armenia, killing around 25,000 people. There were safety concerns over an unreliable electricity supply to power its systems. One of its reactors was restarted in 1995 and now generates 40% of Armenia’s energy needs. Critics contend the site remains extremely vulnerable to earthquakes. Supporters, including government officials, argue it was deliberately originally built on a stable basalt block. Further modifications, such as improved fire doors, have been made to make it even safer, they add.

State budget, banking and finance

Armenia’s government has proposed a big “revolutionary” budget with significantly higher revenues and expenses than in previous years. The 2020 draft budget projects revenues of 1.7 trillion drams (about $3.6bn) and expenditures of 1.9 trillion drams ($4bn). That represents a 13% growth in revenues and 14% in expenditures from the 2019 budget. The increases over 2018’s budget are 27% and 29%, respectively.

Prime Minister Nikol Pashinian said the substantially higher budget was a fulfilment of one of the key promises that he made in his protest campaign last year that propelled him to power. “This is a revolutionary budget,” he said during a November 15 debate on the budget in parliament. “During the 2018 revolution when I was not yet prime minister, I publicly announced that the budget of Armenia should increase by 30-35 percent within one-to-two years. This was one of the promises of the revolution.” (He further explained that adjustments to the 2018 budget mean that the current draft in fact represents a full 35% increase in revenues).

Armenia is preparing to increase its defence spending by 25.3% in 2020. Armenia is locked in largely frozen conflict with neighbouring Azerbaijan over the Nagorno Karabakh enclave that periodically erupts into fighting. Pashinian said that his government plans to abide by the rule that defence spending must not exceed 4% of GDP. 

The external public debt of Armenia in the first 15 months that followed the country’s velvet revolution in spring 2018 fell by $120mn, or 2.1%, Armenian Deputy Prime Minister Tigran Avinyan said in August. However, at the same time internal public debt has reportedly increased significantly. The external public debt decreased by $118.5mn to $5.45bn, while the domestic public debt increased by $165.5mn to $1.478bn, the deputy PM said. Taken together, the total volume of public debt of Armenia was therefore said to have actually increased by $47mn, or 0.7%, to $6.934bn.

Armenia's 2025 bonds were yielding 3.9%, slightly above Azerbaijan's and Uzbekistan's 2024 bonds at 3.3% and 3.5%, respectively, Russia’s VTB Capital noted in November. Yerevan sold $500mn of 10-year eurobonds in September. Demand stood at more than $2bn in what was the nation’s third venture into the international markets. "Armenian bonds outperformed many of their regional peers this year, which is a sign that investors who bought them clearly trust ongoing reforms," Igor Rapokhin, fixed income strategist at VTB Capital, said.

Global ratings agency Moody's raised Armenia's sovereign rating to Ba3 from B1 in August. However, it said it would be important to maintain the pace of reforms. Fitch Ratings in November upgraded Armenia's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to 'BB-' from 'B+'. Fitch said: “Armenia's institutions have facilitated a peaceful and orderly political transition [since the spring 2018 revolution] and could strengthen further through structural reforms. The majority government… has demonstrated its commitment towards a stable macroeconomic policy agenda and to the implementation of structural reforms, including the fight against corruption and monopolies and enhanced institutions and governance.”

The IMF executive board last May approved a 36-month $248.2mn stand-by arrangement (SBA) for Armenia. Of the sum, around $35.5mn was immediately available to Armenia, while the remainder would be made available subject to six semi-annual reviews. However, the Armenian authorities planned to treat the arrangement as precautionary, and would only draw on the funds in case of shocks resulting in balance of payments needs. 

Armenia’s 17 commercial banks reported growth in all major indicators in the first nine months of last year, according to their reports published in accordance with International Financial Reporting Standards (IFRS), it was reported in October.

Ameriabank last year became the only financial institution in the history of independent Armenia with assets and a credit portfolio that exceed $1bn in value. accordance with its strategy. The lender says it is the leading bank in Armenia in terms of all major indicators (assets, liabilities, loan portfolio, net profit and capital).

Last year, Ameriabank acted as lead arranger and bookrunner for the inaugural bonds of Zangezur Copper Molybdenum Combine (ZCMC) joint stock company. ZCMC, the largest taxpayer in Armenia, successfully debuted on the Armenian capital markets with $50mn and Armenian dram 2.5bn 3-year bond offerings.

The European Union and European Bank for Reconstruction and Development (EBRD) said in September they were providing up to €16mn to support the launch of the Amber Capital EU-Armenia SME Fund, a private equity fund seeking to raise a total of €70mn for investment in small and medium sized enterprises SMEs in Armenia.

There's still no solution in sight to the more than three-decade old Nagorno-Karabakh conflict.


Under PM Nikol Pashinian, a former newspaper editor and rights activist, Armenia has been making a success of being a friend to just about everyone—although obviously not to Azerbaijan, and its ally Turkey, given the three-decade-old conflict (presently reduced to occasional small flare-ups) over breakaway Azerbaijani territory Nagorno-Karabakh, controlled by ethnic Armenians.

Pashinian in August visited Nagorno-Karabakh and called for the reunification of Armenia with Karabakh in a forceful appeal that amounted to unprecedented hardline rhetoric voiced not long after Pashinian said he had been trying to step up efforts to negotiate with Baku on the future of the disputed lands. “Artsakh [the Armenian word for Karabakh] is Armenia, and that’s it,” Pashinian reportedly said during an hour-long speech in Stepanakert, the de facto capital of the territory.

The visit provoked a war of words with Azerbaijan which called it “illegal”. Pashinian’s appearance before the crowd was “aggressive” and a “major blow” to efforts to resolve the conflict, Baku said.

Eurasianet observed: “Armenia’s treatment of Karabakh’s status has traditionally been characterized by strategic ambiguity. Yerevan doesn’t officially recognize the Karabakh government as it continues to conduct negotiations with Azerbaijan to peacefully resolve the conflict; the largest sticking point in a resolution is how to determine the final status of Karabakh and formal recognition by Yerevan would likely be a fatal blow to the talks. (For its part, Baku regularly and categorically states that Karabakh will always be part of Azerbaijan.)”

In December, Russian Foreign Minister Sergei Lavrov discussed Nagorno-Karabakh with Azerbaijani President Ilham Aliyev. Moscow was interested in the fulfilment of confidence-building measures as part of the settlement of the situation. In March in Vienna, Pashinian and Aliyev held their first meeting under the auspices of the Minsk Group of the Organization for Security and Cooperation in Europe (OSCE), which leads diplomatic efforts to resolve the protracted dispute which reaches back to the 1988-94 war that claimed an estimated 30,000 lives and displaced hundreds of thousands of people. 

In September, Pashinian, took his rock-star popularity to Los Angeles, home of the United States’s largest Armenian-American population. The PM, who took office promising a big crackdown on corruption, cronyism and economic monopolies, called on Armenian-Americans to visit and invest in Armenia and spend “a month or two” per year living in the country. “The most important issue is, in a conceptual and ideological sense, to do away with the Diaspora-Armenia borders,” he said in a speech delivered in Eastern Armenian.

Armenian-Americans have been cheered by Pashinian’s rise in Armenia, remarked Rupen Janbazian, editor of H-Pem, an English-language magazine aimed at diaspora Armenians. “For the most part, he’s perceived as a stand-up guy after years of corruption and, for lack of a better term, tyranny.”

In October, Armenian Deputy Prime Minister Tigran Avinyan told EURACTIV that post-revolution Armenia has a “completely different level of relationship” with the European Union compared to what existed before the Pashinian-led toppling of the previous government and that any future EU accession would be a “question that the people of Armenia need to answer”.

“This new political team and this new political situation is completely in line with the EU’s views. I think we will see a lot of potential in growing our economic and political ties with the EU” Avinyan said. However, he was also reported as under no illusions about any immediate potential of EU accession for his country, presently part of the Moscow-led Eurasian Economic Union (EEU), saying that it is not a “topic for today”. However, with “the closening relations, there may be a future point in time when we have to address this question,” he added.

                       Selfie of the year?

In October, the question of what happens when the club of authoritarian states meets in the home of the “Velvet Revolution” was posed when the EEU member countries’ heads of state met in Yerevan. Pashinian and Vladimir Putin appeared to get along swimmingly, with no overt signs from the Russian president that he is concerned by the political path Armenia is taking. But it was a selfie taken by Pashinian on a minibus, showing him with counterparts including the rarely selfied Putin and Iranian President Hassan Rouhani that seemed to be the biggest news from the summit. It went viral.

To date, Armenia has not come under any hard criticism from the Trump administration for its policy of staying on good terms with Iran. Pashinian said after the American assassination of top Iranian general Qasem Soleimani that it will not engage in any anti-Iranian or anti-US action. As a country fighting high poverty rates, and with no diplomatic relations with big neighbours Turkey and Azerbaijan, Armenia frankly needs to build up as much trade and investment with Iran, a country of 82mn, as it can.

Relations with Turkey were further strained in mid-December when the US Senate unanimously passed a resolution recognising the mass killing of Armenians in the Ottoman Empire a century ago as “genocide”. Pashinian responded to the move as a "victory of justice and truth." He wrote on Twitter: "On behalf of the #Armenian people worldwide, I express our profound appreciation to the Senate for this landmark legislation." However, US President Donald Trump’s aides quickly made clear that Trump, who is on good terms with Turkish strongman Recep Tayyip Erdogan, would not be adopting the resolution as policy.

Trade relations and flows with Iran got a boost in late October when a temporary two-year preferential trade agreement (PTA) struck between Tehran and the EEU kicked in. In December, Iran said it expected to agree a comprehensive trade agreement with the bloc.

Looking at whether Pashinian can remain highly popular, it’s clear some grumbles with his administration’s performance are beginning to set in.

Despite coming to power last year on the wave of a self-styled “revolution,” the new government is seen by some observers as having been surprisingly cautious in its policy-making. Government supporters have complained that the new authorities appear unable to make decisive moves, while promised legislative reforms in the judiciary, taxation, and other spheres have come far more slowly than expected. Pashinian, it’s said, has been reluctant to use his popular mandate to implement potentially painful reforms.

“Most of all he is concerned about his popularity and a lot of the shortcomings that you see happen because of that preoccupation,” one government ministry official told Eurasianet. “He gets cold feet about difficult issues that the public will not support.”

Despite these misgivings, in December it was reported that Armenians see decreased corruption as the greatest success of the government headed by Pashinian. The conclusion was drawn by a nationwide poll conducted by the International Republican Institute’s (IRI’s) Center for Insights in Survey Research.  The approval rates for the work of the prime minister’s office and the National Assembly stood at 76% and 63%, respectively.  There was strong support for the anti-corruption efforts, with 30% of respondents seeing reduced corruption as the government’s greatest success. Some 66% of respondents said they thought that the government was doing enough to fight corruption, and 70% thought that the fight had been effective.

Early December brought a theft of state money charge filed against Serzh Sargsyan, the former prime minister and president of Armenia who was dethroned by the revolution. The indictment stated that Sargsyan used his official position in January and February 2013, when he was president, to ensure a government fuel contract went to a specific company. The action allegedly cost the state an additional 489mn Armenian drams (around $1mn) in subsidies.

Armenia is weighing whether to allow the state to confiscate the property of those convicted in serious corruption cases without the need for a court order, the Institute for War and Peace Reporting (IWPR) reported in late November. The measure would make the fight against corruption more efficient, authorities argue. However, critics that it would establish a presumption of guilt that might be exploited for political purposes.

In April, Armenia placed 61st out of 180 countries in the World Press Freedom Index 2019 compiled by Reporters Without Borders, 19 places up on where it finished in the previous year’s ranking. In a short summary put out with the latest ranking, the watchdog said: “The new media served as an echo chamber for the ‘velvet revolution’ in the spring of 2018 that brought a former journalist [Pashinian] to power. The media landscape is diverse but polarized and the editorial policies of the main TV channels coincide with the interests of their owners.”

Other live issues in Armenia at the moment include a controversial new universal tax being pushed by the health ministry. Under the tax, employed citizens would give away 4% to 6% of their salaries, with the sums to include the coverage of payments meeting health-related expenses for the unemployed.

There are also lively discussions about the terrible level of carnage on Armenia’s poor roads. An MP has complained that one person now dies per day in Armenia as a result of a road accident.  Parliament last year adopted a bill providing for the introduction of a points system of fines for traffic rule violations. But there were delays in getting the bill through its second reading. In the meantime, a “snitching” law has been passed under which any witness to a traffic violation can legally take video footage and send it to the police through an application on their mobile phone.