Armenian Economy

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Armenia is the second most densely populated of the former Soviet republics. It is a landlocked country between the Black Sea and the Caspian Sea, bordered on the north and east by Georgia and Azerbaijan and on the south and west by Iran and Turkey.

Up until independence, Armenia's economy was based largely on industry--chemicals, electronic products, machinery, processed food, synthetic rubber, and textiles--and highly dependent on outside resources. But it stil is a little bit Agriculture accounted for only 20% of net material product and 10% of employment before the breakup of the Soviet Union in 1991. Armenian mines produce copper, zinc, gold, and lead. The vast majority of energy is produced with imported fuel, including gas and nuclear fuel (for its one nuclear power plant) from Russia; the main domestic energy source is hydroelectric. Small amounts of coal, gas, and petroleum have not yet been developed.

Like other New Independent States, Armenia's economy suffers from the legacy of a centrally planned economy and the breakdown of former Soviet trading patterns. Soviet investment in and support of Armenian industry has virtually disappeared, so that few major enterprises are still able to function. In addition, the effects of the 1988 earthquake, which killed more than 25,000 people and made 500,000 homeless, are still being felt. Although a cease-fire has held since 1994, the conflict with Azerbaijan over Nagorno-Karabakh has not been resolved. The consequent blockade along both the Azerbaijani and Turkish borders has devastated the economy, because of Armenia's dependence on outside supplies of energy and most raw materials. Land routes through Azerbaijan and Turkey are closed; routes through Georgia and Iran are inadequate or unreliable. In 1992-93, GDP fell nearly 60% from its 1989 level. The national currency, the dram, suffered hyperinflation for the first few years after its introduction in 1993.

Nevertheless, the Government of Armenia, helped by the cease-fire that has been in effect in Nagorno-Karabakh since 1994, has been able to carry out wideranging economic reforms which paid off in dramatically lower inflation and steady growth. Armenia has registered strong economic growth since 1995, building on the turnaround that began the previous year, and inflation has been negligible for the past several years. New sectors, such as precious stone processing and jewelry making, information and communication technology, and even tourism are beginning to supplement more traditional sectors such as agriculture in the economy.

This steady economic progress has earned Armenia increasing support from international institutions. The IMF, World Bank, EBRD, as well as other IFIs and foreign countries are extending considerable grants and loans. Total loans extended to Armenia since 1993 exceed $800 million. These loans are targeted at reducing the budget deficit, stabilizing the local currency; developing private businesses; energy; the agriculture, food processing, transportation, and health and education sectors; and ongoing rehabilitation work in the earthquake zone.

Continued progress will depend on the ability of the government to strengthen its macroeconomic management, including increasing revenue collection, improve the investment climate, and accelerate the privatization process. A liberal foreign investment law was approved in June 1994, and a Law on Privatization was adopted in 1997, as well as a program on state property privatization. The government has made major strides toward joining the World Trade Organization.

Environmental Issues
Armenia is trying to address its environmental problems. It has established a Ministry of Environment and has introduced a pollution fee system by which taxes are levied on air and water emissions and solid waste disposal, with the resulting revenues used for environmental protection activities. Armenia is interested in cooperating with other members of the Commonwealth of Independent States (a group of 12 former Soviet republics) and with members of the international community on environmental issues. The Armenian Government is working toward closing the Armenian Nuclear Power Plant as soon as alternate energy sources can be identified.

Economy - overview: Under the old Soviet central planning system, Armenia had developed a modern industrial sector, supplying machine tools, textiles, and other manufactured goods to sister republics in exchange for raw materials and energy. Since the implosion of the USSR in December 1991, Armenia has switched to small-scale agriculture away from the large agroindustrial complexes of the Soviet era. The agricultural sector has long-term needs for more investment and updated technology. The privatization of industry has been at a slower pace, but has been given renewed emphasis by the current administration. Armenia is a food importer, and its mineral deposits (gold, bauxite) are small. The ongoing conflict with Azerbaijan over the ethnic Armenian-dominated region of Nagorno-Karabakh and the breakup of the centrally directed economic system of the former Soviet Union contributed to a severe economic decline in the early 1990s. By 1994, however, the Armenian Government had launched an ambitious IMF-sponsored economic program that has resulted in positive growth rates in 1995-99. Armenia also managed to slash inflation and to privatize most small- and medium-sized enterprises. The chronic energy shortages Armenia suffered in recent years have been largely offset by the energy supplied by one of its nuclear power plants at Metsamor. Continued Russian financial difficulties have hurt the trade sector especially, but have been offset by international aid, domestic restructuring, and foreign direct investment.

GDP: purchasing power parity - $9.9 billion (1999 est.)

GDP - real growth rate: 5% (1999 est.)

GDP - per capita: purchasing power parity - $2,900 (1999 est.)

GDP - composition by sector:
agriculture: 40%
industry: 25%
services: 35% (1999 est.)

Population below poverty line: 45% (1999 est.)

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): 2.5% (1999)

Labor force: 1.5 million (1999)

Labor force - by occupation: agriculture 55%, services 25%, manufacturing, mining, and construction 20% (1999 est.)

Unemployment rate: 20% (1998 est.)
note: official rate is 9.3% for 1998

revenues: $360 million
expenditures: $566 million, including capital expenditures of $NA (1999 est.)

Industries: metal-cutting machine tools, forging-pressing machines, electric motors, tires, knitted wear, hosiery, shoes, silk fabric, washing machines, chemicals, trucks, watches, instruments, microelectronics

Industrial production growth rate: -2% (1998)

Electricity - production: 5,764 GWh (1998)

Electricity - production by source:
fossil fuel: 48.92%
hydro: 26.44%
nuclear: 24.64%
other: 0% (1998)

Electricity - consumption: 5,361 GWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: fruit (especially grapes), vegetables; livestock

Exports: $240 million (1999 est.)

Exports - commodities: diamonds, scrap metal, machinery and equipment, cognac, copper ore

Exports - partners: Belgium, Russia, Iran, Turkmenistan, US, Georgia (1998)

Imports: $782 million (1999 est.)

Imports - commodities: natural gas, petroleum, tobacco products, foodstuffs, diamonds

Imports - partners: Russia, US, UK, Iran, Turkey, Belgium (1998)

Debt - external: $1.1 billion (ending 2005)

Economic aid - recipient: $245.5 million (1995)

Currency: 1 dram = 100 luma

Exchange rates: dram per US$1 - 527.02 (January 2000), 535.06 (1999), 504.92 (1998), 490.85 (1997), 414.04 (1996), 405.91 (1995)

Fiscal year: calendar year

Economic Growth

2005 = 13.9%
2004 = 10.1%

Related links

  • Exchange rates history graphs for major currencies against Armenian Dram
  • Armenia's Budget


Much of the material in this article comes from the CIA World Factbook 2000 and the 2003 U.S. Department of State website.

Thursday, 29 December, 2005 - RFE/RL Armenia Report

Armenian Posts Double-Digit Economic Growth In 2005

By Shakeh Avoyan

The Armenian economy has expanded at a double-digit rate for a fifth consecutive year, reducing poverty and boosting personal incomes, Trade and Economic Development Minister Karen Chshmaritian said on Thursday.

Official macroeconomic statistics for the first eleven months of 2005 revealed by Chshmaritian show a 13.5 percent growth in Armenia's Gross Domestic Product on a year-on-year basis. He said its total value for the entire year is on course to surpass 2 trillion drams ($4.4 billion).

`For the second consecutive year, the growth in the population's incomes is faster than that of its expenditures,' Chshmaritian told a yearend news conference. `That is a result of increased purchasing power of the population.'

The continuing robust growth reported by the Armenian authorities was touted by President Robert Kocharian earlier this week as a major achievement of his administration. `This is a quite serious progress and all of you can be proud of having contributed to it,' he told the country's leading entrepreneurs.

Kocharian similarly stated that the growth is benefiting all segments of the population, reporting a 24 percent rise in the average salary and a 18 percent drop in unemployment, Armenia's number one socioeconomic problem.

The official unemployment rate was just under 10 percent a year ago. But independent analysts estimate that the real figure is at least twice as higher. They also believe that the decade-long economic growth has not been accompanied by sufficient job creation.

Still, Armenia's macroeconomic performance has been repeatedly praised by the International Monetary Fund and other Western donors. A group of IMF economists described it as `remarkable' in a research paper published earlier this month. `In coming years, economic growth and capital formation should be broad-based and generate employment,' they wrote. The IMF experts also predicted that the growth rate will slow down to single-digit levels in 2006-2010.

Base information from

Armenia Slips In Global Competitiveness Study

By Shakeh Avoyan

Armenia has a less competitive economy than the majority of 133 other countries assessed in an annual global survey conducted by the Geneva-based World Economic Forum (WEF), its authors said on Thursday.

The Armenian economy ranked only 97th in the WEF’s Global Competitiveness Index (GCI) 2008-2009 released the same day. It slipped four places from the previous survey that covered 131 nations. Armenia’s aggregate GCI score similarly dropped from 3.8 to 3.7 in the past year.

“All in all, it can be concluded that there hasn’t been much change in term of our competitiveness,” said Manuk Hergnian, head of the Yerevan-based group Economy and Values which interviewed 100 local entrepreneurs for the worldwide poll.

The score assigned by the WEF is based on 12 “pillars of competitiveness,” including government transparency and fiscal responsibility; transport and telecommunications infrastructure; openness to innovation; intellectual property protection; and the ready availability of talent. Armenia was judged to be lacking competitiveness primarily because of the small size of its market, insufficient innovation as well as poor “technological readiness” and “business sophistication.”

Armenia would have fared even worse in the overall rankings had it not scored above the world average in the “labor market efficiency” category. It also received a relatively high mark for macroeconomic stability. Even so, the WEF said macroeconomic stability in the country has weakened considerably since the previous survey.

Pollsters asked business figures to rate the 134 countries surveyed according to factors that promote economic growth. Armenian entrepreneurs interviewed by the Economy and Values singled out government corruption and tax administration as the main obstacles to faster growth.

Government Claims Further Drop In Poverty

By Shakeh Avoyan

The government reported on Wednesday a further reduction in poverty in Armenia, with a senior official saying that it affected only one in four Armenians as of late last year.

Stepan Mnatsakanian, head of the National Statistical Service (NSS), cited the figure as he presented the findings of the most recent household income and expenditure survey conducted by the government agency in 2007. He said the proportion of the country’s population living below the official poverty line was found to have dropped to 25 percent from the 2006 level of 26.5 percent.

“The problem of poverty is still serious in Armenia,” Mnatsakanian told RFE/RL. “Some 800,000 people remain poor.”

The government maintains that poverty has declined in recent years far more rapidly than it had anticipated because of robust economic growth and increased government spending on social programs. Under a Western-backed program to tackle the problem which it launched in 2001, the official poverty rate was due to drop to 26.5 percent only by 2012.

The government said last January it will revise the program in a way that will commit it to further cutting the proportion to 12 percent in 2012 and 9 percent in 2015. Government officials asked Armenian non-governmental organizations dealing with socioeconomic problems to weigh in on the new targets and ways of meeting them.

Some NGO representatives have long questioned the government’s methodology of gauging the scale of property. They believe that the official poverty threshold of about 23, 000 drams ($76) per person is set too low and does not reflect the increased cost of life in Armenia. The country’s average monthly wage currently stands at about 90,000 drams.

Mnatsakanian stood by the credibility of the poverty data. In fact, he said, fewer Armenians consider themselves poor than is shown by official statistics.

Surge In Food Exports Eases Armenian Trade Deficit

Emil Danielyan

Armenia’s huge trade deficit eased in the first half of this year owing to a significant rise in exports of agricultural products and prepared foodstuffs mostly going to Russia, according to government data.

A 2 percent drop in Armenian imports totaling $1.97 billion was another factor behind the country’s improved trade balance. The imports continued to dwarf exports even though the latter went up by 10 percent to almost $700 million in this period.

The data released by the National Statistical Service (NSS) shows modest gains in revenue from Armenia’s main export items: copper and other non-ferrous metals as well as ore concentrates. Their exports rose by roughly 4 percent to $370 million.

By comparison, exports of prepared foodstuffs were up by as much as 22.6 percent, at $132.4 million, while those of fruits, vegetables and livestock doubled to around $44 million. Russia has long been the principal market for these products.

Accordingly, the NSS reported a 19 percent surge in first-half Armenian exports to Russia which stood at $143.5 million. By contrast, imports from Russia fell by 7.6 percent year on year to $453.4 million. Decreased consumption of natural gas in Armenia appears to have been instrumental in this drop.

Russia remained Armenia’s single largest trading partner with a more than 22 percent share in the South Caucasus state’s external turnover, followed by China (7.4 percent) and Germany (6 percent). Overall trade with Germany and other EU member states accounted for just over 29 percent of Armenia’s external commerce in January-June. But it shrunk slightly in absolute terms, according to the NSS.

Commercial ties between Armenia and the EU should receive a major boost with the planned creation by the two sides of a Deep and Comprehensive Free Trade Area (DCFTA). Citing an independent study commissioned by the EU, the European Commission said late last month that the DCFTA’s impact will be “significant.” “The forecast 15.2% increase in Armenian exports and 8.2% increase in its imports in the long run will lead improve Armenia’s trade balance in relative terms,” the commission said in a statement.