Armenian economy rolled back in 2015

Susanna Petrosyan, Yerevan. Exclusively for Vestnik Kavkaza
Armenian economy rolled back in 2015

2015 didn’t improve the economic situation in Armenia. The foreign debt increased; emigration continued; such trends as reduction of investments and capital export maintained. In 2016 the volume of foreign debt, which is $5.122 billion today, may surpass 50% of GDP.

Meanwhile, in 2008, before the current authorities had come in power, the index was only $1.5 billion. It means the state's foreign debt grew by 380% over 7 years. According to Global Financial Integrity, illegal capital exports amounted to $983 million on a year-on-year basis in recent years. It confirmed a high level of corruption and the shadow economy.

The first of the most important indices of the economic state is a reduction in trade turnover and retail trade volumes. According to official statistics, the volume of foreign trade decreased by 206% in the first half of 2015 in comparison with the same period of 2014. It was $2.186 billion. The last time foreign trade decreased was in 2009; the decrease was 31.5% in comparison with 2008. Internal trade also decreased first time after the crisis of 2009. In January-June, the decrease was 5.1% in comparison with the same period of 2014.

The second important feature of the state of the economy is budget revenues from major taxpayers. In the first half of 2015 the top thousand major taxpayers of Armenia paid 15.3% less in taxes than in 2014. The situation in the second half of the year (the results of which haven’t been summed up yet) wasn’t better – the Deputy Minister of the Economy Pavel Safaryan had many times stated about a reduction in tax revenues.

“The driver of our economy is not small and medium-sized businesses, like in developed countries, but major business. If taxes which are paid by major business go down, it means there are really serious problems in our economy,” the head of the Economic Commission of the Armenian National Congress, Vaagan Khachatryan, thinks.

The third significant factor of the difficult economic situation is the reduction of money transfers from Russia. They have been the most important resource for development of the economic model in Armenia over the past 15 years. Transfers began to reduce in late 2014. In 2015 the general volume of transfers from Russia fell by 38-40% in comparison with 2014. Earlier, the volume of the money was at the level of +2 billion annually. This circumstance, as well as the authorities’ policy on supporting major monopolist-importers, became the main reason for the reduction in consumer demand in Armenia.

The fourth problem is that Armenia is one of the few countries where imports exceed exports threefold. In the last year, the government didn’t manage to fulfill its promise to increase exports and develop import substitution significantly. Meanwhile, if the problem was solved, it would improve the national currency and decrease the growing unemployment rate. Economists are concerned about the fact that the country has a short list of exported goods, which mainly includes gold, copper, molybdenum, agricultural products, gems and semi-precious stones.

Even though the government states that Armenia has reached a stable situation, the economy continues rolling back. There is a huge gap between the statements by the government about the stable situation in the country’s economy and the real situation in the country. Prime Minister Hovik Abrahamyan listed the important achievements at the last session of 2015, including GDP growth of 3% and a growth in salaries, stressing that it was reached against the background of a reduction of transfers from Russia to Armenia. “Providing economic growth and a balance of payments in the context of a reduction of consumer demand is the most important achievement, which proves the viability of the economy and the policy provided by the government,” on the one hand, the Prime Minister admits that there is a difficult social situation; on the other hand, he is satisfied that the government has managed to hold the situation at rest, but no more than that.

The problem of falling consumer demand became a consequence of the longstanding and systemic mistakes of the government. These mistakes can be put in a general chain which has one main link – it is the improvement of monopolies at the expense of the development of small and medium-sized business. Building of the economic model mostly depends on transfers from Russia; there are ineffective measures on export development, a reduction of trade turnover, a policy of artificial support of the national currency. According to economists, the monetary policy provided by the Central Bank of Armenia, which is aimed at controlling inflation, hasn’t contributed to the development of the economy. Resources which could become a source of investments have turned into super-profits for the monopolist-importers.

The main obstacle to the development of the economy is still the domination of oligarchic structures and monopolies. It has led to the elimination of competition in business. Former prime minister Grant Bagratyan thinks that it is necessary to provide economic growth at a level of 7%, rather than 2-3%, for development of the country and prevention of migration.

The main index of the authorities’ policy is the worsening social state of citizens. The obstacle in the way of development of the country is still the clannish-oligarchic model of the economy, which creates favorable conditions for corruption and a high level of the shadow economy. These circumstances became a serious backstop for an inflow of investments, which were necessary to provide significant growth of GDP.

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