YEREVAN: The World Bank forecasts that Armenia’s GDP growth rate may reach 3.1 percent in 2016, supported by rising external demand. In its ‘Polarization and Populism’ Europe and Central Asia Economic Update, the World Bank forecasts 3.3% and 3.6% economic growth for 2017 and 2018 respectively. However, domestic demand remained weak as remittances continued to decline, slowing growth in retail and construction sectors. Monetary policy conditions remained soft as falling imported and domestic food prices and lower tariffs on natural gas contributed to an ongoing deflationary trend.
The annual fiscal deficit is projected to reach 4.3 percent of GDP. Public debt stock is expected to exceed 50 percent of GDP in 2016. Over the medium term, however, the fiscal deficit is expected to narrow to a sustainable level of about 2 percent of GDP, as rising growth rates boost revenues. «Modest but positive growth projections for agriculture and industry, combined with an increase in real wages in both the public and private sectors, are likely to support continued poverty reduction during 2017-18,» the World Bank says in its review. “As a result, the poverty rate is projected to decline from 24.9 percent in 2016 to 23.2 percent in 2018. The easing of international sanctions against Iran in 2016 has created a unique opportunity for Armenia to access new export markets and to serve as an overland shipping corridor between Iran and Russia.” The WB analysts think access to Iranian oil may increase competition in the domestic energy market and reduce Armenia’s reliance on Russian fuel imports. Risks and challenges Armenia’s economic outlook is subject to considerable downside risks. Sustaining growth in a difficult external environment with limited fiscal space poses a serious policy challenge.
Any reversal in the external environment and/or a slower-than expected recovery in prices for Armenia’s critical metal exports represents significant risks to economic growth and job creation. Moreover, the municipal, legislative and presidential elections scheduled to take place over 2016-18 could delay the implementation of much needed structural reforms to improve the business environment, investment and productivity growth.
