Growing economic crisis in Russia jeopardizes Armenia’s growth opportunities, experts warn

YEREVAN, MAY 17, ARMENPRESS. Armenian experts warn of the potentially heavy effects that the Armenian economy could suffer from the shrinking Russian economy due to Western sanctions.

Hayk Bejanyan and Narek Karapetyan of the Amberd Analytical Center explored various scenarios in an article.

Fluctuations of the Russian ruble, which have a direct impact on the Armenian economy, were among the factors underlying the study.

“And we must not forget that Russia is our main trading partner. That is why negative impacts in Russia have a direct impact on our foreign trade turnover and subsequent economic developments,” Bejanyan said.

In case of zero growth in Russia, the 5.7% of Armenian economic growth in 2021 will reduce to 1.9%. Export growth will be 8.4%, money transfers to Armenia will increase by 12.1%, while the Armenian dram will appreciate by 2.1%.

In the event of a 5% economic decline in Russia, Armenia’s real GDP will fall by 2.1% in 2022 and lead to a 0.7% drop in exports, a 7.5% drop in remittances and a devaluation of 1.1%.

In the event of a 10% drop, the economic losses will be more serious. In this case, the Armenian economic decline could reach 6.1%, while exports would fall by 9.8%. Remittances would decrease by 27.1% and the dram would devalue by 5.1%.

Meanwhile, a survey conducted by the Russian central bank predicted an 8% decline for the Russian economy in 2022. If that happens, the Armenian economy will register a decline of 4.5%, experts say. Exports could fall by 6.2%, remittances by 19.3% and the dram would lose value by 3.5%.

Experts point out that the growing economic crisis in Russia creates “significant risks” for the Armenian economy, jeopardizing its chances of registering growth.

According to the scenario, a devaluation and economic decline should be expected in Armenia, mainly due to the decline in exports and remittances. However, these assessments do not take into account possible positive developments, such as the influx of Russian labor into Armenia, new export opportunities, positioning as a logistics hub, new growth opportunities for financial services.

Bejanyan said the Russian ruble has already strengthened its positions in the new reality of sanctions after devaluing by almost 50% at the start.

Because Russia is Armenia’s main trading partner, developments around the Russian ruble have an impact on the Armenian dram. However, in recent times, the dram has acquired a certain value, and Bejanyan explains this by several facts, for example, the tourist flow. He said that the main income of visiting foreigners is in dollars or euros. “This has led to significant changes in the circulation of our currency. It is an element that has strengthened the dram. The other factor is Cenbank’s policy, he said.

The Armenian government’s initial forecast for 2022 was for 7% growth. However, the central bank has already revised this projection, lowering it 3 times.

“This will naturally lead to a reduction in state budget revenue. And taking into account the Ministry of Finance’s statement that no changes are planned in budgetary expenditure, this means that the government is inclined to compensate for the less collected revenues by incurring additional public debt. And if we were to be guided by this scenario, then if at the beginning of the year the public debt-to-GDP ratio was projected at around 62%, in the event of these projected developments, it is very possible that this figure could be in up to 68%,” the expert said.

Anna Grigorian

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