The fifth wave of COVID-19 infections abated in Armenia by end-February. After ARMENIA Key conditions and a slow start, the pace of vaccination picked up in late 2021, after mandatory require- challenges ments were introduced for workers to pro- duce proof of vaccination or to submit to Table 1 2021 Prudent macroeconomic policies, includ- weekly testing. Still, only 43 percent of the Population, million 3.0 ing a more-effective inflation targeting adult population was fully vaccinated as of GDP, current US$ billion 13.9 regime, a robust fiscal rule, sound financial March 13, 2022. GDP per capita, current US$ 4670.2 sector oversight, and pro-competition re- After a prolonged period of low inflation, a 0.4 International poverty rate ($1.9) forms helped Armenia weather the twin price levels picked up in late 2020 and re- a 6.9 crises in 2020 with a lower-than expected mained elevated in 2021. Inflation peaked Lower middle-income poverty rate ($3.2) a 44.7 increase in poverty rates. at 9.6 percent yoy in November before Upper middle-income poverty rate ($5.5) Gini index a 25.2 While domestic political uncertainty has moderating to 6.5 percent yoy in February School enrollment, primary (% gross) b 91.2 subsided since snap elections in mid-2021, 2022. Food inflation peaked at 17 percent b 75.1 Armenia still faces significant structural in November 2021, driving two-thirds of Life expectancy at birth, years constraints, such as weak connectivity, overall inflation. In response, the Central Total GHG Emissions (mtCO2e) 9.8 closed borders and no economic relations Bank of Armenia (CBA) increased the pol- Source: WDI, Macro Poverty Outlook, and official data. with two of its four neighbors and chal- icy rate nine times by a cumulative 500 a/ Most recent value (2020), 2011 PPPs. b/ WDI for School enrollment (2020); Life expectancy lenges related to high unemployment, skills basis points between December 2020 and (2019). mismatches and firm competitiveness. March 2022. The budget deficit declined from 5.1 per- cent of GDP in 2020 to 4.3 percent in The impact of the war in Ukraine and 2021. Revenues were up 8 percent yoy sanctions on Russia is likely to be sig- Recent developments due to higher VAT and state duties, fol- lowing the introduction of a new export nificant given Armenia’s strong eco- After contracting in 2020 by 7.4 percent duty for minerals. Expenditure was up 5 nomic links with Russia. The economy yoy, the Armenian economy started to re- percent yoy driven by current expendi- rebounded by 5.7 percent year on year cover in 2021, growing at 5.7 percent yoy. tures. Public debt to GDP declined to 63.4 (yoy) in 2021 but is forecast to grow at Growth was driven by private and public percent as at end-2021 from 67.4 percent consumption with smaller contributions a year earlier. only 1.2 percent yoy in 2022, with an from investment and net exports. The external balance improved due to a uncertain outlook subject to high down- On the production side, services rebound- quicker rebound in exports than imports, side risks. Lower growth and remit- ed from a sharp slump in 2020, and in- and a sharp increase in remittances. FDI al- tances are likely to slow poverty reduc- dustry and construction contributed mod- so rebounded, albeit from a low base. The tion and increase vulnerability. estly to growth. Agriculture contracted exchange rate stabilized following the de- for the sixth straight year, reflecting un- cline in political uncertainty in mid-2021 reformed land markets, uneven access to and reached pre-COVID levels in February irrigation and low resilience to changing 2022. However, the onset of the war in weather patterns. Ukraine brought fresh volatility. FIGURE 1 Armenia / GDP growth, fiscal and current account FIGURE 2 Armenia / Actual and projected poverty rates and balances real GDP per capita Percent Poverty rate (%) Real GDP per capita (millions constant LCU) 8 70 3 60 4 2 50 0 2 40 -4 30 1 20 -8 1 10 -12 0 0 2017 2018 2019 2020 2021e 2022f 2023f 2024f 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Real GDP growth, % change CAB, % of GDP International poverty rate Lower middle-income pov. rate Fiscal balance, % of GDP Upper middle-income pov. rate Real GDP pc Sources: Statistical Committee of Armenia; Central Bank of Armenia; World Bank Source: World Bank. Notes: see Table 2. staff projections. MPO 5 Apr 22 The national absolute poverty rate rose to with fuel imports accounting for 9 per- an increased tourism revenues associated 27 percent in 2020 from 26.4 percent in cent of imports in 2021. with an inflow of Russian citizens follow- 2019. Existing social protection and social The growth forecast has been downgrad- ing the onset of the war. assistance mechanisms (pensions and the ed for 2022 from 5.3 percent pre-war to Higher commodity prices will keep infla- Family Benefits Program) provided a crit- 1.2 percent, with lower remittances and tionary pressures elevated in 2022, but ical buffer preventing a further increase real wages impacting consumption; CBA’s inflation targeting is expected to an- in poverty. heightened uncertainty impacting invest- chor inflation in the medium-term as exter- ment; and exports contracting due to the nal price pressures subside. projected contraction in Russia and slow- Based on the forecasted macroeconomic ing global and regional growth. On the impact, poverty (using the upper middle Outlook production side, agriculture will continue income poverty line) could reach 39.6 to be weighed down by structural chal- percent of the population in 2022, which The impact of Russia’s invasion of Ukraine lenges; industry will be impacted severely represents a 3 percentage points increase on Armenia’s economy is likely to be sig- by uncertainty; and services will slow relative to a counter-factual scenario in nificantly negative, although the magni- along with consumption. In the medium- the absence of the war. Vulnerability tude remains uncertain. term, growth is expected to pick up in may increase due to decreased remit- Armenia has strong economic links with 2023 and 2024, but at a slower pace than tances, increased utility bills and in- Russia, which accounted for 28 percent projected pre-war. creased food prices. of Armenia’s exports and 30 percent of In line with slower growth, revenue collec- The forecast is uncertain, with possible its imports on average from 2018-2021 tion is expected to decline, and spending downgrades, given the evolving global and is the source of all of Armenia’s pressures are expected to rise, particularly and regional environment. Risks include wheat and gas imports. In 2021, remit- through increased social assistance, lead- protracted conflict in Ukraine, a pro- tances from Russia amounted to 5 per- ing to a delay in fiscal consolidation. This longed and more significant slowdown cent of GDP, 41 percent of net FDI will push up the debt to GDP to about 67 in Russia, further disruption in global stock was associated with Russian enti- percent of GDP at the end of 2022, further commodity markets, and still unresolved ties, and Russian tourists accounted for away from statutory limits. geopolitical issues around Armenian bor- 40 percent of all tourist arrivals. In ad- The current account deficit is projected ders. On the upside, the inflow of persons dition, Armenia will also be impacted to widen due to lower exports and net from Russia, if sustained, may have a by elevated global food and fuel prices, remittances. Exports may be boosted by positive impact of the economy. TABLE 2 Armenia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 7.6 -7.4 5.7 1.2 4.6 4.9 Private Consumption 11.5 -13.8 3.4 -1.3 5.4 5.7 Government Consumption 12.9 15.2 5.0 -1.2 1.7 1.0 Gross Fixed Capital Investment 4.4 -8.6 7.7 -0.9 7.5 9.1 Exports, Goods and Services 16.0 -33.4 16.5 -8.5 6.5 7.7 Imports, Goods and Services 11.6 -31.4 10.9 -12.0 8.0 9.3 Real GDP growth, at constant factor prices 7.7 -7.1 5.4 1.2 4.6 4.9 Agriculture -5.8 -4.1 -1.4 0.2 0.8 1.0 Industry 10.5 -3.0 3.8 -1.1 2.9 3.1 Services 9.7 -9.8 7.9 2.6 6.3 6.5 Inflation (Consumer Price Index) 1.4 1.2 7.2 9.8 7.5 6.8 Current Account Balance (% of GDP) -7.4 -3.8 -3.3 -3.7 -4.9 -5.4 Net Foreign Direct Investment (% of GDP) 1.7 0.6 2.6 1.6 1.8 2.3 Fiscal Balance (% of GDP) -0.8 -5.1 -4.3 -5.8 -4.9 -3.3 Debt (% of GDP) 53.7 67.4 63.4 66.9 67.6 66.6 Primary Balance (% of GDP) 1.6 -2.4 -1.7 -3.0 -2.0 -0.4 a,b,c International poverty rate ($1.9 in 2011 PPP) 1.1 0.4 0.3 0.2 0.2 0.2 a,b,c Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.8 6.9 5.7 5.4 4.8 4.0 a,b,c Upper middle-income poverty rate ($5.5 in 2011 PPP) 44.0 44.7 40.4 39.6 36.2 32.7 GHG emissions growth (mtCO2e) 6.4 -10.9 9.5 5.2 7.8 7.2 Energy related GHG emissions (% of total) 62.9 61.1 64.8 65.4 66.5 67.4 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2020-ILCS.Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2020) with pass-through = 0.87 based on GDP per capita in constant LCU. c/ The poverty rates for 2019 are not strictly comparable with 2018 due to revisions on the ILCS starting in 2019. MPO 6 Apr 22