The Armenian government should not pay too much attention to construction in its efforts to reduce the effects of the global recession on the domestic economy, a senior official from the International Monetary Fund said on Wednesday.
“I believe that it is also very important to stimulate other sectors of the economy because the Armenian economy has been disproportionately dependent on the construction sector in the last several years,” Nienke Oomes, the IMF’s resident representative in Yerevan, told reporters.
The construction industry was a key driving force behind Armenia’s double-digit economic growth that came to an end following the onset of the global financial crisis late last year. It has been hit hardest by the ensuing recession, shrinking by as much as 55 percent year on year in the first seven months of this year. That translated into an overall GDP drop of 18.5 percent.
Accordingly, the sector has been a key beneficiary of large-scale anti-crisis loans attracted by the Armenian authorities from foreign lenders. The authorities are using the money to finance social housing construction, give credit guarantees to construction firms and set up a state mortgage fund.
Oomes indicated that the government was right to set aside earlier this year for 20 billion drams ($53 million) in loan guarantees for private developers lacking cash to complete building projects. But she said it should also help other sectors hit hard by the crisis.
Local economists agree that the government support for construction firms, although necessary, could bring the country only short-term economic benefits. “In the long term, that will again reinforce the situation we have now,” Manuk Hergnian, director of the EV Consulting firm, told RFE/RL. “Namely, an economy with very little diversification that is highly dependent on remittances from abroad and other external factors. This was, after all, the reason for such a deep [GDP] decline.”
Speaking at an economic forum in Yerevan in July, Prime Minister Tigran Sarkisian acknowledged that construction generates a disproportionately high share of GDP and made a case for a greater diversification of the Armenian economy. Sarkisian said that renewed economic growth should also be driven by other, export-oriented manufacturing sectors.
Two of those sectors, mining and metallurgy, have received state support to cope with the consequences of the 2008 collapse in international prices for copper, molybdenum and other metals.