The International Monetary Fund announced a further downward revision of its economic growth forecast for Armenia on Tuesday, singling out the fallout from Western economic sanctions against Russia.
“We have found here that growth is weaker than we expected,” said Mark Horton, the head of an IMF mission visiting Yerevan. “We thought that growth would be around 3.5 percent this year. But it looks like it will be possibly around one percentage point lower than that.”
The IMF predicted a year ago that the Armenian economy will expand by 4.8 percent in 2014. It forecast higher growth rates for the following years. The fund began revising these growth projections downwards in April amid Russia’s intensifying standoff with the West over the crisis in Ukraine.
Horton said that the sanctions imposed by the United States and the European Union on Moscow are reflecting negatively on Armenian exports to Russia and remittances from hundreds of thousands of Armenians working in Russia. He also pointed to lingering uncertainty over the date and terms of Armenia’s accession to the Russian-led Eurasian Economic Union (EEU). Armenian businesspeople have “lots of questions” about that, he told reporters.
The IMF official said economic growth is proving to be slower than anticipated also because of the Armenian government’s failure so far to fully meet its 2014 spending targets. In particular, he explained, the government has yet to finance some of its big capital projects that would significantly add to the country’s GDP.
“Armenia is facing a challenging period ahead with the developments in the region and with the uncertainties around the sanctions,” Horton warned. He said the government should seek to offset the unfavorable external factors with major structural reforms implemented “as decisively as possible.”
Prime Minister Hovik Abrahamian and key members of his cabinet reaffirmed their stated commitment to such reforms at a meeting with the IMF mission held earlier in the day. Abrahamian was quoted by his press office as telling Horton that the government has already moved to improve the country’s business environment and reduce tax evasion and corruption.
The government lowered its economic growth forecast for 2014 to 4 percent from 5 percent in July. It said that GDP will increase, in real terms, by 5 percent next year and 5.3 percent in 2016.
Horton offered a less upbeat outlook, however. He said Armenia’s growth rate will likely reach only 3.3 percent in 2015 and average 4-4.5 percent in the following years.