The World Bank has warned of the growing risk of a recession in Armenia while saying that the Armenian economy could still grow modestly this year despite the coronavirus pandemic.
“Under the baseline scenario, envisaging the start of a gradual recovery [of economic activity] in mid-summer of 2020, the real GDP growth rate in 2020 is expected to moderate to 1.7 percent,” the bank said in its Europe and Central Asia Economic Update released on Thursday.
“At the same time, a prolonged [coronavirus] outbreak scenario would result in stagnant GDP or even an economic contraction,” it warned. “The probability weight on that happening is rising due to worsening health, economic, and financial outcomes across the world.”
The Armenian economy grew by 7.6 percent last year and continued to expand robustly in the first two months of this year. However, the situation changed dramatically last month as the Armenian government put the country under lockdown to fight against the spread of coronavirus.
The Central Bank of Armenia (CBA) forecast last week a 0.7 percent GDP growth rate for 2020. Economy Minister Tigran Khachatrian agreed with that projection.
The World Bank noted that the pandemic has already shut down the Armenian tourism sector, caused a major drop in international prices of copper, one of the court’s main exports, and will increasingly cut multimillion-dollar remittances from Armenians working abroad and Russia in particular.
“Efforts to contain the spread will dampen demand further,” reads its report. “A dollarized economy and undiversified exports add to the challenges of managing the shock. However, a relatively healthy banking sector, a precautionary [loan] arrangement with the IMF, as well as some fiscal buffers partly mitigate the risks.”
A wide-ranging stimulus package approved by the Armenian government late last month calls for one-off cash payments to a large part of the population, financial assistance to businesses and loan subsidies for farmers. In particular, many creditworthy firms and individual entrepreneurs are due to receive grants worth $500 million ($1 million).
The government on Thursday decided to extend the cash handouts to the owners of microbusinesses with annual revenue of up to 24 million drams. They will be eligible for up to 136,000 drams in compensation.
“The government has a clear strategy of how to overcome the crisis,” Prime Minister Nikol Pashinian insisted during a cabinet meeting in Yerevan.
The government has already spent 3.7 billion drams on coronavirus relief, he said, adding that the sum makes up less than 10 percent of emergency spending planned by it.
Pashinian went on to praise Armenian banks for honoring their pledge to suspend loan repayments for some 290,000 individual borrowers and 5,300 businesses. He also noted that the Armenian national currency, the dram, has rallied against the U.S. dollar in recent days after losing more than 4 percent of its value in March.
The World Bank report warns that falling remittance inflows from Russia may lead to “stronger depreciation pressures” on the dram in the months ahead.
The bank offered a far more positive outlook for the next few years. “GDP growth is forecast to recover over the medium term, to around 4.5 percent in 2021-22, supported by stabilizing external conditions and catch-up of delayed activities,” it said.
The Ministry of Health reported on Thursday morning that the number of coronavirus cases in Armenia rose by 28 to 921 in the past 24 hours. The latest official figures suggest that the virus, which has killed 10 people so far, continued to spread considerably more slowly than it did in the second half of March.
Pashinian again stated that the government is “cautiously optimistic” about containing the COVID-19 epidemic. He said a government task force will meet on Friday to decide whether to extend or ease the nationwide lockdown imposed on March 24.