Growing economic crisis in Russia jeopardizes Armenia’s growth opportunities, warn experts
YEREVAN, MAY 17, ARMENPRESS. Armenian experts are warning of the potentially heavy effects the Armenian economy could experience from the shrinking Russian economy due to the Western sanctions.
Hayk Bejanyan and Narek Karapetyan from the Amberd Analytical Center explored various scenarios in an article.
The Russian ruble fluctuations, which is directly impacting the Armenian economy, was among the factors in the basis of the study.
“And we shouldn’t forget that Russia is our main trade partner. That’s why negative impacts in Russia are directly impacting our foreign trade turnover and subsequent economic developments,” Bejanyan said.
In the event of a zero growth in Russia, the Armenian economic growth’s 2021’s 5,7% will shrink to 1,9%. Exports growth will comprise 8,4%, money transfers to Armenia would grow 12,1%, while the Armenian dram will appreciate by 2,1%.
In the event of a 5% economic decline in Russia, the Armenian real GDP will drop 2,1% in 2022 and will lead to 0,7% drop in exports, 7,5% drop in remittances and 1,1% devaluation.
In the event of 10% decline the economic losses will be more severe. In this case, the Armenian economic decline could reach 6,1%, while exports would drop 9,8%. Remittances would decline 27,1% and the dram would devaluate 5,1%.
Meanwhile, a survey conducted by the Russian central bank projected 8% decline for the Russian economy in 2022. If this happens, the Armenian economy will record a 4,5% decline, according to the experts. Exports could drop 6,2%, remittances – 19,3% and the dram would lose value 3,5%.
The experts emphasize that the growing economic crisis in Russia is creating “significant risks” for the Armenian economy, jeopardizing its chances of recording growth.
According to the scenario, devaluation and economic decline should be expected in Armenia, mostly due to decline in exports and money transfers. However, these assessments aren’t taking into account the possible positive developments, such as the inflow of Russian labor to Armenia, new exports opportunities, positioning as a logistic hub, new opportunities for financial service growth.
Bejanyan said that the Russian ruble has already strengthened its positions in the new reality of sanctions after the nearly 50% devaluation in the beginning.
Because Russia is Armenia’s main trade partners, the developments taking around the Russian ruble are impacting the Armenian dram. However, in the recent period the dram gained some value, and Bejanyan explains this with several facts, for example the tourism flow. He said that the visiting foreigners’ main income is in dollars or euros. “This led to significant changes in our currency circulation. This is a component that strengthened the dram.” The other factor is the cenbank’s policy, he said.
The Armenian government’s initial forecast for 2022 was 7% growth. However, the central bank already revised this projection, lowering it 3 times.
“This will naturally lead to a cut in state budget revenues. And if we take into account the finance ministry’s statement that no changes are planned in budget spending, this means that the government is inclined to compensate for the less collected revenues by involving additional state debt. And if we were to be guided with this scenario, then, if in the beginning of the year the state debt-GDP ratio was projected to be around 62%, in case of these projected developments it is very possible for this figure to be up to 68%,” the expert said.