According to the European Bank for Reconstruction and Development (EBRD) “Regional Economic Prospects,” Armenia’s economy will shrink by 3.5 percent this year due to the global COVID-19 (Coronavirus) pandemic.
“The global uncertainty and decreasing demand resulting from the Coronavirus crisis, combined with volatility in commodity prices, will affect the economy directly via a decrease in exports, which are dominated by copper and other mining products, and indirectly through economic links with Russia, including a likely downturn in remittances,” the EBRD said in its latest report on regional economies.
“Prolonged measures of social containment and low mobility would hurt Armenia’s tourism sector, which is largely dependent on visits from Armenians abroad,” added the report.
The London-based development bank also predicted that the Armenian economy will recover from the Coronavirus crisis and rebound by 5.5 percent next year.
The Armenian government and the International Monetary Fund, forecast last month a less drastic economic contraction. Still, the IMF cautioned that a 1.5 percent drop in the country’s GDP projected by it is a “baseline scenario” which assumes that the pandemic will fade in the second half of 2020.
The government plans to borrow a total of around $540 million from the IMF and other international lenders for cushioning the impact of the unfolding economic recession. Finance Minister Atom Janjughazian has said it needs such loans to offset a major shortfall in tax revenues and to continue financing Coronavirus relief measures.
These wide-ranging measures are expected to cost the state budget 150 billion drams ($310 million USD). Prime Minister Nikol Pashinyan said on Wednesday, that the government has already spent 73 billion drams on cash handouts to various categories of the population, as well as loan subsidies and grants to businesses and farmers.
Deputy Prime Minister Mher Grigorian estimated last week, that the government’s aid programs have already benefited 360,000 individuals and 24,000 businesses hit hard by Coronavirus-related economic disruptions.
The Armenian economy expanded robustly from 2017 through the first quarter of this year. According to official statistics, economic growth accelerated to 7.6 percent in 2019.
The EBRD report says it was primarily driven by a significant increase in household consumption and further boosted by rising exports. “The increase in consumption was led by household credit, up by 30 percent in 2019, and by a 10 percent increase in money transfers from abroad,” it says.