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Armenian Economy Recovers Faster Than Expected

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  • Armenian Economy Recovers Faster Than Expected

    Armenian Economy Recovers Faster Than Expected


    August 12, 2010

    Emil Danielyan
    Armenia's economy is emerging from its first major downturn since the
    early 1990's faster than expected, helped by similar recovery
    globally.
    Official statistics show that it expanded by 6.7 percent in the first
    half of this year and surpassed even the most optimistic government
    expectations. The Armenian authorities now expect full-year growth to
    reach between 5 to 7 percent, sharply up from the 1.2 percent forecast
    last December.
    Armenia was one of the countries hardest hit by the global recession:
    GDP contracted by as much as 14.4 percent last year after a decade of
    robust growth. A slump in construction, international prices of base
    metals (the country's main export item) and multimillion-dollar
    remittances from Armenians working abroad was instrumental in the GDP
    decline. It would have been even sharper without the large-scale
    anti-crisis loans obtained by Yerevan from Moscow, the International
    Monetary Fund (IMF), World Bank and other international lending
    institutions.
    Year-on-year negative growth stopped and even moved into positive
    territory in the fourth quarter of 2009. It progressively accelerated
    from 2.2 percent in January 2010 to 8.8 percent in January-May. The
    growth rate slowed in June because of a sharp fall in agricultural
    production resulting from highly unfavorable weather conditions. It
    was more than offset by a 12.3 percent rise in industrial output, the
    main driving force behind the first-half year growth, which has
    benefited from rallying international prices of copper, molybdenum and
    other base metals. Other export-oriented manufacturing sectors of the
    economy, notably food and diamond processing, also reported strong
    production increases. That translated into a 56 percent surge in
    Armenian exports totaling $443 million in the six-month period. The
    National Statistical Service (NSS) registered more modest gains in
    construction and services other than the retail trade (The National
    Statistical Service, www.armstat.am).
    Another factor behind the recovery is renewed growth in cash transfers
    from Armenian migrant workers abroad. According to the Armenian
    Central Bank, the total amount of non-commercial remittances, most of
    them coming from Russia, rose by over 10 percent to $380 million in
    January-May: equivalent to 14.4 percent of GDP. The improved
    macroeconomic performance led the Armenian government to declare an
    end to the economic crisis, which is estimated to have pushed up the
    country's official poverty rate from over 25 percent to about 29
    percent. `We have entered a renewed phase of stable economic
    development,' Finance Minister, Tigran Davtian, told journalists
    (Arminfo, July 4). Opposition politicians dismissed these assurances,
    again questioning the credibility of the government's macroeconomic
    data. `The economy remains in serious crisis,' insisted Hrant
    Bagratian, a former Prime Minister now affiliated with the main
    opposition Armenian National Congress (www.armenialiberty.org, July
    20).
    Nevertheless, the IMF, which trusts the official figures, essentially
    shared the government's assessment of the improving economic
    situation.
    `The Armenian economy is emerging from a deep downturn,' the fund's
    deputy managing director, Murilo Portugal, said in a June
    28 statement (www.imf.org) that announced the release of a new IMF
    loan package for Armenia worth $395 million.
    The fund cut short the $830 million lending program, which it had
    launched in March 2009 to help the authorities in Yerevan cope with
    the recession. They have since received $560 million worth of loans
    under that scheme. Portugal explained that Armenia's ongoing economic
    recovery is necessitating a change in the authorities' economic
    priorities and that the new program will enable them to renew their
    focus on `medium-term challenges.' Achieving `strong growth' is one of
    those challenges, he said.
    Visiting Yerevan in May, Mark Lewis, another senior IMF official,
    warned that Armenian growth will continue to be hampered by poor and
    arbitrary tax collection and `powerful oligopolies,' which he said
    play an important role in the domestic economy. He repeated IMF
    arguments that the amount of taxes collected by the Armenian
    government is `very low by international standards,' in both absolute
    and relative terms (ARKA, May 19).
    The subsequent IMF statement, quoting Portugal, said the government
    has drawn up a `broad tax administration reform' program and pledged
    to implement other `wide-ranging structural reforms' that would
    improve Armenia's flawed business environment. The country's
    technocrat Prime Minister, Tigran Sargsyan, has repeatedly (and
    vocally) described such reforms as a top priority. However, his reform
    record has been patchy so far, with many Armenian government-linked
    businessmen continuing to enjoy privileged treatment by tax
    authorities and the under reporting of their earnings. Some of them
    have also effectively monopolized lucrative forms of business, such as
    fuel and food imports.
    The government's first-half year tax revenues soared by 23 percent to
    286.2 billion drams ($785 million), bringing the state budget down to
    a level equivalent to 1.3 percent of GDP. Data from the Armenian
    finance ministry indicates that increased proceeds from value-added
    tax generated much of this increase, whereas government revenues from
    corporate profit tax shrunk by more than 3 percent
    (www.armenialiberty.org, August 3). This is a clear indication that
    tax evasion among Armenian companies remains widespread.
    However, the tax revenue total was almost 12 percent higher than the
    government had projected for the first half of 2010. The government
    further highlighted its improving fiscal position in early July, when
    it restored the practice of drawing up three-year budgetary
    expenditure plans, which were suspended in 2009 because of the
    economic crisis. The government's spending targets for the next three
    years are based on the expectation that the Armenian economy will
    continue to grow in 2011-2013 at an average annual rate of roughly 4
    percent.
    Source: http://www.jamestown.org/programs/edm/


    http://georgiandaily.com/index.php?option=com_content&task=view&id=19687&Itemid=132




    From: A. Papazian
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