Armenia: Economic and Political Overview
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Armenia has been growing at a fast pace in recent years. Expatriate remittances, an increase in international copper prices, and a business-friendly monetary policy aided the country's economic development. Other strengths include major mining resources (molybdenum, zinc, copper, gold), financial support from international organizations, considerable foreign exchange reserves, and membership in the Eurasian Economic Union (EARU) as well as a partnership with the EU. However, the economic crisis caused by the Covid-19 pandemic and the armed conflict with Azerbaijan over the Nagorno-Karabakh enclave severely affected growth, which turned negative in 2020. Despite that, Armenia’s economy has shown resilience to recent shocks – including the Russian invasion of Ukraine – and grew by an estimated 7% in 2022), driven by large inflows of external income, capital, and labour into the country. Amid tighter global financial conditions and weaker external demand, the IMF expects growth to decelerate to 3.5% this year and 4.4% in 2024.
According to IMF data, public debt represented 52.3% of GDP in 2022, returning around the pre-pandemic level, and should remain stable over the forecast horizon. External debt decreased both in dollar and dram terms, as the national currency appreciated 22% over the year, becoming the world's top-performing currency. The state budget for 2023 forecasts a deficit of 3.1% of GDP: expenses for the year are planned at AMD 2 trillion 590 billion (27.8% of GDP), or 18.3% more than in the approved budget for 2022, while revenues should also grow to AMD 2 trillion 204 billion. Inflation has increased to 8.5% in 2022 on the back of supply and demand shocks and the Central Bank has raised the policy rate by 625 basis points aiming to steer inflation toward its medium-term target of 4%. According to the IMF forecast, the inflation rate should gradually decrease to 7% in 2023 and 5% in the following year. Armenia’s economy continues to face structural challenges, such as the need for further improvement in the business and investment environment, high unemployment, lingering labour skills mismatches, and weak firm competitiveness. Significant structural reforms have taken place in the areas of public financial management, revenue administration, the financial sector, and governance (IMF).
The unemployment rate was estimated at 15.2% in 2022 by the IMF and should remain relatively stable over the forecast horizon. The latest governmental figures show that the national poverty rate is estimated at 26.5%, while the GDP per capita (PPP) stood at USD 16,798 as of 2022.
| Main Indicators | 2020 | 2021 | 2022 (E) | 2023 (E) | 2024 (E) |
| GDP (billions USD) | 12.64 | 13.86 | 19.50 | 23.73 | 25.12 |
| GDP (Constant Prices, Annual % Change) | -7.2 | 5.7 | 12.6 | 5.5 | 5.0 |
| GDP per Capita (USD) | 4,269 | 4,679 | 6,584 | 8,008 | 8,478 |
| General Government Gross Debt (in % of GDP) | 63.5 | 60.2 | 49.3 | 49.3 | 50.2 |
| Inflation Rate (%) | 1.2 | 7.2 | 8.7 | 7.1 | 5.0 |
| Unemployment Rate (% of the Labour Force) | 18.2 | 15.3 | 12.5 | 12.5 | 13.0 |
| Current Account (billions USD) | -0.48 | -0.52 | 0.02 | -0.41 | -0.84 |
| Current Account (in % of GDP) | -3.8 | -3.7 | 0.1 | -1.7 | -3.3 |
Source: IMF – World Economic Outlook Database, October 2021
Armenia's economy is based on agriculture, mineral exploitation, hydroelectricity, telecommunications, jewellery, and tourism. Agriculture represents 11.3% of GDP and employs 24% of the total workforce (World Bank, latest data available). Armenia suffers from low levels of cultivation of arable land, limited resources and low growth potential due to political instability. Small and fragmented plots are used for subsistence agriculture. Main crops include potatoes, tomatoes, grapes, wheat and melons, cotton and tobacco. Armenia's livestock sector is also pivotal, representing almost 40% of the country’s gross agricultural product. The latest figures from FAO show that the 2022 total cereal output was forecast at about 233,000 tonnes, 5% below the five-year average; while that of wheat and barley was estimated at 130,000 tonnes and 70,000 tonnes, respectively, above the low outputs harvested in 2021, but still slightly below the average levels.
The industry contributes 26.6% of GDP and employs 25% of the total workforce. Armenia has copper, molybdenum, bauxite, zinc, lead, iron, gold, and mercury deposits, the basis of the country’s chemical industry sector and its main exports. The mining sector is one of the largest contributors to GDP and exports (especially metal ores). Hydroelectricity is very well developed in the country, to the point that Armenia is now exporting it (although most of it is foreign-owned). The manufacturing sector alone accounts for 11% of GDP (World Bank). According to official government data, the industrial output in 2022 grew by 7.8% year-on-year to about AMD 2.76 trillion.
Services represent 52.8% of GDP and employ 51% of the active population. The sector includes jewellery (particularly because of the size of its diamonds) and tourism. The ICT sector is also growing and is considered a priority by the government. Banking, in particular, has grown: it is considered a solid and stable sector and is composed of 17 commercial banks (European Banking Federation). The tourism sector was severely affected by the COVID-19 pandemic and the travel restrictions that followed; nevertheless, it showed signs of recovery in 2022, as the country welcomed 1.54 million tourists in the first eleven months of the year (around 83% of the pre-pandemic level – data Tourism Committee).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 24.0 | 24.8 | 51.2 |
| Value Added (in % of GDP) | 11.3 | 26.6 | 52.8 |
| Value Added (Annual % Change) | -0.6 | 3.4 | 6.9 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}
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Source: Index of Economic Freedom, Heritage Foundation
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Latest Update: September 2023
