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80 Opinion
this year and 5% in 2019. The predictions are 2pp and 0.5pp
higher than what the banks’ analysts predicted in May.
The EBRD said in the November edition of its Regional Economic Prospects report: “Armenia’s economy is growing rapidly. Following a near stagnation in 2016, real GDP growth accelerated from 7.5 per cent in 2017 to an estimated 8.3 per cent year-on-year in the first half of 2018.
“Household consumption, capital investment and exports all contributed strongly to economic growth. Capital investments increased by 7.7 per cent in 2017 after eight years of decline (with the exception of 2015) and picked up further to an estimated 14.7 per cent year-on-year growth in the first half of 2018.”
The main drivers behind growth have been private consump- tion and investment, the latter linked to the strengthening construction sector, a December report from Fitch Ratings noted. A buffeting from world economic headwinds, of course, could throw a spanner into the forecasting for the coming year.
Broadly positive
In early December, the IMF issued a broadly positive report on Armenia’s financial system stability. The financial system has been stable and financial soundness indicators were showing signs of improvement, it said. All of Armenia’s banks met the 12% minimum capital requirement, it added, saying: “Bank profitability has gradually recovered, although it is still below pre-crisis levels. Nonperforming loans (NPLs) have fallen,
of which a substantial proportion is covered by provisions, although NPL ratios are still high in a few banks.”
On the other hand, the Fund said, Armenia’s financial system was “relatively shallow” and continues to be dominated
by banks, with the sector’s assets equal to around 78% of GDP. “Capital markets are thin, and external financing is important for long-term financing, given a small domestic investor base,” the report warned. “As illustrated by the stress tests, risks from a high degree of financial dollarisation are significant, including credit risks and limited liquidity cushions in foreign currency in the event of external shocks.”
In the report, IMF directors underlined that persistent vulnerabilities remain from high levels of dollarisation
and insufficient liquidity cushions in foreign currency, and recommended that Armenian authorities adopt the planned capital conservation buffer and the surcharge for domestic systemically-important banks.
Deep-seated
The diaspora bonds initiative, for instance, is another bright idea that’s shooting in the right direction, but Armenia’s problems are deep-seated and won’t be fixed overnight.
bne IntelliNews reported in early May, how Armenia www.bne.eu
bne February 2019
placed 129th in Jeffrey Sachs’ World Happiness
Report 2018, meaning Armenia was ranked as one of
the unhappiest nations in the world. Corruption, low incomes and social injustice have plagued its people. Anti- graft watchdog Transparency International’s Corruption Perception Index 2016 assessed Armenia as 113th worst of 176 countries, while the Legatum Prosperity Index 2017’s sub-component of Economic Quality positioned Armenia 114th out of 149 countries. Dominated by the local strongmen, the corruption-enfeebled economy has underperformed and what’s widely seen as a vibrant youth has grown deeply frustrated that talented people have simply been unable to realise their potential. The hope, of course, is that Pashinian, a big user of social media in his political communications who has a look and manner that are informal and oriented to the younger generations, will change all that.
But Armenia is greatly reliant on Russian backing both economically and militarily and there may be business and economic ‘relationships’ with certain oligarchs and minigarchs that Moscow would be loath to see disrupted or dismantled. Pashinian has declared his enmity towards monopolies and
a foretaste of business battles to come may have emerged
in mid-November when Armenian tax officials accused their country’s national gas distribution company, Gazprom Armenia, of evading millions of dollars’ worth of taxes. The previous week Armenia announced it had gone into talks with Moscow and Gazprom Armenia’s owner, Russian state-owned energy giant Gazprom, to pursue price cuts on supplies of natural gas. Putin not long before had declared that Armenia receives some of the cheapest gas in the world.
Authentic new dawn?
Cynics might be tempted to see the gas moves as a pre-election ploy designed to curry favour with a patriotic electorate,
but if Armenia really is in for an authentic new dawn under Pashinian one would hope not.
No doubt some optimism is misplaced, but far from all of it. Those with the rosier outlooks were given a lift, for instance, at the end of October when it was announced that Armenia had improved by six places to rank 41st out of 190 economies in the World Bank’s annual Doing Business survey.
The country’s ranking in Doing Business 2019, driven by the five reforms it made in the 12 analysed months, meant it was a “notable reformer” in the Europe and Central Asia region, the World Bank said. As it happens, those reforms appear to have been driven by the government that met an untidy end, but to conclude on an upbeat note there were some handsome placings in the global sub-categories on which the My Step government has every opportunity to build on. Armenia’s ranking in “Starting a business”, for example, was a handsome eighth. Let’s see how the Pashinian administration fares in ‘Restarting a country’.