The World Bank has forecast that Armenia’s economic growth will reach 3.4 percent in 2021. According to Armenpress, this was stated in the Bank’s spring report on economic developments in the Europe and Central Asia region.
“In 2020, Armenia experienced one of the sharpest contractions in Gross Domestic Product (GDP) in the region, at 7.6 percent, as the COVID-19 outbreak and the military conflict with Azerbaijan at the end of the year affected outcomes. Poverty is estimated to have increased by 7 percentage points in 2020. The economic recovery will be gradual,” the report said.
The World Bank noted in its report that before the coronavirus pandemic, Armenia was gradually improving its business environment. “It maintained a track record of sound economic management, underpinned by a strong fiscal rule, an inflation-targeting monetary policy framework, and improved financial sector supervision. The authorities launched an ambitious reform program aimed at strengthening governance in 2018. Economic growth was strong, averaging 6.4 percent in 2018 and 2019,” the Bank said.
The report also stated that despite Armenia’s reform progress, structural challenges have prevented the country from reaching its full potential. Among the challenges, governance gaps, incomplete judicial reforms, and other issues were cited, with emphasis that the tense geopolitical situation further exacerbates these challenges.
It was noted that Armenia’s progress, however, stalled in 2020 due to two shocks: the pandemic and the Artsakh war. Real GDP in 2020 contracted by 7.6 percent.
“GDP growth is projected to partially recover in 2021, at 3.4 percent, and more strongly in 2022, at 4.3 percent. The recovery will be slow; by 2023 the economy is unlikely to return to its pre-COVID output level,” the report said.
The World Bank noted that under the baseline scenario, it is assumed that the authorities will not impose additional lockdowns and restrictions in 2021.
It was also noted that private consumption and the services sector are expected to recover gradually. Private investment is likely to remain subdued, reflecting weak investor confidence. Large post-conflict expenditures and ambitious public investment programs, although tempered by implementation challenges, will nonetheless widen the fiscal deficit and raise the debt-to-GDP ratio above 70 percent over the medium term.
The World Bank forecasts that average inflation will remain close to the Central Bank of Armenia’s 4 percent target, but could rise if global food and fuel prices continue to rise unexpectedly. Foreign investment flows are expected to remain subdued, but government borrowing will keep reserves at adequate levels over the medium term.
