To talk about
these issues, we are joined by:
|
Dr. Vache Gabrielyan who is the Dean of the Manoogian Simone College of
Business and Economics at the American University of Armenia and specializes
in public administration and economics. Since 2008, he has served as
Vice-Governor of the Central Bank of Armenia, Minister of Finance,
Minister-Chief of the Government Staff, Chief Advisor to the Prime Minister,
as well as the Deputy Prime Minister of Armenia, and the Minister of
International Economic Integration and Reforms. |
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The State of Armenia’s Economy
Discussion
Risk from the Ukraine War
We
want to take a look at the state of the economy since the “Velvet revolution”
events of 2018, but it’s hard to pick a starting point because so much has been
happening. Maybe we can start at the current moment with the war in Ukraine,
Sanctions on Russia, and their effect on Armenia.
As
a result of the war in Ukraine, Russia is going to be under severe economic
stress because of the western sanctions. Given the Armenian economy’s dependence
and exposure to Russia as its top trading partner, can you describe the risk to
the Armenian economy from this crisis, both macroeconomic and microeconomic in
the short, medium, and long term?
● Are there specific sectors that are most at
risk? What would you watch out for?
● Is there an opportunity here as well?
Considering the presumed potential flight of capital and human resources (which
are already in plain sight on the streets of Yerevan), could Armenia act as a
safe haven for Russian capital and possibly human resources? Could this also
carry the risk of being perceived as helping Russia bypass sanctions?
With
the crash of the Russian Ruble, what is the potential effect of the Russian
debt on the economies of Armenia and regional countries? In economic circles,
there’s talk of a potential worldwide credit crunch that could impact developing economies like
Armenia the most?
There
are some special rules in place allowing Russian companies to pay back
foreign debt in Rubles.
● What does this mean for Armenia and Armenian
companies?
● What about other developing countries, for
example EAEU countries with whom we have large trading relations?
● Russia has an alternative to the international
SWIFT system for connecting banks around the world: SPFS. Are Armenian banks
connected to it? Can they connect to multiple such systems?
○ Is China connected to SPFS?
Pandemic, War and Beyond Economy
The past 2-3
years have been very unusual not only in Armenia, but the whole world. The
pandemic alone is a completely abnormal experience, and of course the 44-Day
war in Artsakh was another shock to Armenia’s economic and military systems.
The pandemic and
the war should have had a catastrophic impact on the economy, but at first
glance, GDP numbers do not indicate a disastrous state of affairs. And while Foreign
Direct Investment (FDI) has steeply declined (zeroed out?), there has been a
very significant infusion of new debt.
The national debt
has grown significantly, nearly $1.5 Billion since the pandemic started and
that is not even counting potential new debt from the announced multi-billion
dollar aid package from the EU.
● Can Armenia’s avoidance of a complete financial
crisis be simply explained by heavy borrowing or is there a more nuanced
explanation?
● To what do you attribute the relative stability
of Armenia’s currency through the pandemic and the war?
It’s been a year
and a half since the war ended, and in 2021 the Armenian economy grew 5.8%, but
of course from extremely low pandemic levels. Even so, it is much lower than
the promised “double-digit” growth. In fact, in early 2021 Minister of Economy Vahan Kerobyan even claimed that
the Armenian economy had “almost recovered”.
● Has it recovered?
● When challenged about his rosy predictions, Kerobyan responds that his job is to “give hope” to the people by sharing optimistic forecasts,
which may not be very realistic. Is this approach correct?
● How has the internal structure of Armenia’s
economy shifted over the past 3 years?
● How would you assess the government’s 5-year
program as it concerns economic development?
● Does Armenia need a “new deal” style nationwide
infrastructure initiative to modernize the entire country? What would be the
cost of such an investment in its own future?
Currently Armenia’s
income tax rate is roughly around 25%.
● Are budget revenues, and the tax rate at an
appropriate, and sustainable level for the country?
● Does the budget support our national security
needs? If not, at what level does our spend need to be?
Normalization with Turkey and Corridor Economics
As we know,
Armenia and Turkey are holding negotiations to establish diplomatic relations
and opening their border. While everyone agrees that neighboring countries
should talk and have relations, it is unclear what the economic benefits are
going to be for Armenia.
● How would Armenia’s economy be affected today if
borders with Turkey were opened?
● Are warnings about the “Batumization”
of the Armenian economy exaggerated?
● What does Armenia need to do in order to prevent
negative effects on its economy as a result of opening the border with
Turkey?
● What about Turkish capital buying real estate in
Armenia?
On
the eastern front, prime minister Pashinyan wants to sign a peace treaty with
Azerbaijan and open borders with them and allow all sorts of transit through
Armenia. Similar questions arise with this situation as well.
● Would Armenia benefit from allowing so-called
“open communications” and trade with Azerbaijan?
Much
is said about Armenia benefiting from rail transit through Azerbaijan, whether
towards Iran or even towards Russia. In the past two weeks work has begun on
the railway from Yerevan, through Nakhichevan and to Iran and Azerbaijan.
● Do you expect a bump to the national budget due
to these projects, and if so, then how much?
