ARMENIA’S CURRENT-ACCOUNT DEFICIT DEEPENS SHARPLY IN H1
by Venla Sipila

Global Insight
October 3, 2007

According to the newest data from the Armenian National Statistical
Service, the country’s current-account deficit amounted to nearly
US$256 million for the first half of 2007, ARKA News reports. This
marks dramatic deterioration compared with the shortfall of some
US$55 million registered during the first six months of last year.

Measured as a percentage of GDP, the current-account gap reached
9.7%, comparing to 3% in the first half of 2006. The poor performance
was mainly due a soaring trade deficit; this measured nearly US$682
billion for the six-month period after standing at US$379 million
in January-June 2006. Specifically, exports totalled US$474 million,
rising by some 8% year-on-year (y/y), while imports surged by around
42% y/y coming in at nearly US$1.2 billion. Meanwhile, the services
balance posted a deficit of US$79 million, also widening in annual
comparison. Conversely, the current transfers balances registered
a surplus, the total of some US$378 million marking an increase of
32% in annual comparison. Finally, the surplus on the income balance
reached US$133 million, also growing compared with the year-ago result
of US$88 million.

Significance:Our projections see Armenia’s current-account deficit
widening over 2007 in both absolute terms as also as a percentage of
the GDP, while the deterioration now reported is more marked than
expected. The relatively strong current transfers balance reflects
Armenia’s reliance on workers’ remittance inflows. The considerable
trade gap is likely to keep the overall current account deficit
large in the medium term, while growing net income should curb its
widening. Armenia’s reliance on private transfers and remittances
leaves it vulnerable to external shocks, and while strong FDI inflows
still finance a large part of the deficit, the widening current-account
gap poses a source of risk on Armenia’s external liquidity.