MACROECONOMIC RISKS GROWING ALONGSIDE GDP OF ARMENIA

AZG Armenian Daily
17/07/2008

Economy and Finance

States World Bank

On July 16 the World Bank Yerevan Office presented ‘Armenia: Economic
Monitoring Note for the first half of 2008′. The report outlined
marcoeconomic risks in the country.

Ms. Aristomene Varudakis, World Bank Armenia Country Manager said
such reports will be published once in 6 months to provide timely
and brief data on the economic situation for the last 6 months. She
said the report is quite urgent given the new government plans for
economic reforms. The report covers economic policy of Armenia, as
well as the economic structure including the spheres of health care,
education, agriculture, and transport. Moreover, the report presents
the monetary and fiscal policies, the latest development in the
financial sector, as well as telecommunications, energy, drinking
and irrigation water. Structural problems are often presented not
orderly, she said, but they are important to meet the challenges the
country has faced. A. Varudakis added that the report is useful to
the citizens of Armenia including specialized organizations, students,
officials, public organizations as well as to international structures
interested. The report is published in English and translated into
Armenian.

For his part Agasi Mkrtchian, WB Yerevan Office economist, said
that over the last 6 months, GDO kept rapidly growing mostly due to
construction sphere (14.9% growth for 5 months of 2005) and services
(10.6% growth) not subjected to export. Simultaneously, intensive
growth of risks has been observed including rapid growth of inflation
(Jan-Jun – 9.6%) and worsening of unfavorable trade balance of Armenia,
reduction of export caused by the tense situation in the international
market and rise of prices for imported goods. In despite of the 9.8%
GDP growth for the 5 months, it is early to make forecasts for the
end of 2008. He outlined 0.4% decline in industrial sectors and 1.9%
slackening growth in agriculture.

At the same time Mr. Mkrtchian added that inflation in Armenia had been
chiefly conditioned by oil and food products’ prices raising in the
world market as well as raising of prices in the sphere of services,
which is conditioned by the high demand because of the transfers
coming to the country (40-50% growth over the first quarter of the
current year). He also said that though influence of the money and
credit policy is reducing because of interventions at the monetary
market, currency demand was big over the five months of the current
year and Central Bank sold $100 mln, which also was a restraining
factor. At the same time he added that over the first 6 months the
volume of the tax revenues has grown by 35,5%, which is higher of
the predicted level. This is conditioned by improvement of the tax
administration. Indicators of the Armenian budget will be better in
the current year because of such rates, he emphasized.

Artavazd Hakobian, WB Yerevan Office Executive Agricultural and
Ecological Programs marked the backgrounds of the sphere growth. In
particular, gradual growth in plant cultivation has been stipulated by
planting of gardens 5-6 years ago, as well as enhancement of efficiency
in irrigated zones. Alongside with that, the risks are aggravated in
non-irrigated zones and in cattle breeding in view of climate changes
and animals diseases, in particular, avian influenza and swine fever
in 2007 and 2006. He said that the government development program
increased agricultural subsidies. ‘We think that other mechanisms of
market relations exist, including implementation of new technologies’,
he emphasized.