ARMENIA POSTS DEEP CURRENT-ACCOUNT DEFICIT IN H1
By Venla Sipila

World Markets Research Centre
Global Insight
October 10, 2008

According to latest balance-of-payments data from the Armenian National
Statistical service, the current-account deficit in the first half of
the year measured $542US.7 million, ARKA News reports. This level marks
a widening of 2.2% in year-on-year (y/y) comparison, while presenting
12.6% as a share of the GDP for the period, which follows a ratio of
7.9% in the first half of last year. Specifically, the trade deficit
on a balance-of-payments basis over January-June reached around
$1US.1 billion, more than doubling in annual comparison. Meanwhile,
the service trade deficit stood at $130US.4 million, also somewhat
widening year-on-year (y/y). Conversely, the current transfers balance
posted an increasing surplus of $449US.5 million, while the income
balance surplus registered $208US.3 million, more than doubling y/y.

Significance: The deep goods trade imbalance continues to drive
Armenia’s weak current-account position. The deep deficit on the
current account leaves Armenia very vulnerable to external shocks,
as it is very dependent on private transfers. On the other hand,
FDI inflows have recently financed a large part of the gap, thus
suppressing Armenia’s need to considerably increase its external
borrowing. In addition, its relatively solid reform progress has
secured it unproblematic access to concessionary credits. Thus, debt
servicing is not likely to pose any difficulties for the sovereign in
the medium term. However, in order to achieve continued improvement
in its sovereign creditworthiness in the medium-to-long term, and
given its still weak export earnings capacity, it is important that
Armenia makes further progress with economic restructuring.