World Markets Research Centre
Global Insight
October 24, 2008

Armenian Trade Deficit Remains Deep Through September as Exports
Contract

by Venla Sipila

Armenia’s deep external imbalances continue to cause
concern. According to the latest, preliminary data from the country’s
Statistical Service reported by ARKA News, exports in the
January-September period amounted to $813US.8 million, falling by 1.8%
in annual comparison. In a sharp contrast, imports increased by 38.3%
year-on-year (y/y), reaching $3US.0 billion. Thus, the trade deficit
for the first three quarters of the year measured some $2US.2
billion. In September alone, however, exports surged by over 70% from
August, while imports gained nearly 30% month-on-month (m/m).

Significance:The Armenian trade deficit for the January-September
period this year already exceeds last year’s annual total, when the
shortfall amounted to around $2US.1 billion, or 23% of GDP. The trade
imbalance has soared as domestic demand has persistently maintained
very high growth rates, fuelling imports, at the same time as export
potential remains weak. Economic growth should finally start to ease
from double-digit rates, and this will have a moderating impact on
imports. On the other hand, import value will rise as the price of gas
charged by the Russian energy giant Gazprom, the monopoly gas importer
in Armenia, will increase to $154US per 1,000 cubic metres (cm) from
the beginning of April 2009, up from $110US per 1,000 cm this
year. Likely due to price developments in international markets, the
price for next year is lower than earlier sought by Gazprom, but the
increase will nevertheless have a clear upward impact on Armenia’s
import value.

Armenia has previously agreed with Gazprom to bring Armenian gas
prices up to market level by 2011, with a rise to $200US per 1,000 cm
planned for 2010. The trade deficit further continues to put pressure
on the overall current account position, which leaves Armenia
vulnerable to external shocks, as financing of the deficit is
dependent on investment and transfer inflows. Given the current
increased international risks related to availability of financing in
particular, it is important for Armenia to stay firmly on its
well-started reform course, in order to strengthen its export-earnings
capacity and thus, its potential to bring its external balances onto a
more sustainable path.