ARMENIA’S CURRENT-ACCOUNT DEFICIT KEEPS SOARING OVER JANUARY-SEPTEMBER
by Venla Sipila

World Markets Research Markets
Global Insight
Jan 12 2009

According to latest balance of payments figures from the Armenian
National Statistical Service, the country’s current account registered
a deficit of some $932US million for January-September 2008, ARKA
News reports. This result marks a dramatic deterioration compared
with the shortfall of $348US million witnessed over the first three
quarters of 2007. As expected, the trade deficit remained in key
role as driver of the overall external gap. Indeed, the deficit
on goods trade in January-September amounted to $1US.8 billion,
up from some $1US.0 billion a year ago, while also the relatively
modest service trade deficit widened in annual comparison. Meanwhile,
the balance on the current transfers account registered a surplus
of $777US million, somewhat widening from the same period last year,
while also the income trade balance strengthened in annual comparison,
reaching $318US million.

Significance:As a percentage of GDP, the external deficit for the
first thee quarters of the year came in at 10.9%. While this ratio
is lower than the share of 12.6% in the first half, signalling some
positive developments in the third quarter, the comparison to a deficit
to GDP ratio of 5.7% in the same period last year is particularly
discouraging. The deep current-account shortfall and Armenia’s
dependence on foreign investment and transfer inflows for financing
it leave the country very vulnerable to external shocks. Considering
the current sharp global economic downturn and the tightness of
international liquidity, risks related to investment inflows and thus,
to financing the deep current-account gap, have recently increased,
and developments in the country’s external liquidity gap warrant
close monitoring at present. Thus, it remains as crucial as ever to
support Armenia’s attractiveness for foreign investment by improving
the operational environment by further reforms, notably in the fiscal
sector. On the other hand, relatively good reform progress so far has
secured unproblematic access to concessional loans, and thus, external
payments pressures are at present expected to remain manageable.