ArmInfo. The decline in the Armenian economy in 2020 was about 7.5%, largely due to the coronavirus pandemic and the Karabakh war. According to the forecasts of the IMF and the Central Bank of Armenia for 2021, growth will be about 1-1.4%.
According to IMF experts, the recovery of the Armenian economy will be delayed. Meanwhile, the Minister of Economy, despite the 3.2% growth rate set in the budget, forecasts even double-digit growth for the Armenian economy by the end of the current year. Member of the Board of Directors of the Asia-Pacific Bank, economist Ashot Osipyan told ArmInfo correspondent how justified these expectations are and what real growth the Armenian economy can "claim".
- Mr. Osipyan, in Q1 of 2021 compared to the same period in 2020, Armenia's economic activity decreased by 2% (against 4% growth in the Q1 of 2020). At the same time, the Ministry of Economy of Armenia announces the restoration of the dynamics of growth and its head insists that by the end of the year they will ensure the coveted double-digit growth. Will there be any growth or is it just talk, as they say, in favor of the poor, which can be forgotten immediately after the elections?
- Let's look at the key drivers of GDP growth separately (government spending, investment, consumption and net exports). At this stage, the insufficient level of government spending, one of the drivers of GDP growth, does not allow for high growth. Perhaps this is objectively caused by the insufficient level of tax revenues to the state treasury. In the meantime, public capital investment around the world is an effective fiscal tool to stimulate economic growth. For example, in the United States, government spending has reached 20% of GDP.
The same world practice suggests that with an inadequate level of tax revenues of the state budget, countries are following the path of increasing the national debt (over 3 years, the national debt of Armenia has grown by about $ 2 billion - ed. note). In addition, due to the fact that at present the interest rate on borrowings is at a low level, many countries are going to attract borrowed funds to implement their own programs. After all, an increase in the national debt is not dangerous in itself - it is dangerous to use it ineffectively. The economy has certain so-called KPIs (Key Performance Indicators) to measure the effectiveness of external borrowings. For example, one of these indicators is the ratio of GDP growth to the interest rate of attracted public debt (GDP growth outstripping the interest rate is evidence of its effectiveness). Ordinary citizens can also make such judgments - namely, whether their life has changed for the better or for the worse over a certain period of time (inclusive growth).
The second important factor in ensuring economic growth is investment, both internal and external - in our case, the increase in investment in fixed assets had a negative value. This is due to the fact that, unfortunately, we have not created the conditions for attracting and assimilating investments. At this stage, moreover, one should not expect an increase in the volume of foreign investments, both in connection with the political situation in Armenia, and taking into account the global trends in the behavior of investors who are under the influence of the so-called "animal instinct", when the slightest danger makes investors return their investments home.
Household spending could also be a stimulus for the growth of Armenian GDP. However, even with the naked eye, one can see a decrease in the level of consumption (according to the Statistics Committee, trade in the first quarter fell by 5.6%). Thus, this growth-promoting element should also be excluded. As for net exports, it is simply unrealistic to expect a large increase in this indicator, given the current structure of the economy.
Mr. Osipyan, experts say that there are external factors that can have a positive effect on the GDP indicator and "pull it up" - consistent maintenance of the current high level of prices in the world copper market:
Copper prices will rise until 2025, and, according to a number of experts, this growth may reach 30%, which is associated with an increase in the production of electric vehicles. But it is wrong to build an economic policy based only on expectations in the copper and metals market. Perhaps the impact of this factor will take place, but in the short term. Perhaps even the authorities will ensure some growth - but definitely not double-digit growth. Personally, I oppose the idea that our economy should depend on copper or turn into a "raw material appendage". As history shows, this is a bad practice.
To avoid such a scenario, the Armenian government should think about ensuring inclusive growth - developing all sectors of the economy, achieving sustainable growth. Such growth can transform the economy and increase productivity. Indeed, it is the increase in productivity and demographic growth that are the drivers of economic growth, and since in terms of demographics, our indicators, say, are not very encouraging, we need to work at least in the first direction.
In this case, if we analyze our capabilities and recorded indicators, what result will we come to by the end of 2021?
I think the forecast of the IMF and the Central Bank is the most realistic.
Thank you for the interesting interview.