How long will the drama with rising dram last? - Haykaz Fanyan

ArmInfo. The US dollar continues to devaluate against the Armenian dram: if it was at the level of 470-480 prior to the Russian-Ukrainian crisis (February 24), and in  early March it jumped to 520, then it began to gradually decline,  approaching the psychologically tangible mark of 400 AMD for one  dollar.

As a result, both exporters, whose transactions are concluded  in dollars, and, oddly enough, ordinary citizens lose, since  importers are in no hurry to revise the prices of goods. ArmInfo  correspondent asked head of the ACSES Analytical Center Haykaz Fanyan  for how long this trend will continue and what consequences it will  bring for the economy.

The revaluation of the Armenian dram is due to a number of factors:  the growth of visitors to Armenia and bank transfers, the  stabilization of the Russian ruble and the decline in demand for the  US dollar within the country. <According to the results of the first  quarter, the surplus of the current account of the balance of  payments of the Russian Federation increased - Russia exported oil at  high prices, but due to restrictions it could not purchase goods on  them. A large amount of foreign currency was released, which had to  be spent in some way, bank transfers were one of options>, the expert  notes.

Thus, in April, bank transfers of individuals reached $358 million,  the main source of which was Russia.  "This has not happened since  2004 and was not recorded even during the period of December  transfers, when a sharp surge in the volume of transfers is  traditionally registered on the eve of the New Year," he emphasizes.

The negative consequences of the devaluation of the US dollar in  Armenia, first of all, were first felt by the exporters of goods to  third countries, whose transactions are concluded in dollars, Fanyan  emphasizes. In particular, exporters of processing industry products,  as well as local manufacturers purchasing raw materials from abroad,  including companies providing IT services that work with Western  counterparties in US currency. The revaluation of the dram has  significantly reduced their competitiveness.

Exporters of metal concentrate trading on the stock exchange in US  currency did not suffer much. Given that copper prices have been at a  fairly high level recently, the impact on them will be negative, but  not critical, the expert explains.

At the same time, there is a group of exporters for whom the dram's  revaluation is favorable, says the head of the analytical center.  Exporters to the Russian Federation, who account for about one third   of Armenian exports, will even benefit from the dram's revaluation.  <Of these, according to data for 2021, about 67% of the contracts  were concluded in Russian rubles. Presumably, against the backdrop of  the Ukrainian crisis and anti-Russian sanctions, the share of  transactions in US dollars has decreased even more, in connection  with which, I think, Armenian exports to the Russian Federation do  not suffer significant losses>, the economist notes.

The revaluation of the dram played into the hands of importers. After  all, if the revaluation of the dram makes export goods more  expensive, then theoretically it makes imported goods cheaper.  However, the average consumer today does not notice the decline in  prices, on the contrary, there is a creeping, but steady growth.  According to the economist, the strengthening of the dram in the  short term will have a negative impact on prices and only in the  medium and long term can contribute to a lower inflation rate.

Meanwhile, the Central Bank is on guard of its goals

In conditions when the exporters lose on a daily basis, and citizens  do not keep up with prices, many are wondering how justified the  policy of responsible bodies and, first of all, the financial  regulator is. <If the public statements of the Central Bank that they  do not interfere in the foreign exchange market or interfere in a  limited way, and we have a floating exchange rate policy, are  considered trustworthy, then the Regulator proceeds from the premise  that its main goal is to maintain the stability of the financial  system and keep inflation within the target range. In a sense, this  can be understood, since inflation will affect all of us, and if the  refinancing rate is lowered, we will have higher inflation rates>,  the expert recalls.

<The political question is posed as follows: is it worth promoting  the improvement of the competitive positions of individual economic  entities in foreign markets at the expense of the well-being of the  population?>, Haykaz Fanyan notes.

In this case, the problems of individual business entities, for  example, in the field of IT, the same export to third countries, will  have to be solved by the government. <The ball is in the field of the  government, and it should initiate appropriate measures to contain  possible losses. For example, in 2020, during the coronavirus  pandemic, the state, for good or bad, carried out a number of  measures aimed at neutralizing the negative consequences for the  economy>, he notes. According to the expert, the Ministry of Economy  should pursue a more proactive policy; ultimately, it is the one  responsible for economic development. It should propose measures to  mitigate the losses of individual sectors of the economy. For  example, we can talk about grant programs in the amount of a certain  percentage of income tax for IT companies. "We are talking about  grants, and not about tax preferences, since the Ministry of Finance  aims to increase the ratio of "taxes to GDP", and in the future  spending the collected taxes, including in the form of grants, will  have a positive impact," the economist emphasizes, recalling also  about the need to use the tax and budget tools of the authorities to  mitigate business losses.

In order for assistance to be effective, it must be targeted, Fanyan  notes. It is important to understand who really needs support in this  situation. After all, in the same IT field, companies that come up  with their own product, for example Picsart, are in a more favorable  situation, since they can reconsider the cost of their own product in  a timely manner and, if possible, adequately. Companies providing  outsourcing services, in the structure of the cost of production of  which the labor force occupies an important place (they are paid  salaries in drams with dollar incomes), are deprived of such an  opportunity.

At the same time, the expert notes with regret: the financial  management of the Armenian business is at a rather low level.  "Business entities should take appropriate steps today to manage  their foreign exchange flows and reduce financial risks, for example,  through hedging instruments, which will avoid possible risks in the  future," he emphasizes.

The ruble and the dram strengthen their positions, but for how long?    According to Fanyan, in the long term, the Russian ruble will not  only lose its current positions, it will not even return to the  pre-crisis level. When the Russian ruble starts losing ground, that  will also have a strong impact on the Armenian currency.  In the  context of the current uncertainty, the expert nevertheless forecasts  that by the end of 2022, Armenia will not only achieve the 4.9% GDP  growth forecasted by the Central Bank, but may also provide the  budgeted indicator at the level of 7%. In terms of inflation, the  situation will not be so rosy. "It is unrealistic to meet the state  budgeted range of 4% with a plus or minus 1.5% deviation, since  12-month inflation has already reached 9% in May," he notes. "In the  future, we can say with confidence that we will become eyewitnesses  of the fact that Armenia will even become a country for shopping  tourism for Russians," concluded the head of the ACSES Analytical  Center.