ArmInfo. The optimism surrounding Armenia's economic development scenario, which forms the basis of the government's new medium-term program for 2026- 2028, is not adequately supported, according to the analytical material prepared by the Luys Foundation experts.
It is noted that in recent years, external factors related to the geopolitical situation have had a positive impact on the RA economy since 2022. However, these factors have recently weakened significantly, most of them being almost completely neutralized. The negative effects of this weakening are already being felt to a large extent. As a result, the rate of economic growth has been slowing down year by year: 12.6% in 2022, 8.3% in 2023 and 5.9%. in 2024. The decline is most noticeable in the industrial sector, which is of primary importance. In the first quarter of last year, the industry sector contributed significantly to economic growth with a 30.4% increase. A year later, in the first quarter of 2025, it had a negative impact on economic growth, reducing it by 2.2 percentage points due to a sharp decline compared to the same period in the previous year. Both exports and imports fell sharply, leading to a deterioration in the foreign trade balance and current account deficit compared to the previous year.
Since the Medium-Term Expenditure Program (MTEP) for 2026-2028 was developed under the neutralization of some of the above-mentioned exogenous factors and a significant weakening of the remaining ones, it, naturally, had to consider unfavorable macroeconomic events. The Medium-Term Expenditure Program for 2026-2028 revised the macroeconomic indicators for the current and upcoming years, forecasting them lower than the previous Medium-Term Expenditure Program. However, the economic development scenario in the new Program lacks sufficient substantiation, raising concerns with some forecasts. Specifically, the previous Medium-Term Expenditure Program for 2025-2027 predicted a fairly aggressive growth in state budget revenue, which has been significantly "softened" in the current Program for 2026-2028. Forecasts for the "taxes/GDP" indicator have also been reduced. Despite these adjustments, skepticism remains due to shortfalls in 2024. It seems unlikely that taxes/GDP will increase from 23.5% in 2024 to 25.1% in 2028, with only a 0.5 percentage points improvement from 2021-2024.
The foundation's experts also note that the new Program has reduced the projected volumes of state budget expenditures compared to the previous program. Moreover, in percentage terms, capital expenditures were reduced disproportionately more than current expenditures. This reduction was expected, given the recent "chronic" underfulfillment of state budget expenditures. It is not a coincidence that the Program mentions , underfulfillment of expenditures as an important risk in terms of fiscal and budgetary risks. It is noted that in 2026-2028, fairly high capital expenditures are envisaged, amounting to about 6% of GDP. However, considering the actual indicators of past years, the risk of underfulfillment of planned indicators is increasing, which may negatively affect both aggregate demand and current economic indicators, as well as the long-term potential of the economy. The foundation predicts that the standard of living for a significant part of the population will significantly decrease.
The Program does not mention any plans to increase pensions and the minimum wage for the next three years. And taking into account the projected inflation rates for the planning period, it appears that without an increase, pensions and the minimum wage in real terms will be 12.1% lower by the end of 2028 compared to the beginning of 2025. Moreover, there are concerns that the inflation rate by the end of the current year will likely be higher than the 2.6% expected by the Program. The public debt over the next three years is expected to grow at a much faster rate than previously recorded. The Program states that the public debt will exceed 7.7 trillion drams by the end of 2028, reaching 55.4% of GDP, which is an increase of 7.4 percentage points compared to the actual size in 2024.
According to the Programme, debt remains sensitive to growth shocks, the debt structure is assessed as medium to highly vulnerable, and various studies have pointed to significant uncertainties. While the Medium-Term Expenditure Framework partially captures some obvious worrying trends, and the changes introduced to some extent indicate an awareness of changed realities, the overall impression is that the changes do not follow a clear policy strategy, but are simply a reaction to uncontrollable events.
