Armenia faces mounting financial risks as growth slows and debt surges

Amid a noticeable slowdown in economic growth, the Armenian government has ramped up borrowing on both external and domestic markets. In the past month alone, Armenia attracted around $900 million in new debt.

Experts, quoted by Armenian media, have expressed concern, warning that the macroeconomic environment indicates declining business activity, while servicing the growing debt requires increasingly significant resources, Caliber.Az reports.

Economic activity slows

According to Armenia’s Statistical Committee, the country’s economic activity index grew by just 4.1% in January–March 2025 compared to the same period last year. While growth persisted in some sectors—construction (+13.6%), services (+11.5%), agriculture (+10.5%), and trade (+6%)—industrial output dropped sharply by 18.5%.

Foreign trade figures are particularly alarming: exports declined by 61.8%, and imports by 47.9%, leading to a total contraction in trade turnover of 54.2%. Experts attribute this to the exhaustion of factors that previously boosted Armenia’s economy, including a sharp decline in gold re-exports.

One such factor was the influx of tens of thousands of Russian citizens and capital into Armenia since 2022. This migration fueled a short-term surge in domestic demand, especially in services, construction, and trade. Additionally, re-export schemes—from Western countries through Armenia to Russia, particularly of gold and precious stones via the UAE and Hong Kong, temporarily inflated trade volumes. As a result, Armenia’s trade turnover with Russia exceeded $12 billion in 2024, accounting for over 41% of the country’s total foreign trade.

International organisations have already revised their forecasts downward. The International Monetary Fund expects Armenia’s GDP to grow by 4.5% in both 2025 and 2026, down from a previous forecast of 4.9%. The World Bank now predicts 4% growth for 2025 (down from 5%) and 4.2% for 2026 (previously 4.6%).

Record-level borrowing

Despite the headwinds, the government continues to borrow aggressively. On April 29, Armenia issued government bonds worth 100 billion drams (approximately $250 million) on the domestic stock exchange—a record for the local market. Investor demand was twice the offering, reaching 221.5 billion drams. The most sought-after securities were 11-year bonds with an annual yield of 9%.

Additionally, in March, Armenia issued $750 million in Eurobonds at a 7.1% yield. Demand for the issuance reached $2.6 billion—more than triple the offering. This marks Armenia’s fifth Eurobond issuance. For comparison, a similar issue in 2021 had a yield of just 3.6%, highlighting a near-doubling in external borrowing costs.

Authorities explained that the borrowed funds are intended to cover the state budget deficit, projected at 600 billion drams in 2025 (5.5% of GDP), and refinance existing debt. However, a significant portion of the funds remains unused, boosting Armenia’s international reserves, which grew by $551 million by the end of March, reaching $3.92 billion.

Mounting debt burden

As of March 2025, Armenia’s total public debt reached $13.6 billion, an increase of 11.7% year-on-year. Government debt alone amounted to $13.1 billion, rising by 12.4%. Domestic debt in national currency rose by 14.6%, while external debt grew by 9.8%.

There is currently an even split between domestic and external borrowings, both at $6.4 billion. However, the cost of debt servicing is rising rapidly. In 2025 alone, Armenia is expected to spend approximately $2.9 billion on debt servicing—about $1.2 billion more than the entire national defence budget, and more than all social expenditures, which total around $2.3 billion.

Out of this, $1.8 billion will go toward principal repayments, and $1 billion toward interest payments.

At the end of 2024, the ratio of public debt to GDP stood at 52.1%, and current trends suggest it could exceed the country’s financial sustainability threshold in 2025. Servicing the increasing debt load is becoming ever more expensive.

Economists warn that such a structure of debt, coupled with borrowing costs that have nearly doubled since 2021, heightens fiscal pressure and limits opportunities for economic development.

Conclusion

With cheap money no longer available and economic growth losing momentum, Armenia requires a highly cautious fiscal policy. Experts caution that borrowing at such high interest rates in the face of falling exports and declining industrial output could create medium-term risks to the country’s financial stability. It is crucial that borrowed funds are used not only to cover budget deficits, but also to invest in development projects capable of generating sustainable sources of future growth.

By Tamilla Hasanova