Armenia's economic growth has nothing to do with its potential Ex-finance minister's opinion

In a conversation with journalists, the former Minister of Finance of Armenia, Vardan Aramyan, expressed the opinion that the factors underlying the economic growth registered in Armenia are not exactly related to the country's potential.

Aramyan pointed out that economic growth indicators have positive and negative aspects, Caliber.Az reports.

"Of course, high rates of economic growth are good news. They mean an increase in income, a reduction in unemployment and, in the case of export growth, an inflow of funds from abroad. However, it is important to look at how this growth is structured and how it was achieved. Economic growth has been high for two years now. But according to various estimates, the level of growth that we can generate by our means is 4-5 per cent. In other words, the factors underlying the economic growth registered in Armenia are not fully in line with the country's potential," he said.

According to him, this situation poses certain economic risks. He stressed that Armenia experienced a similar situation between 2002 and 2008.

"Then, too, it appeared that there was potential for long-term growth, but it was a myth, and 2009 proved it," Aramyan said. Then, just like now, the double-digit economic growth has been fuelled by external injections: in 2002 it was remittances, now it is re-exports, and an increase in the number of visitors from Russia, as well as remittances. At the same time, the export sectors of the Armenian economy did not register any significant growth," Aramyan noted.

"Now let's sum up what we have: high indicators of economic growth have been registered, this growth is mainly related to external factors, through these factors, there is an inflow of finances in Armenia, these funds are mainly directed to services, capital construction and trade. The Armenian economy is only partially able to absorb these financial flows. This is why the Armenian dram has registered significant growth against the background of the inflow of funds. The danger of this situation is that negative indicators will immediately emerge if these external factors disappear or slow down," he said.

"Both the depth of the crisis and the terms of the subsequent rehabilitation of the economy will depend on how sharp the processes of levelling out the aforementioned external factors will be. To avoid negative consequences, it was necessary to take measures at the macroeconomic and microeconomic levels," Aramyan stressed.

"We failed to implement macroeconomic measures, as 2022 showed. Look, faced with such positive shocks, it's necessary to use them immediately by helping to protect the exporting sectors of the economy - industry and agriculture. Measures to prevent these sectors from being affected by the growth of the national currency must be taken. There is such a thing as a sterilisation policy. The government should not have left the Central Bank alone with the situation. The government should have aggressively taxed areas like construction, trade and services. In addition, the government should have had a much higher level of government bond issuance than was originally planned. This would have allowed the Central Bank to buy more foreign currency," he said.