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Report on "Armenian Economy starting from sovereignty until 2013" as a part of my research within the Public Finance course

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Armenian Economy

Qafqaz University2013Armenian EconomyKamran Mehdiyev

Armenian Economy

General Information:Official Name:Republic of Armenia (Armenia)Hayastany Hanrapetoutyun (Hayastan)

Capital:YerevanEconomic Highlights1:GDP (Purchasing Power Parity)- $19.97 billion (2012 est.)$18.63 billion (2011 est.)$17.8 billion (2010 est.)note:data are in 2012 US dollarsGDP (official exchange rate)- $10.07 billion (2012 est.)GDP - per capita (PPP)- $5,900 (2012 est.)$5,600 (2011 est.)$5,400 (2010 est.)note:data are in 2012 US dollarsUnemployment rate- 7% (2012 est.) 5.9% (2011 est.)

Budget- revenues:$2.338 billion expenditures:$2.492 billion (2012 est.)

Economics:Armenias economy has undergone a notable transformation since independence in the early 1990s. Sustained growth, reforms, and external inflows of capital and remittances have created a market-oriented environment that is highly receptive to trade, capital, and technological innovation.The central challenge for the government is to continue the policy and institutional reforms essential for recovery and long-term development. Increasing the economys resilience to external shocks and creating new opportunities for development are important priorities.Armenias energy sector has moved from severe crisis to stability thanks to a combination of policy, legal, regulatory and institutional reforms. Remaining challenges include an emerging supply gap, and maintaining energy supply reliability and affordable tariffs.Armenia is a land-locked country with limited transport routes making the road network essential for sustainable economic development. A key government objective has been to improve rural roads that link villages to main highways. These roads are called lifeline roads and comprise some 3,014 km of Armenias 7,704 km non-urban roads. With World Bank support, the government has already improved 290 km of lifeline roads while also creating temporary employment in road construction. By the end of 2013, 140 additional km will be rehabilitated.In the past decade, Armenia has made progress in improving the infrastructure that provides reliable access to safe drinking water. The use of Public Private Partnerships (PPP) in the water and wastewater sector in Armenia has been an example of sector development.Agriculture plays an important role in employment and rural incomes, domestic food supply, and a source of expansion for food products exports. Weather vulnerability and marketing challenges have caused agriculture growth rates to fluctuate over the last decade. Strengthening preparedness for natural disasters and climate change is a critical issue as Armenia is exposed to the impact of climate change through intensified droughts, landslides and hailstorms that affect rural communities and agriculture.The Government has made education reforms by establishing a fully functional Assessment and Testing Center (ATC) that introduced a centrally administered unified examination system, which resulted in a more equitable and transparent system for university entrance. Education reforms also included the new National Curriculum, school-based assessment, use of Information and Communication Technology (ICT) in schools, and effective in-service training system.The Government is in the midst of major healthcare reforms that focus on strengthening Primary Health Care (PHC), optimizing the extensive health services networks, enhancing health system governance and improving provider payment methods. The ultimate goal is to improve key health indicators of the population, in which important steps have been taken but further progress is needed.2

Armenias Economic Performance According to the data of Armenian Development Agency Armenia has a successful record of transition creating a favorable macroeconomic climate based on a market economy. There has been consistent growth since 1994. The country has successfully implemented a comprehensive stabilization and structural reform program. In 1993, the first stock exchange was established and the new currency, the Dram, was introduced. Relying on information provided from the same source I can give information on Armenian labor force, one of the main factors playing a huge role in economic development. So Armenia has population of about 3.2 ml people with the majority of youth population, aged between 17 and 59(64.5%). 70% out of 3.2ml people in Armenia are skilled workforce population, 26% are semiskilled and respectively 4% are nonskilled or people out of workforce.

Armenian Development Agency

Armenian economic performance was steadily increasing showing its results in investment projects made by government in infrastructure within a country, but that growth rate was suddenly stopped when Armenia faced economic recession in 2009, resulting in great amount of GDP decline. As Forbes reports on that situation: After several years of double-digit economic growth, Armenia faced a severe economic recession with GDP declining more than 14% in 2009, despite large loans from multilateral institutions. Sharp declines in the construction sector and workers' remittances, particularly from Russia, led the downturn. The economy began to recover in 2010 with 2.1% growth, and picked up to 4.6% growth in 2011, beforeslowing to 3.8% in 2012. Under the old Soviet central planning system, Armenia developed a modern industrial sector, supplying machine tools, textiles, and other manufactured goods to sister republics, in exchange for raw materials and energy. Armenia has since switched to small-scale agriculture and away from the large agro-industrial complexes of the Soviet era. Since August 2011, Armenia experienced a sharp 15 percent currency depreciation and an increase in the unemployment rate. Armenia's geographic isolation, a narrow export base, and pervasive monopolies in important business sectors have made it particularly vulnerable to the sharp deterioration in the global economy and the economic downturn in Russia. Armenia has only two open trade borders - Iran and Georgia - because its borders with Azerbaijan and Turkey have been closed since 1991 and 1993, respectively, as a result of Armenia's ongoing conflict with Azerbaijan over the separatist Nagorno-Karabakh region. Armenia is particularly dependent on Russian commercial and governmental support and most key Armenian infrastructure is Russian-owned and/or managed, especially in the energy sector. The electricity distribution system was privatized in 2002 and bought by Russia's RAO-UES in 2005. Natural gas is primarily imported from Russia but construction of a pipeline to deliver natural gas from Iran to Armenia was completed in December 2008, and gas deliveries expanded after the April 2010 completion of the Yerevan Thermal Power Plant. Armenia's severe trade imbalance has been offset somewhat by international aid, remittances from Armenians working abroad, and foreign direct investment. Armenia joined the WTO in January 2003. The government made some improvements in tax and customs administration in recent years, but anti-corruption measures have been ineffective and the economic downturn has led to a sharp drop in tax revenue and forced the government to accept large loan packages from Russia, the IMF, and other international financial institutions. Amendments to tax legislation, including the introduction of the first ever "luxury tax" in 2011, aim to increase the ratio of budget revenues to GDP, which still remains at low levels. Armenia will need to pursue additional economic reforms and to strengthen the rule of law in order to regain economic growth and improve economic competitiveness and employment opportunities, especially given its economic isolation from two of its nearest neighbors, Turkey and Azerbaijan.- (information was initially taken from http://www.forbes.com/places/armenia/# but further research revealed the very source of information was CIA and here is the link to the initial source https://www.cia.gov/library/publications/the-world-factbook/geos/am.html)Armenias path since independence from the Soviet Union in 1991 can be broken down into three rather distinct periods as follows: 1991-99, 2000-07, and 2008 to present day. The specific features of these periods are highlighted in Armenias independent history in detail below.

Post-Transition Progress (1991-99) Armenias return to growth in 1994the first among the former Soviet republics still recovering after the collapse of the USSRwas nothing short of remarkable and was achieved while the economy was recovering from the impact of a devastating earthquake and a war with the neighboring Azerbaijan. Growth was underpinned by speedy and largely successful small- and medium-size state-owned enterprise and land privatizations. Yet the failure to create conditions for proper functioning of the markets and the lack of a meaningful role for the state became key constraints for progress thereafter. Ongoing conflict in Nagorno-Karabakh and the legacy of a highly industrialized but by now mostly obsolete economic structure did not help.Here is a short list of factors that proved critical and have influenced much of what had happened next: First signs of the nouveau riche concentrating sizable wealth and getting close to economic decision-making have emerged. The seeds of authoritarian governance were effectively sown. Generals, returning from the front lines, were getting increasingly powerful and had a major role to play in the hotly contested and violent 1996 election. The promise to get the Diaspora involved meaningfully in rebuilding Armenia was effectively reversed. The assassination of then Prime Minister Vazgen Sargsyana controversial figure, w