IMF staff and the Armenian authorities have reached a staff-level agreement on the fifth review under the 3-year Stand-By Arrangement (SBA), which the Armenian authorities treat as precautionary. The SBA aims to support the government’s policy and reform agenda to maintain macroeconomic stability and foster sustainable and inclusive growth.
Economic activity remains strong. GDP growth reached 5.9 percent in 2024 and is expected to decelerate to 4.5 percent in 2025 as external growth drivers continue to taper off amid higher global uncertainty.
Policy priorities include enhancing economic resilience, further mobilizing tax revenues and prioritizing spending to maintain a moderate debt level, strengthening institutional frameworks, and continuing structural reforms to boost labor productivity, enhance trade diversification, and improve the overall business environment.
“The agreement is subject to approval by the IMF’s Executive Board, scheduled to consider this review in June. This approval would enable access of about US$ 25.0 million (SDR 18.4 million), bringing total access to about US$ 149.9 million (SDR 110.4 million) since the SBA’s inception”, IMF Mission chair Iva Petrova said.
“Armenia’s economic activity remains robust, with real GDP growth of 5.9 percent in 2024, driven by robust consumption and investment. Employment growth has been steady, and inflation remains subdued, gradually picking up to 3.3 percent year-on-year in March 2025 in line with expectations. The current account deficit widened somewhat to 3.9 percent of GDP in 2024 as inflows from trade, tourism, and remittances continue to decelerate. The 2024 fiscal deficit was limited at 3.7 percent of GDP, keeping central government debt moderate at 48.3 percent of GDP. The banking system has high profitability and strong capital and liquidity buffers.
“Real GDP growth is expected to remain generally strong but return to its potential of 4.5 percent in 2025 as trade and services normalize. Inflation is expected to remain around the Central Bank of Armenia’s (CBA) target by end-2025. Risks to this outlook stem from the unprecedented uncertainty related to the ongoing global trade tensions and potential slowdown in the growth of trading partners. Regional geopolitical shifts, which could lead to a reversal of recent capital inflows and FX volatility, also weigh on the outlook.
“The authorities’ upcoming medium-term expenditure framework aims to preserve macro-fiscal stability while supporting Armenia’s development needs. In this context, the 2025 budget deficit target of 5.5 percent of GDP remains appropriate, accommodating priority spending needs, including national security, refugee integration, and infrastructure development. However, with rising spending pressures, creating fiscal space while ensuring a gradual fiscal consolidation, would require careful expenditure prioritization, implementation of recently introduced tax policies and further revenue administration efforts. Reforms to strengthen medium-term fiscal planning, enhance public financial management—including through robust fiscal risk management, transparency, and governance—and bolster the public investment management framework remain critical to support fiscal sustainability.
Armenia’s economy has shown resilience following the 2020 Second Nagorno-Karabakh War, which, alongside the COVID-19 pandemic, caused a 7.2% GDP contraction. Official statistics from the Statistical Committee of Armenia and the International Monetary Fund (IMF) report a robust rebound, with GDP growth of 5.7% in 2021 and 12.6% in 2022, driven by total output of 8.5 trillion Armenian drams ($19.5 billion). In 2023, growth moderated to 8.7%, with 2024 projected at 5.7% and 2025 at 6%, according to the Asian Development Bank (ADB).
The war and pandemic spiked public debt to 67.4% of GDP in 2020, but fiscal discipline reduced it below 50% by 2022. Foreign trade turnover surged 68.6% in 2022, fueled by services (55% of GDP), construction (7%), and remittances from Armenia’s diaspora. However, reliance on Russia, a key trade partner via the Eurasian Economic Union, poses risks, especially with sanctions and reduced Russian inflows in 2023.
Post-war challenges include integrating over 100,000 Nagorno-Karabakh refugees, straining housing and social services, with aid costs estimated at 1.5% of GDP in 2024. Geopolitical isolation, with closed borders to Azerbaijan and Turkey, limits trade, while dependence on Russia for energy and security adds vulnerability. The 2022–2023 influx of Russian migrants and capital, following Russia’s invasion of Ukraine, boosted consumption and services, contributing to a 10.5% average growth rate, but this momentum is waning.
Structural issues persist: an oligopolistic economy, with 55% of GDP controlled by 44 families in 2008, hampers competition, per former Prime Minister Hrant Bagratyan. High unemployment (8.4% in 2023) and a 37% informal workforce limit labor market efficiency. Low private sector investment and a shortage of skilled workers further constrain growth.
Reforms under the IMF’s $171.1 million loan (2022–2025) and the government’s 2021–26 program focus on education, health, and anti-corruption measures. The World Bank notes prudent macroeconomic policies, including inflation targeting (8.25% key rate in 2024) and fiscal rules, which kept poverty increases lower than expected post-2020. Armenia’s “mostly free” ranking (34th) in the 2020 Heritage Foundation’s Index of Economic Freedom reflects progress in tax and customs administration.
Despite these strides, risks loom. Geopolitical tensions, refugee integration challenges, and potential slowdowns in trading partners’ economies could derail growth, per the World Bank. Peace negotiations with Azerbaijan, potentially reopening borders, could unlock economic potential, but domestic unrest over territorial concessions threatens stability. Armenia’s economy demonstrates adaptability, but sustained growth hinges on diversification, structural reforms, and navigating its precarious geopolitical landscape.
“Amid subdued inflationary pressures and anchored inflation expectations, the current monetary policy stance is appropriate”, IMF mission stated. “In view of the significant uncertainty, the Central Bank of Armenia (CBA) should continue to monitor closely economic developments and inflation expectations and stand ready to adjust policy rates if inflation expectations drift away from target. The flexible exchange rate remains a key shock absorber, and the authorities’ commitment to maintaining healthy international reserve buffers is welcome. The CBA continues to monitor vigilantly financial sector risks and to upgrade its supervisory toolkit and capacity”, according to IMF.
“Structural reform efforts should continue to strengthen economic resilience and foster inclusive growth. The authorities’ plans to boost labor force participation among vulnerable populations, encourage diversification in the country’s export basket and markets, and improve corporate transparency and access to finance are welcome. Achieving these objectives requires timely and effective implementation of the employment and export strategies, prioritizing governance reforms, and upgrading the insolvency framework to support quality investments.
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