Global Insight
January 2, 2008



Armenian Current-Account Deficit Widens Four-Fold in
January-September

by: Venla Sipila

According to the newest data from the Armenian National Statistical
Service, the country's current-account deficit amounted to just under
$327US million in January-September 2007, ARKA News reports. The
deficit widened by over $249US million compared with the first nine
months of 2006. The external gap corresponds to 5.7% of the country's
GDP in the first three quarters of the year, whereas the
corresponding ratio in the previous year had posted 2%. The
deterioration in the overall balance of payments was mainly brought
about by the sharply widening trade deficit. Indeed, the balance of
payments-based trade gap for January-September amounted to nearly
$1US.02 billion, against some $612US million a year earlier.

Specifically, exports totalled $841US million, rising by 22.8% in
annual comparison, while imports reached almost $1US.9 billion,
surging by 43.2% year-on-year (y/y). Further, it was reported that
the current transfers account registered a surplus of $636US million,
rising by 42.1% y/y. Figures from the Statistical Service also show
that Armenia's gross foreign debt totalled $2US.4 billion in the
third quarter of 2007. The share of private debt of the total was
reported at some 16%. Meanwhile, the share of long-term credits of
total debt stood at over 69% at the end of the third quarter.

Significance:The widening of Armenia's current-account deficit in
both absolute terms as also as a percentage of the GDP, fits our
projections well, even though the deterioration over 2007 has proved
sharper than originally expected. The relatively strong current
transfers balance reflects Armenia's reliance on workers' remittance
inflows. Looking further, the deep trade gap is likely to keep the
overall current-account deficit large in the medium term, while
growing net income should curb its widening. Armenia's reliance on
private transfers and remittances leaves it vulnerable to external
shocks. On the other hand, strong FDI inflows still finance a large
part of the deficit, reducing the need to increase foreign borrowing.