ARMENIA'S ECONOMIC GROWTH: MYTH OR REALITY?

http://hetq.am/eng/articles/20016/armenias-economic-growth-myth-or-reality?.html
12:05, October 31, 2012

In order to support economic growth Armenia needs to invest in new
methods directed at revealing the competitive industries of the
economy and the development of the trade sector.

Supporting economic growth is considered a cornerstone of economic
policy of many countries. Thus, it cannot be an end in itself; its
final purpose is to increase the prosperity of society.

Since 2000, the economy of the Republic of Armenia has been considered
one of the most rapidly developing economies according to the pace of
economical growth. According to the Interstate Statistical Committee
of the CIS, Armenia's Gross Domestic Product (GDP) in 2003 was 8%
higher than it was before independence, while Georgia's GDP was about
42% lower than it was before independence.

Armenia's economic success is mainly attributed to market reforms,
particularly in fiscal and monetary policy. Remittances received from
abroad had and continue to have a significant role in the development
of the Armenian economy. During the period of 2004-2008 alone the
country received more than $5.3 billion in monetary transfers.

In general, the pace of economic growth in Armenia on average is much
higher than in developing and, especially, developed countries. Since
2000, economic growth in Armenia was approximately three times faster
compared with the world economy. The pace of Armenian economic growth
is also quite high compared with neighboring and similar countries,
yielding only to Azerbaijan, Turkmenistan, Kazakhstan and the Russian
Federation, which was determined by the dramatic increase of oil and
gas revenues in those countries (see Figures 1 and 2).

[eco-chart-1.jpg]

Armenia, World, Countries With High Income, Countries With Low Income

Figure 1. Combination of economic growth indexes, Armenia and the world

[eco-chart-2.jpg]

Armenia, Georgia, Azerbaijan, Turkey, Russian Federation, Ukraine,
Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan

Figure 2. Real growth of GDP in 2010 compared to 1999, multiplied,
Armenia and countries of the world

>From 1993 to 2008, the Armenian economy was continuously growing and
developing. After 2001, the economy recorded double-digit economic
growth, which was, on average, estimated at 13% annually for 2001-2007.

During the same period GDP per capita considerably increased as well,
which was estimated to be around $670 in 2001 and $3,689 in 2008. In
that same year, the pace of economic growth in Armenia, compared with
previous years, significantly slowed down, amounting to 6.8%.

Compared with 2008, the decline in GDP in 2009 was estimated at 14.1%.

Yet, before the crisis, as a result of stable economic growth
registered during the last decade, Armenia joined the group of
countries estimated by the average level of income, according to the
World Bank's ranking. The economic growth led to an increase in real
salaries, a stabilized employment level and increase in funding of the
social sphere from a consolidated budget. All these, together with
the growing flow of private remittances, furthered the considerable
decrease in the level of poverty.

Thus, it is a fact that before the world financial-economic crisis,
the double-digit economic growth of Armenia was maintained by certain
non-trade sectors and money transfers received from abroad. In other
words, economic growth was maintained without the development of
effective and prospective sectors of the economy. Therefore, the
economy of the Republic of Armenia could "explode" any moment, which
happened in 2008-2009. The crisis basically stopped the non-productive
and unsustainable development stage that had lasted several years,
revealing quite serious problems within the economy.

It is obvious that the former pillars of economic growth cannot be
considered the guarantee for future development in Armenia. Thus,
it is necessary to learn their aspects and suggest ways for future
improvement. The solutions to those problems are in my next column.

Lilit Sargsyan Scientist of the Institute of Economics, National
Academy of Sciences