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Armenian Current-Account Deficit Widens Four-Fold in January-Sept.

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  • Armenian Current-Account Deficit Widens Four-Fold in January-Sept.

    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.
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