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Armenia's Economic Growth: Myth Or Reality?

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  • Armenia's Economic Growth: Myth Or Reality?

    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

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