In a statement issued on March 17, the leading international financial institution stressed that the wide-ranging Western sanctions imposed on Russia over the war in Ukraine will “inevitably have a notable impact on Armenia.”
“Higher food and fuel prices, lower remittances, increased global financial market volatility are expected to widen [Armenia’s] current account deficit, lead to a pickup in inflation, and reduce economic growth in the coming months. While there is considerable uncertainty about the magnitude of the impact on Armenia, as the situation is still evolving, our preliminary assessment is that the [Armenian] economy could grow at around 1.5 percent in 2022—a much slower pace than previously expected,” the IMF said.
Earlier this week Armenia’s Central Bank also sharply cut its initial annual GDP growth forecast from 5.3 percent to 1.6 percent.
Central Bank governor Martin Galstian acknowledged on Tuesday that increased geopolitical risks in the region and a high degree of uncertainty have led to increased volatility in Armenia’s financial markets. He said that it was clear that sanctions imposed on Russia, which is Armenia’s main trading partner, would significantly slow down economic growth in Armenia and hit some sectors of its economy.
“We see that there are certain problems in the mining industry, in the processing industry… There is a certain decline in the construction sector as well. The only sector that we expect to have some positive development is agriculture,” he said at a press conference in Yerevan.
In order to curb inflation, which stood at 6.5 percent in February, the Central Bank of Armenia decided earlier this week to raise its benchmark interest rate by 1.25 percentage points – to 9.25 percent.
“In the current situation, the Central Bank’s governing board considers it expedient to increase the refinancing rate by a relatively large step,” the regulator said.
The Central Bank said it expects that as a result of such policy measures Armenia’s 12-month inflation will gradually decrease, reaching the target of 4 percent.