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On November 11, 2018 the RPA Board issued a conceptual statement on the domestic political situation in Armenia and the upcoming snap parliamentary elections, in which it gives its assessment of the developments in April-October 2018.
The RPA also admits some mistakes and omissions, then assesses the economic situation formed in Armenia as a result of their activity over the past 12 years.
In order to better understand the economic indicators mentioned in the RPA statement, let us first briefly address the dynamics of the economy of the Third Republic. From the mid-1990s to the end of 2008, the newly-independent Republic of Armenia had a significant economic growth. Gross Domestic Product (GDP) per capita tripled during the period of 1998 to 2008. GDP growth rate reached a record high of 14% in 2003, leading some optimistic experts to qualify Armenia as a “Caucasian Tiger”.
What actually happened? Armenia, which suffered the worst economic decline among the post-Soviet countries as a result of the 1988 devastating earthquake, the collapse of the Soviet Union, the undeclared war, and the ANM administration, recorded high rates of economic growth in 2001-2008 compared to the minimal rates, due to significant impacts of the global economy, and especially Russia’s economic growth.
During this period, the main driving force of economic growth were non-commercial sectors, in particular, the construction financed by an unprecedented inflow of remittances, and, to a much smaller extent, foreign direct investments. During the period of 2002-2008, the average annual growth in construction sector made up 28%, accounting for about one-third of GDP growth.
Similar growth in construction was ensured by major infrastructure investment projects (road construction, rehabilitation of collapsed energy infrastructures, etc.), housing demand from the Soviet times, as well as speculative investments in real estate.
The 2008-2009 economic crisis demonstrated the real potential and viability of the “Caucasian Tiger”. The sharp decline in remittances and the 40% decline in construction in 2009 led to a 14.1% decline in the GDP of Armenia, which was unprecedented not only in the post-Soviet space, but was also one of the highest drops in the world.
This was a very brief note on the legend of the ″Caucasian Tiger″. Now let’s look at the impressive “tangible progress” of the RPA in the economy.
Firstly, the RPA statement mentions that in 2006-2017, Armenia’s gross domestic product doubled, making up 5.580 billion AMD in 2017 compared to 2.656 billion AMD in 2006. In fact, according to the World Bank data, the GDP in the same period increased by 1.8 times (in dollar terms), making up 11.537 million USD in 2017 compared to 6.384 million USD in 2006. But that is not the important thing. The most significant thing is that the gross foreign debt of Armenia grew by almost 5 times, making up 9.9 billion USD in 2017 compared to 2.1 billion USD in 2006. In simple terms, no businessman would be proud of doubling his company’s revenues at the expense of the increase of his company’s loan portfolio by five times, thus driving his company to the brink of bankruptcy.
Secondly, according to the RPA statement, the sharp increase in the services sector is particularly evident in the GDP, which grew by 3 times in 2006-2017, and the share of the services sector in the GDP made up 50.4%. It is a truism that the high share of services in the GDP is a good indicator only in developed countries, and in countries with a low level of economic development, such as Armenia, it is an indicator of low rates of growth in agriculture and industry.
It should also be noted that the volume of services excluding trade made up 1.453 billion AMD in 2017, which is only 26% of the GDP. And the announced 50.4% share of the services sector in the GDP structure is due to the growth rates of trade turnover. In fact, the RPA once again tries to boast of the growth of trade turnover generated due to high prices of goods imported as a result of monopoly imports, which was fed for many years by the “export” of labor force and remittances due to emigration.
Thirdly, regarding the 139% increase in state budget revenues and 162% increase in tax revenues in 2017 compared to 2006, without questioning the indicators and without a multiple factor analysis, let us try to give an estimate of these indicators from a different point of view. In countries with a low level of economic development, the state budget revenues / GDP and tax revenues / GDP ratio fluctuate between 18-20% on average, whereas in developed countries this figure is around 40%.
In Armenia budget revenues / GDP ratio was 23.1%, while tax revenues / GDP ratio was 20.8% in 2017. Meanwhile, since 2013, these figures have almost remained unchanged, despite the regular assurances of tax administration improvements and tax reforms by the RPA governments. For comparison, let’s note that in neighboring Georgia, after the 2003 revolution, exclusively as a result of the political will and professional governance of the new government, the tax revenues / GDP ratio doubled in 2008 compared to 2004, crossing the 25% threshold, and in 2017 it made up 28.35%. The consistent reduction of tax rates makes these figures even more impressive.
Fourth, according to the RPA statement, the average monthly salary increase by about three times (184.170 AMD in 2017 compared to the 62.293 AMD in 2006), and the increase of average monthly pension by about 3.7 times (40.296 AMD in 2017 compared to 10.912 AMD in 2006) are indicators of the improvement of the welfare of the population. Naturally, here we are talking about nominal wages and nominal pension.
It should be noted that, according to the information published by the International Monetary Fund, gross inflation of consumer goods in Armenia in 2006-2017 made up about 62.6%. If we deduct 62.6% inflation from the average monthly nominal wage and average monthly nominal pensions issued by the Republican Party of Armenia, we will see that the real wages with comparable prices made up only 68,843 AMD in 2017 compared to 62.293 AMD in 2006, and the real pension made up 15.063 AMD in 2017 compared to 10.912 AMD in 2006. In other words, there can be no talk about three times increase of wages and pensions.
Fifth, according to the RPA statement, in 2006 physical persons’ deposits amounted to 143 billion AMD in 2006, and in 2017 the volume of deposits increased by more than ten times, making AMD 1,553 billion. However, the RPA statement does not mention that most of the deposits of individuals are foreign-currency deposits, and the change in the exchange rate has had a significant impact on the documented growth. These figures could have been impressive if combined with poverty reduction. Meanwhile, according to official statistics, 30.2% of Armenia’s population was poor in 2006, and 29.4% in 2016. According to a number of experts’ estimates, these figures are essentially higher.
Koryun Achoyan
