March 2021. Republic of Armenia: Social and economic development in 2020 and medium-term prospective

04 June 2021

The COVID-19 pandemic and the Nagorno-Karabakh military conflict had a significant negative impact on the economic activities in the Republic of Armenia. In 2020, the real GDP dropped by 7.6 percent compared to its growth by 7.6 percent a year earlier due to the reductions   both internal and external demand. Against this background, there was a decrease in the volume of tax revenues, and an increase in budget expenditures to support the population and the economy, causing an increase in the budget deficit to 5.4% of GDP against 1% of GDP a year earlier. Lower physical volumes of imports as a result of compressed consumer and investment demand, contributed to lower current account deficit. The rise in world prices in commodity markets and the AMD exchange rate depreciation in the second half of the year were the key factors of inflation acceleration. Under the baseline scenario, the medium-term recovery of economic activity would be slow due to the continued high uncertainty about further political developments in the country and the consequences of the military operations.