Armenia's record defence budget spurs fear of its economic downturn & foreign dependence

Armenia’s newly approved 2025 state budget has stirred attention with its bold ambitions and glaring vulnerabilities. Struggling with mounting national debt and reliant on short-term economic fixes, the country faces the challenge of balancing increased military expenditures with pressing social needs.

Armenia’s newly approved 2025 state budget highlights both ambition and vulnerability, setting the stage for growing regional competition with Azerbaijan. With revenues of 2.8 trillion drams ($7.13 billion) and expenditures of 3.4 trillion drams ($8.65 billion), the budget aims for economic growth of 5.1% despite a substantial deficit of 5.5% of GDP.

Each year Armenia sets a new record in military spending. Armenia has ramped up military spending by 20%, allocating $1.7 billion to defence in an effort to bolster its national security amid regional tensions.

Defence spending has never been this large. Before the 2020 war, this budget line did not even exceed $700 million

While this marks a significant increase, the government has also prioritized social issues, dedicating $2.3 billion to healthcare, education, and welfare. Yet the scale of these commitments reveals the country’s deepening reliance on foreign borrowing and grants, with national debt nearing 60% of GDP—the highest among CIS nations.

Armenia’s economic growth remains heavily dependent on re-exports and sanction evasion linked to the Russia-Ukraine conflict. While these activities have spurred temporary growth, their long-term viability is questionable, particularly if Western scrutiny intensifies. Without these short-term economic lifelines, Armenia’s fiscal outlook could shift dramatically. In stark contrast, Azerbaijan’s 2025 budget showcases unparalleled fiscal strength, with social spending alone surpassing Armenia’s entire budget by 67%. Social programs will receive $9.94 billion, reflecting the government’s commitment to healthcare, education, and pension reforms.

Azerbaijan’s defence budget, expected to be three times higher than Armenia’s, underscores its regional military superiority. Although, unlike Armenia, Azerbaijan’s fiscal policies remain sustainable, with current expenditures projected to rise to 63% of total spending, ensuring both short-term welfare and long-term economic stability. Armenia’s record-high military budget reflects its urgent security concerns but exposes vulnerabilities due to its growing reliance on foreign aid. Conversely, Azerbaijan’s balanced approach to social and defence spending underscores its economic dominance in the South Caucasus and highlights its ability to pursue ambitious reforms while ensuring robust national security.

These contrasting budgetary priorities illustrate not only the economic disparity between the two nations but also their divergent approaches to addressing social, military, and economic challenges. As Azerbaijan continues to solidify its leadership role in the region, Armenia’s dependence on debt and short-term growth strategies could leave it increasingly vulnerable to economic shocks and geopolitical pressures.