Fake Economic Boom - who is covering up Armenia's machinations?

It is interesting to observe how Western politicians and organizations talk about Armenia’s problems, carefully avoiding sensitive issues and, God forbid, not touching the delicate strings of the Armenian soul.

On Wednesday, Armenian media published an interview with Elisabetta Falchetti, Managing Director of the European Bank for Reconstruction and Development (EBRD) for Turkey and the Caucasus. The EBRD representative discussed the economic forecasts for Armenia and offered advice.

According to Ms. Falchetti, the EBRD expects that after several years of exceptionally high growth, Armenia's GDP growth will moderate in the short term. Real GDP growth is projected to slow to 6.2 percent in 2024 and 4.8 percent in 2025. The EBRD representative diplomatically noted that "temporary capital inflows related to the war in Ukraine have decreased," and "geopolitical uncertainty creates significant risks for economic development." She also carefully advised Armenia to open its borders as soon as possible.

Putting diplomacy aside, the message in the interview is clear: Armenia is facing an economic downturn. This is due to the outflow of Russian capital and relocants who flooded Armenia after the war in Ukraine broke out, as well as a reduction in transfers from the Russian Federation. Armenia was one of the countries that benefitted from the war in Ukraine, but as the war continues, fewer benefits remain for Armenians. Just today, there was news about a 20 percent decrease in the tourist flow from Russia and a reduction in tourism revenues. If Russian tourists stop coming, Armenia’s tourism sector will collapse.

It is amusing to see how the EBRD representative diplomatically avoids the proper terminology when discussing "temporary capital inflows related to the war in Ukraine." Everyone knows that this refers to illegal re-exports and the circumvention of sanctions, which fueled Armenia’s so-called "economic miracle." The country, which does not have a large industry, developed agriculture, and lives largely on foreign assistance, became a world leader in economic growth. The United States and China watched nervously as Armenia topped global GDP growth rankings. Everyone is aware of Yerevan’s blatant disregard for anti-Russian sanctions. Western analysts and media have repeatedly published investigations exposing these facts, yet international organizations and world capitals prefer to avoid naming the reality in order to avoid taking action.

However, how can European structures take measures against Armenia for violating sanctions when the authors of the sanctions themselves are guilty of similar actions? Therefore, they simply state the facts. Such carefulness is unlikely to benefit Armenia. When the "holiday" ends, and Armenians must face reality, it will be the fault not only of the country's criminal optimism but also of those who have shielded Yerevan’s actions. This includes international financial organizations and other bodies.

The World Bank has published a review of Armenia's economy in its Monthly Economic Update for November 2024, showing that Armenian exports increased by 39 percent year-on-year in September. This growth was driven by the re-export of precious and semi-precious stones and metals, as explicitly stated in the World Bank’s review. Without this re-export, exports would have barely increased.

According to official statistics, Armenian exports grew 2.1 times during the first nine months of 2024 compared to the same period in 2023, totaling $10.6 billion. In September 2024, exports amounted to $857.1 million, an increase of 38.9 percent compared to September 2023. During this period, Armenia’s imports totaled $13.1 billion, soaring by 54.2 percent. The volume of foreign trade grew by more than 70 percent from January to August.

Armenia is encouraged by such figures and by Yerevan's apparent impunity. Finance Minister Vahe Hovhannisyan optimistically reports to Parliament that the economy could achieve 7 percent GDP growth in 2025. The minister claims that Armenia's economy is based on its existing potential and is moving to a new level of development, "despite the challenges of recent years." However, everyone knows that Armenia has reached this "new level of development" not despite, but because of the "challenges of recent years."

Meanwhile, the Armenian economy, which survives by circumventing sanctions, continues to receive favorable assessments and forecasts. Fitch Ratings has upgraded Armenia’s rating from B+ to BB-, placing it among countries with a "stable outlook." The rating change is explained by the high economic indicators seen in Armenia last year, which were driven by the war in Ukraine and sanctions against Russia. In other words, the rating agency itself acknowledges the facts. By upgrading Armenia’s rating to "stable with promising prospects," Fitch Ratings simultaneously signals that growth rates will slow down in the coming years, so as not to make an overly optimistic mistake.

In assessing the revenues and expenditures of Armenia’s state budget, the country seems to be betting on the continuation of the war in Ukraine, seeing no threats to its ambitious plans. This approach, however, is fraught with risks and could cause significant problems for Armenia if the geopolitical situation changes even slightly. According to former Finance Minister Vardan Aramyan, Armenia’s 2025 state budget is full of risks, as the revenue growth heavily depends on the unpredictable course of global geopolitical developments and other external factors.

Perhaps this is the only sober assessment seen in Armenian media lately.