Benyamin Poghosyan delivers another analytical piece for CCBS, in which he discusses the impact of COVID-19 pandemic desease on Armenian politics, economy and society, as well as the measures taken by the government.

The first case of COVID – 19 was identified in Armenia on March 1. Till that Armenia seemed to stay far away from global turmoil caused by Pandemic. As a precautionary measure Armenian government cancelled the visa free regime with China at the end of January and closed Armenia - Iran land border on February 24. On March 1 decision was made to close universities, schools and kindergartens for one week. However, there was no sense of emergency. The classes were resumed on March 9, the referendum on constitutional amendments scheduled for April 5 was not cancelled and the Prime Minister Pashinyan started his active campaign in the Southern regions of Armenia on March 10.

However, situation was dramatically changed on March 11 as three new COVID – 19 cases were identified. The sense of emergency came on evening March 13, when Prime Minister declared that he and his wife were under isolation outside Yerevan and would pass COVID – 19 tests on March 14. On the same day the Armenia – Georgia land border was closed thus effectively leaving Armenia under the land blockade (other two land borders of Armenia with Azerbaijan and Turkey have been closed since the beginning of 1990s due to the Nagorno Karabakh conflict). After testing negative for COVID – 19 Prime Minister returned to capital Yerevan. On March 16 the government declared one month national emergency situation and postponed the April 5 referendum.

However, government was unable to prevent the future dissemination of the virus. Due to the growing deterioration of the situation government declared complete lock down on March 24 for one week. Citizens are allowed to leave their apartments only for buying food or medicine. Each person should carry ID and fill and keep special form mentioning his address, destination address, the goal of being outside as well the exit and return times. Cars are not allowed to carry more than 2 persons (including driver). Meanwhile, COVID – 19 outbreak started to put pressure on Armenian economy.

Armenia has witnessed a quite strong GDP growth in last three years (7.5 percent in 2017, 5.2 in 2018 and 7.6 in 2019). In 2019 the key drivers of growth were trade and services, which together accounted for 54 percent of the GDP and 5.3 percent of GDP growth. Other pillars of 2019 economic growth were the 32 percent increase in copper concentrate export (562 000 tons/637 million USD), the three fold increase of car imports (189000 cars which resulted in astonishing 300 million USD import tariff payments) and 14.7 percent increase of tourism (approximately 1.895.000 tourists visited Armenia in 2019). The Armenian currency, Dram (AMD), was the most stable currency of the region for the last five years. After the 20-22 percent depreciation in December 2014, the AMD has very stable value against USD in the period of January 2015 – February 2020.

Meanwhile, the Russian ruble has lost almost 10 percent of its value as a result of oil prices slump since March 9, 2020. This makes Armenian export less competitive especially in the Russian market, which continues to be the top destination of Armenian exports (27.2 percent of all Armenian export for the period of January – September 2019). The 10 percent of depreciation of the ruble will probably result in decline of the average Russian consumer’s purchasing power, which will put additional pressure on Armenian exporters. Most probably, Armenia will also face decline of the remittances coming from Russia (almost two billion USD remittances were sent to Armenia in 2019 and Russia accounted for one billion 55 million of them), which will also have negative impact on Armenian economy.

Meanwhile, due to the worldwide travel restrictions the world tourism sector will face its worst year in decades. This means that Armenia will lose one of the key pillars of its economic growth in 2020. Simultaneously, the Coronavirus outbreak driven economic slowdown has already triggered a decline of both copper prices and demand (the copper price on the London Metal Exchange at the end of March 2020 was US$ 4774/t while at the beginning of January 2020 it was above US$ 6000/t).

Thus, Armenian economy is simultaneously facing multiple negative trends – sharp decline in tourism sector, decrease of copper prices, possible decline of remittances sent from Russia and decline of exports to its key destination. The closure of passengers’ flow at the land borders with Georgia and Iran (the only two functioning land borders of Armenia) will have additional negative impact. All these factors may result in decline of state revenues and increase of the budget deficit.

Armenian currency started to depreciate and as of March 27 reached 500 Armenian drams for one USD rate (at the beginning of March rate was 480 AMD for one USD). Given that Armenia imports most part of the essential goods including food, the currency depreciation will result in price hike thus creating more problems for the vulnerable parts of the population.

As a response to the growing crisis on March 26 government adopted five special stimulus packages (worth of total 300 million USD) to boost the economy and alleviate the immediate hardships of the socially vulnerable groups. According to the Prime Minister the stimulus programs will be launched on April 1 and will inject cash into the economy. However, the initial weak response to the outbreak may create political problems for the government, especially if the crisis will continue longer than one-two months.

Hundred thousands of Armenians still live beneath the poverty line and many were getting their daily income from tourism sector (taxi drivers, staff of hotels, hostels, cafes, restaurants). Now they have no source of income and government stimulus packages will not cover all their needs. Meanwhile, opposition, both the former ruling Republican party, as well as new parties established after the 2018 Velvet revolution are criticizing government for the lack of expertise and the reliance on populism. If crisis continues longer majority of population may face sharp decline of incomes, which will create a futile ground for the start of the political crisis as well.   

AUTHOR'S BIO

Dr. Benyamin Poghosyan is the Executive Director of Political Science Association of Armenia, Chairman at the Center for Political and Economic Strategic Studies in Yerevan, Armenia.    

29 March 2020 / 12:35