EVALUACIÓN DE IMPACTO AMBIENTAL (EIA)

GDP growth is projected at 2.2% in 2017 and 2.5% in 2018 (Figure 3.1.8). External risks to the forecast arise mainly from developments in the Russian Federation, with which Armenia has strong economic links. The forecast assumes some recovery there and a resulting rebound in remittances. Domestic risks to the economic outlook reflect low fiscal and external buffers and subdued investor enthusiasm ahead of parliamentary elections due in April 2017. On the positive side, tariff reductions in early 2017 for gas and electricity—with especially steep decreases for certain vulnerable households and, regarding gas, for food processing firms and greenhouses—should support growth. The expected rise in demand could, however, spur inflation.

On the supply side, all sectors are seen growing moderately in 2017 and 2018. Industry excluding construction is projected to expand by 6.2% and somewhat more in 2018, again mainly on expansion in mining and in food, beverages, and tobacco. Announced government initiatives— such as renewed efforts to spur export and innovative industries

3.1.3 Fiscal indicators –10 0 10 20 30 2012 2013 2014 2015 2016 Revenue Expenditure Fiscal balance

Sources: Ministry of Finance. http://www.minfin.am; National Statistical Service of the Republic of Armenia. http://www.armstat.am (accessed 3 March 2017).

3.1.4 Public debt 0 10 20 30 40 50 60 2012 2013 2014 2015 2016 % of GDP External Domestic

Sources: Ministry of Finance. http://www.minfin.am; National Statistical Service of the Republic of Armenia. http://www.armstat.am (both accessed 3 March 2017).

3.1.5 Current account components

% of GDP –20 –10 0 10 20 2012 2013 2014 2015 2016 Transfers Income Services Goods

Current account balance

Sources: Central Bank of Armenia. http://www.cba.am (accessed 3 March 2017); ADB estimates.

through new mechanisms and tools, the creation of a free-trade zone on the border with Iran, and the establishment of a joint investment fund with the Russian Federation for fi nancing Armenia’s priority economic sectors—are considered essential to promote industrial expansion. Copper production could support growth if the price remains relatively high. However, construction is projected to contract by a further 6.4% in 2017 in view of a signifi cant decline in capital spending in the 2017 state budget and slackening construction funded by remittances. The rate of contraction will likely moderate again in 2018.

With normal weather, agriculture is projected to recover by 8.6% in 2017 and possibly more in 2018. Additional support could come from the government’s eff orts to foster the construction and expansion of greenhouses, through the favorable gas prices for greenhouses beginning this year. Services are expected to grow by only 2.4% in 2017 and slightly more in 2018, constrained by sluggishness in remittance- supported trade.

On the demand side, the main drivers of growth will probably be further narrowing of the defi cit in net exports of goods and services (though less than in 2016) and a slight rebound in private consumption.

Monetary policy is likely to remain accommodative. With moderate output growth, weak domestic demand, and only modest infl ationary pressures expected from abroad, average annual infl ation is projected to turn positive but remain low at 1.2% in 2017 before edging up to 1.8% in 2018.

Signifi cant and sustained fi scal consolidation will be crucial over the medium term. To reduce debt-related vulnerability and contain fi scal risk, the 2017 budget envisages halving the budget defi cit to 2.8% of GDP in 2017, mainly through cuts in capital spending and measures to contain public wages and pensions. The adoption of a new tax code in 2016, its provisions to be introduced gradually during 2017–2021, should facilitate fi scal consolidation by strengthening tax administration and broadening the tax base.

Provided the decline in income and transfers abates, the current account defi cit is projected to narrow further to 2.3% in 2017 and 2.0% in 2018 as domestic demand remains sluggish and exports of goods and services outpace imports (Figure 3.1.9). To attract foreign direct investment, the government has undertaken several initiatives. These include establishing a strategic initiatives center, introducing a single platform for investment proposals, and revising business regulation. Successful implementation of these measures should raise inward foreign direct investment, thereby helping to strengthen the current account.

The trade defi cit is expected to narrow further. Exports are forecast to expand by 6.5% in 2017 and a further 5.0% in 2018, underpinned by rising exports of agricultural products, nonferrous metals, and precious stones and metals. Constrained by only moderate recovery in domestic demand, imports are projected to grow modestly by 2.5% in both 2017 and 2018. The services account will remain relatively balanced.

3.1.6 Remittances and their sources United States

Russian Federation Rest of the world

% change, year on year

$ million

Year to date total

–60 –30 0 30 60 90 –120 –60 0 60 120 180 Jan

2013 2014Jan 2015Jan 2016Jan

Source: Central Bank of Armenia. http://www.cba.am (accessed 3 March 2017).

3.1.7 Reserves and effective exchange rates Gross international reserves Index, 2010 = 100 $ billion Real effective Nominal effective 80 90 100 110 0 1 2 3 Jan

2015 Jul 2016Jan Jul

Sources: Central Bank of Armenia. http://www.cba.am; International Monetary Fund. International Financial Statistics online database (accessed 3 March 2017).

3.1.8 GDP growth

%

5-year moving average 0 2 4 6 8 2012 2013 2014 2015 2016 2017 Forecast 2018

Sources: National Statistical Service of the Republic of Armenia. http://www.armstat.am (accessed 3 March 2017); ADB estimates.