EBRD says Armenian government to reduce deficit to maintain public debt at sustainable level
16.11.2011,
01:27
In “Crisis and Transition: The People’s Perspective” report the European Bank for Reconstruction and Development (EBRD) says real gross domestic product (GDP) in Armenia increased by 2.1 per cent in 2010 and 3 per cent year-on-year in the first half of 20
YEREVAN, 15 November. / ARKA /. In “Crisis and Transition: The People’s Perspective” report the European Bank for Reconstruction and Development (EBRD) says real gross domestic product (GDP) in Armenia increased by 2.1 per cent in 2010 and 3 per cent year-on-year in the first half of 2011.
‘Mining and manufacturing have been the main drivers of growth, largely due to higher global prices for metals.’
According to the report, the largely unreformed agricultural sector, which suffered from drought and disruption of remittances in 2010, has also recovered. The construction sector, an important engine of growth before the crisis, remains subdued.
It says the authorities continue to reduce the government deficit in order to maintain public debt at a sustainable level. The current account deficit has narrowed due to recovering remittances and increasing mining exports, although it remained high in 2010 at about 14 per cent of GDP. Inflation has been an important policy challenge. In spring 2011 annual consumer price inflation rose into the double digits as a result of increasing global food and energy prices, significantly exceeding the central bank’s target range of 4 +/-1.5 per cent.
However, inflation moderated by mid-2011 as the central bank increased policy rates, fiscal spending moderated and food price pressures receded. The central bank reduced its policy rate in September as inflation fell within the target band. In March 2011 the government introduced targeted subsidies to mitigate the impact of inflation on vulnerable social groups and provided support to the agricultural sector.
The economic recovery is expected to continue with inflation moderating. Output growth is projected to be 4.5 per cent in 2011, largely due to the ongoing recovery in the agricultural sector, which will also help inflation remain close to the target level. However, Armenia’s relatively monopolised economy remains largely dependent on the external sector which makes it vulnerable to negative shocks suffered by its trading partners.
Immediate risks are related to the uncertain external environment, in light of the country’s dependence on remittances and the export of few commodities. The medium-term prospects depend to a large extent on the authorities’ ability to create conditions for investment, productivity improvements and diversification. -0-
‘Mining and manufacturing have been the main drivers of growth, largely due to higher global prices for metals.’
According to the report, the largely unreformed agricultural sector, which suffered from drought and disruption of remittances in 2010, has also recovered. The construction sector, an important engine of growth before the crisis, remains subdued.
It says the authorities continue to reduce the government deficit in order to maintain public debt at a sustainable level. The current account deficit has narrowed due to recovering remittances and increasing mining exports, although it remained high in 2010 at about 14 per cent of GDP. Inflation has been an important policy challenge. In spring 2011 annual consumer price inflation rose into the double digits as a result of increasing global food and energy prices, significantly exceeding the central bank’s target range of 4 +/-1.5 per cent.
However, inflation moderated by mid-2011 as the central bank increased policy rates, fiscal spending moderated and food price pressures receded. The central bank reduced its policy rate in September as inflation fell within the target band. In March 2011 the government introduced targeted subsidies to mitigate the impact of inflation on vulnerable social groups and provided support to the agricultural sector.
The economic recovery is expected to continue with inflation moderating. Output growth is projected to be 4.5 per cent in 2011, largely due to the ongoing recovery in the agricultural sector, which will also help inflation remain close to the target level. However, Armenia’s relatively monopolised economy remains largely dependent on the external sector which makes it vulnerable to negative shocks suffered by its trading partners.
Immediate risks are related to the uncertain external environment, in light of the country’s dependence on remittances and the export of few commodities. The medium-term prospects depend to a large extent on the authorities’ ability to create conditions for investment, productivity improvements and diversification. -0-
