Armenia’s economic development is based on debt accumulation, and the country is becoming increasingly dependent on external sources. Sharing this view, Vusal Gasimli, Executive Director of the Center for Analysis of Economic Reforms and Communication (CAERC) of the Republic of Azerbaijan and Doctor of Economic Sciences, stated that according to statistical data released by the Armenian Ministry of Finance for the first half of 2020, the country’s total public debt reached 7 billion 721 million US dollars. Of this amount, 5 billion 984 million US dollars accounted for external debt.

He noted that 80 percent of Armenia’s total public debt is denominated in foreign currency, and the continued negative trend in this area clearly demonstrates the fragility of the country’s financial security. Currently, Armenia’s external debt has exceeded all financial security thresholds and stands at around 42 percent of GDP. It should be emphasized that the ratio of total public debt to GDP has been steadily increasing in recent years. Compared to 2015, the public debt-to-GDP ratio rose from 48 percent to 54 percent, while the external debt-to-GDP ratio increased from 40 percent to 42 percent.

The World Bank has forecast that this indicator will deteriorate further and reach 57.2 percent by the end of the year. In 2019 alone, total public debt increased by 6 percent, while within the first six months of the current year it rose by 5 percent, and external debt increased by 4.6 percent.

Calculations under various scenarios by the International Monetary Fund (IMF) mission show that Armenia’s public debt-to-budget revenue ratio will remain above 200 percent over the next five years. Declining tax revenues and increasing fiscal expenditures will further intensify the budget deficit issue. According to IMF experts, the budget deficit will reach 5 percent of GDP this year, while public debt will exceed 60 percent of GDP.

As can be seen, both reputable institutions emphasize that Armenia’s financial dependence will remain high. 79 percent of central government debt is denominated in foreign currency. Despite planned fiscal measures, the IMF projects that this figure will remain above 73 percent until 2025, keeping the economy exposed to currency risks and long-term instability.

The country’s current policies, including increased borrowing to mitigate the negative effects of the pandemic, indicate a further deterioration of economic and financial security. Compared to the end of 2015, the volume of external loans attracted by the country doubled by the end of 2019.

At the same time, Armenia’s external credit volume reached 4 billion 539 million US dollars, equivalent to about 33 percent of GDP. The main creditors include institutions such as the World Bank group (International Bank for Reconstruction and Development and International Development Association), the Asian Development Bank, and the Eurasian Development Bank, as well as countries such as Russia, Germany, and Japan. It is expected that these institutions and countries will observe Armenia’s aggressive, unreliable, and destabilizing behavior in the region and may limit further financial assistance.

Armenia’s financial dependence is not limited to debt alone. The country is also heavily reliant on remittances. According to the KNOMAD (Global Knowledge Partnership on Migration and Development) database, remittances accounted for 11.4 percent of Armenia’s GDP in 2019, placing the country 153rd globally and among the worst-performing states for which data is available.

It is estimated that the actual share of remittances in the economy is even higher, reaching around 25 percent according to various expert calculations.

The World Bank stated in its April 22, 2020 report that global remittances would decline by 20 percent during the year, marking the sharpest drop in recent years. The most severe decline (27.5 percent) is expected in Europe and Central Asia, a region that is a major source of remittance inflows for Armenia.

Even before the pandemic, Armenia’s economic situation was fragile. According to IMF data, in 2019 compared to the previous year, investment-to-GDP ratio decreased by 5 percent, and the savings rate fell by 2 percent.

The IMF mission projected that by the end of 2020, the current account deficit would rise to 8.6 percent of GDP, while the financial account would sharply decline. The main reasons include a decrease in private capital inflows due to withdrawal of non-resident deposits and a reduction in external assistance, particularly from Russia.

The Armenian dram lost 5 percent of its value in March alone. Considering the ongoing issues with gas pricing negotiations with Gazprom and the country’s dependence on imported energy, Armenia’s ability to mobilize financial resources to mitigate pandemic-related shocks is further constrained.

The IMF also projects that net foreign direct investment in Armenia will fall to around 161 million US dollars by the end of 2020, a 2.5-fold decrease compared to 2019. International reserves are also expected to decline from 2.9 billion US dollars to 2.2 billion US dollars by year-end.

Overall, Armenia is characterized by high external dependence across all major economic indicators. International forecasts consistently suggest that the situation will continue to deteriorate, leading to deeper economic vulnerability.

It should also be noted that international experts argue that the socio-economic drivers of the 2018 changes in Armenia are increasingly generating negative political consequences today.

A country whose financial and overall economic security is under threat resorting to provocations against Azerbaijan, in this context, marks the beginning of its end.