Macroeconomic Environment and Policies After Crisis In

Armenia

Ministry of Finance

Deputy Minister Vardan AramyanOctober 6, 2011

Recent Macro Developments Macro Policies Responses to Shocks

Fiscal Policy Response Monetary Policy Response

Challenges Ahead Government Future Policy Dimensions

Content

Main macro indicators of Armenia economy

Behavior of Real GDP and Inflation

-15

-10

-5

0

5

10

15

20

Real GDP - index Inflation (y/y)

Supply shock

GDP Branches Real Growth Rates

-50

-40

-30

-20

-10

0

10

20

30

40

50

2005 2006 2007 2008 2009 2010 2011 2012

Industry Agriculture Construction Services Net Indirect taxes GDP

-35

-25

-15

-5

5

15

25

35

45

55

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(p)

2012(f)

%

Export ImportCAB/GDP, %

External Sector: Export and Import growth rates (by BOP Data)

Monetary Sector:Credit and Deposits growth

Dynamics of Credits and Deposits

70120170220270320370420470

Deposits in AMD (index 2007=100)Deposits in FeX (index 2007=100)Credits to economy (index 2007=100)

Dollarization

Macro Policies And Their Responses to Shocks

Fiscal Policy Effects On Economy:

Fiscal Policy Impulse Responses 2006-2012

-4-202468

1012

2006 2007 2008 2009 2010 2011est. 2012est.

Revenue Impulse Expenditure Impulse Fiscal Impulse

expansionary: for economic recovery

tightening: to mitigate inflation pressures

Monetary policy response to shocks

Dynamics of monetary conditions index

0

2

4

6

8

10

0

50

100

150

200

Repo rate (left axis) Monetary conditions index ( increase-tough)

Response to economic crisis

Response to inflation

Fiscal Consolidation and Current Account Adjustment

0

2

4

6

8

10

12

14

16

2000 2002 2004 2006 2008 2010 2012CAB/GDP, % State budget deficit

0

10

20

30

40

50

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(f)

2012

(f)

%

External Debt/GDP Domestic Debt/GDP

Public Debt

0

10

20

30

40%

Government External Debt/GDP

Government External Debt/GDP (excluding subloans)

Government External Debt (including and excluding subloans)

0

5

10

15

20

25

30

35

40

45

50

2011 2016 2021

PV of debt-to-GDP+remittances ratio

0

5

10

15

20

25

2011 2016 2021

Debt service-to-exports+remittances ratio

baseline most extreme (30% nominal depreciation)

historical threshold

External Debt Sustainability Indicators

Fiscal sustainability indicators

Public sector debt burden and liquidity indicators under baseline and alternative scenarios

PV debt-to-GDP

0,0

20,0

40,0

60,0

80,0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Baseline

Most extreme (Permanently lower GDP growth)Fix primary balance

Debt service-to-revenue

0,0

5,0

10,0

15,0

20,0

25,0

30,0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Baseline

Most extreme (Permanently lower GDP growth)

Fix primary balance

The Risks Of Global Economy for Armenia

European 5 countries Fiscal Debt and a Need for Fiscal Consolidation – where is the balance between speed of fiscal adjustment and not impeding economic recovery.

US and Japan’s over expansionary fiscal stances, debt and need of adjustment-remedies in a short run v.s. need for surgery in the long run

European Banking Sector problems due to the Greek and Italians bonds, collapse in euro zone trading activity and ever steeper funding costs - banks capitalization v.s. Sovereign bail-outs

Greece default probability increase- spillover effect over the World markets..

1. Continuing to perform well coordinated and Counter Cyclical Monetary and Fiscal Policies, aimed at ensuring Macro stability as a main basis for sustainable economic growth

2. Targeting to diversify economic structure is of high priority in government Policy agenda-increasing the resilience of Economy to negative external shocks

3. Continuing implementing policies of supporting productive and export oriented industries- targeting long term competitiveness

4. Pushing multi pillar Pension Reform, and in the long term avoiding of PAYG system overburdening risk over Government Finance.

5. Improving Business environment

04/19/23Government of RA 16

Future Policy Dimensions

THANK YOU

04/19/23Government of RA 17