Armenia WT/TPR/S/228 
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I. ECONOMIC ENVIRONMENT 
(1) OUTPUT AND EMPLOYMENT  
1. The Armenian economy experienced almost a decade of double-digit growth until the 
outbreak of the global financial crisis in 2008.  Re al GDP grew at an annual average rate of 12% 
during 2003-08 (Table I.1), thereby nearly doubling in  six years.  Over the same period, nominal GDP 
per capita in U.S. dollars incr eased more than fourfold, reach ing US$3,685 in December 2008.  
However, about half of this increase came from the appreciation of the Armenian dram with respect to 
the U.S. dollar.  Expansion of GDP was driv en by rising domestic demand financed largely by 
remittances from the Armeni an diaspora and by foreign direct investment.   
Table I.1  
GDP growth, measured by expenditure, 2003-08 
(Per cent) 
 2003 2004 2005 2006 2007 2008a 
Real annual growth rate       
GDP  14.0 10.5 13.9 13.2 13.7 6.8 
Total consumption 5.0 6.5 7.4 6.2 9.0 5.9 
Private consumption 4.4 6.0 6.5 5.1 9.6 3.5 
Public consumption 13.8 13.2 18.4 20.0 1.6 30.2 
Gross capital formation 30.7 17.5 26.9 32.2 19.7 5.9 
Gross fixed capital formation 27.5 19.0 29.1 33.7 18.2 5.7 
Variation in stocks 149.9 -11.1 -25.3 -36.8 165.1 14.6 
Net export of goods and services 22.2 -5.1 11.2 25.9 37.3 22.5 
Nominal GDP, compositionb       
Total consumption 93.5 92.7 86.0 82.4 81.8 82.3 
Private consumption 87.2 86.4 79.6 76.1 75.9 75.0 
Public consumption 6.3 6.2 6.4 6.3 5.9 7.3 
Gross capital formation 24.3 24.9 30.5 35.9 37.8 40.9 
Gross fixed capital formation 23.0 23.9 29.8 35.5 36.9 40.0 
Variation in stocks 1.3 1.0 0.7 0.4 0.9 0.9 
Net export of goods and services -17.9 -15.6 -14.4 -15.9 -20.0 -24.9 
Statistical discrepancy 0.1 -2.0 -2.1 -2.4 0.4 14.7 
a Preliminary figures. 
b At current market prices. 
Source:  WTO Secretariat, based on information from the National Statistical Service of the Republic of Armenia. 
2. Trade also expanded rapidly from 2003 to 2008.   Imports of goods and services more than 
tripled to US$4,734 million while exports of goods and services nearly doubled to US$1,770.  The 
deficit in the balance of trade continued to  increase throughout this period (Table I.5). 
3. Inflation was kept in check, due in part to the successful implementation of an inflation-
targeting regime (section (2) below).  The latter pe rmitted the Central Bank to lower interest rates and 
further support economic growth through domestic cr edit expansion.  However, the slow down in the 
world economy in 2009, caused by th e global financial crises, led to reduced remittances and direct 
investment from abroad.  The reduction in inflows hit domestic property prices and, therefore, the 
construction industry particularly badly.  The decline in construction activity in the first half of 2009  
dragged down overall economic activity.  As a result, Armenia's GDP is expected to have contracted 
by 15% in 2009.1 
                                                      
1 IMF (2009b). WT/TPR/S/228 Trade Policy Review 
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4. In terms of contribution to GDP, construction surpassed agriculture as the most important 
sector in Armenia in 2005 (Table I.2).  During the review period, financial services, real estate and 
business services, and the construction sector grew fast er than the rest of the economy, helping to 
increase the economic importance of the services sector by 13.5 percentage points to 73% of GDP in 
2008.  In relative terms, the contribution of the agri culture, forestry, and fishing to GDP has declined 
by some 25% since 2003, although the value and volume of production increased (Chapter VI(1)).  The share of manufacturing has also decrease d, largely as a consequence of the loss of 
competitiveness in the diamond processing business (Box I.1), and the general reduction in 
investments, which were in part crowded out by more lucrative real estate opportunities.   
Table I.2  
Basic economic indicators, 2003-08  
 2003 2004 2005 2006 2007 2008a 
Gross domestic product (GDP)       
Current GDP (dram billion)b 1,624.6 1,907.9 2,242.9 2,656.2 3,149.3 3,646.1 
Current GDP (US$ million)b 2,807.5 3,576.3 4,900.3 6,385.1 9,205.7 11,915.4 
Nominal GDP per capita (US$)b 874.1 1,112.7 1,523.0 1,982.3 2,853.2 3,684.5 
Sector structure of GDP (% of total value added)c       
Commodities 25.3 28.2 24.4 23.3 22.5 19.9 
Agriculture, hunting, and forestry 23.7 24.6 20.8 20.4 20.0 17.6 
Fishing  0.1 0.1 0.1 0.1 0.1 0.1 
Mining and quarrying 1.5 3.5 3.5 2.8 2.4 2.0 
Manufacturing 16.8 14.8 14.8 11.9 10.4 9.3 
Food production .. .. .. .. .. .. 
Jewellery .. .. .. .. .. .. 
Services  59.2 58.3 62.1 66.0 68.4 72.7 
Electricity, gas, and water 6.4 5.8 5.5 4.1 3.8 3.5 
Construction 17.3 17.0 21.5 25.9 27.4 30.4 
Wholesale and retail trade, and hotel a nd restaurants 12.9 13.0 12.8 12.7 12.4 12.7 
Transport and communications 6.5 6.5 6.5 6.9 7.0 6.9 
Financial services 1.6 1.8 1.9 2.3 2.5 3.0 
Real estate and business serv ices 4.0 3.8 3.5 4.0 4.6 5.1 
Public administration 2.9 3.1 3.0 2.8 2.8 3.0 
Education 3.3 3.3 3.1 3.1 3.1 3.1 
Health and social services 4.3 4.0 4.2 4.2 4.4 4.8 
Financial intermediation indi rectly measured -1.2 -1.4 -1.3 -1.2 -1.6 -1.9 
Total valued added 100.0 100.0 100.0 100.0 100.0 100.0 
Employment (% of total working population)       
Agriculture, hunting, forestry, and fishing 45.9 46.9 46.2 46.2 46.0 44.1 
Mining 0.7 0.6 0.6 0.7 0.8 0.7 
Manufacturing 10.3 10.3 10.4 10.1 9.4 8.5 
Electricity, gas, and water 2.1 2.0 1.7 2.1 2.1 2.2 
Construction 3.4 3.1 3.2 2.7 2.8 5.4 
Wholesale and retail, and hotels and restaurants 9.6 9.9 10.4 10.4 10.4 11.2 
Transport and communications 3.8 4.3 4.5 4.4 4.3 4.6 
Financial intermediation 0.5 0.5 0.6 0.6 0.8 1.0 
Real estate and business serv ices 1.8 1.7 1.7 2.1 2.4 2.4 
Public administration and defence 2.5 2.7 2.6 3.2 3.4 3.6 
Education 10.1 9.3 9.0 9.2 9.2 9.0 
Health and social services 9.3 8.7 9.0 8.2 8.4 7.3 
Table I.2 (cont'd) Armenia WT/TPR/S/228 
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 2003 2004 2005 2006 2007 2008a 
Memorandum item       
Population ('000) 3,211 3,214 3,218 3,221 3,227 3,231 
Unemployment rate (annual average)d 10.1 9.6 8.2 7.5 7.0 6.3 
Unemployment rate (annual average)e 31.2 31.6 31.2 27.8 28.7 28.6 
.. Not available. 
a Preliminary figures. 
b Market prices. 
c Basic prices. d Number of registered unemployed persons as a percentage  of the work force according to Armenian legislation. 
e Based on household sample surveys in accordance with ILO me thodology (i.e. persons with no income-earning work, but who 
were seeking work during the last four weeks and can star t work immediately, as a pe rcentage of work force). 
Source:  WTO Secretariat, based on information from the National Statistical Service of the Republic of Armenia. 
Box I.1:  Diamond processing industry 
Diamond processing was once a thriving industry that represented nearly half of Armenia's export revenues.  
Although the value added in diamond cutting and polishing  is low (maximum of 15 % of the final product's 
value), the industry has been one of Armenia's few examples of integration in a global supply chain.  
Diamonds, mined mostly in Africa, arrive in Armenia for processing from trading centres in Europe and are 
returned to consumer markets mainly in Europe, Israel, and the United States.  Unlike other sectors, the industry was able to thrive despite closed borders with Turkey and Azerbaijan, since it has always been 
economically efficient to transport the diamonds via air freight.  However, rising labour costs, pushed up by 
the overall economic boom, and the appreciation of the ex change rate in recent years have greatly reduced its 
competitiveness.  In 2008, diamond processing represente d only 14% of total expo rt revenues, down from 
43% in 2003 and the value of exports nearly halved to US$146 million over the same period.  The decline in the diamond industry has had relatively minor consequences for the overall economy, given its small net 
impact on the current account, small contribution to employment, and small spill-over effects into other 
sectors.  The Government does not plan to provide any special assistance to the industry.  
Source:  National Statistical Service of Armenia online information;  World Bank (2004);  and IMF (2009). 
5. From an expenditure standpoint, GDP growth has been primarily driven by gross capital 
formation and to a lesser extent by public consumpti on (Table I.1).  Gross capital formation increased  
by, on average, 22% per year in real terms over 20 03-08.  The majority represented investments in the 
construction of private and commercial properties and infrastructure projects in the telecommunications and energy sectors.  With th e exception of the gas pipeline under construction 
(Chapter VI(3)) and perhaps a few others, most of the investment is directed to projects serving the 
domestic market (i.e. non-tradable sectors).   
6. During the review period, public consumption grew only as fast as the economy, since the 
Government maintained a strict fiscal policy in  respect to current expenditure, only allowing 
substantial increases in capital expe nditure (section (3) below).   
7. Although private consumption decreased in nomina l terms, it grew in real terms.  All four 
main sources of funding of consumption, i.e.  nominal wages, property income, credit, and 
remittances, grew significantly during the revi ew period.  Nominal wages and property income 
increased along with the construction boom, while increased credit was fuelled by falling lending 
rates (section (2) below) and remittances as a resu lt of a favourable international environment.  
However, as in many other countries, property prices  have fallen in Armenia since the end of 2008.  WT/TPR/S/228 Trade Policy Review 
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Moreover, unemployment and the percentage of n on-performing loans over total credit both increased 
in 2009.2  Therefore, private consumption is expected to drop for the first time in ten years in 2009.  
8. Privatization in the 1990s resulted in a drama tic change in employment patterns between the 
public and private sectors.  In 2008, the agriculture sector was by far the largest employer in Armenia 
(Table I.2).  Employment in construction and in wh olesale and retail trade grew to 5.4% and 11.2% of 
the working population, respectively.  According to official labour statistics, while some 36,000 jobs 
were terminated in the traditional tradable sector s (i.e. agriculture and manufacturing) during 2003-08, 
some 10,000 jobs were created in the main servi ces exporting sectors (i.e. transport, communication, 
and tourism).     
9. Armenia's official unemployment rate has fallen considerably since 2003, to 6.3% at the end 
of 2008.  The 3.8 percentage points reduction occurre d in spite of only a 0.9 percentage point increase 
in the total number of workers employed.  The la rge inflow of remittances and the continued outward 
migration of workers may explain the decline in th e employment participation rate (i.e. number of 
people actively looking for jobs).  Also, ther e appears to be a considerable degree of 
underemployment in the agriculture sector.  In any c ase, there is a large discrepancy between official 
unemployment data and statistics derived from labour force surveys carried out in accordance with 
ILO methodology3:  the latter indicates that general unemployment is much higher and less responsive 
to the recent economic growth.  Furthermore, the de cline in the unemployment rate, as measured by 
both methodologies, seems to have reversed since the end of 2008, and rising unemployment risks 
starting a vicious cycle relationship with falling domestic demand.4   
10. There are no available statistics with respect to changes in productivity over time in the 
Armenian economy.  Nonetheless, a back-of-the-e nvelope calculation would suggest that labour 
productivity increased during the review period, as GDP nearly doubled while the number of 
employed workers practically didn't change.  Ho wever, there are disparities within the Armenian 
economy.  For example, despite its significant grow th in value added, the construction sector's share 
of total employment increased by a much lesser amount (to 5.4% in 2008), which suggests a 
considerable increase in productivity.  On the othe r hand, agriculture's share of total employment 
remained high and stable at around 45%, while its contribution to GDP declined. 
(2) MONETARY AND EXCHANGE RATE POLICY  
(i) Monetary policy 
11. The Central Bank of Armenia (CBA) is independe ntly responsible for monetary policy, and 
its primary goal is to maintain price stability.5  The CBA's most important monetary policy instrument 
is the setting of short-term refinancing interest rate (Repo), which is done  at monthly meetings.  
According to the authorities, coordination of monetary  and fiscal policies is a priority in implementing 
monetary policy.  The coordination involves regular  meetings between CBA and Ministry of Finance 
officials to discuss issues on macroeconomic and fi nancial stability, and issuance and allocation of 
Government securities.   
                                                      
2 National Statistical Service of the Republic of Armenia online information.  Viewed at:  
http://www.armstat.am/en/.  
3 International Labour Organization online inform ation, "Labour Force Su rvey".  Viewed at:  
http://www.ilo.org/dyn/lf survey/lfsurvey.home. 
4 EIU (2009). 
5 Constitution of Armenia, as amended in 2005 (The Of ficial Site of the President of the Republic of 
Armenia online information, "The Constitution of RA".  Viewed at:  http://www.president.am/library/ constitution/eng/?chapter=1). Armenia WT/TPR/S/228 
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12. Since July 2006, the CBA has b een exercising an inflation-targeting strategy.  The objective 
for 2009 was to maintain inflation, as measured by the consumer price index (CPI), within a 
1.5 percentage point range below or above the 4.0% target.   
13. During the review period, commodity price increase s were the initial drivers of inflation, but, 
as the economy continued to grow quickly, do mestic demand increasingly added pressure to 
inflation.6  Moreover, according to the IMF, foreign ex change purchases by the CBA remained largely 
unsterilized and probably weakened the effectiveness of monetary policy and contributed to the rise in 
inflation in 2008 (Table I.3).7  The IMF has also stated that infla tion is on track to be at the lower end 
of the CBA's target range (see above) in 2009.8 
Table I.3  
Main monetary indicators, 2003-08 
(Per cent) 
 2003 2004 2005 2006 2007 2008 
Monetary and credit aggregates  (growth rates)        
Monetary base (end of the period) 6.6 11.4 51.9 41.1 50.9 5.3 
M2 (end of the period)a 15.1 22.3 27.8 32.9 42.5 2.3 
Nominal interest ratesb       
Key policy rate – Repo (December)  7.00 3.75 3.50 4.25 5.75 7.25 
Yield on medium-term Treasury b ills 16.43 8.07 5. 17 5.54 6.45 8.25 
Deposit rate 6.87 4.90 5.81 5.84 6.25 6.56 
Lending rate 20.83 18.63 17.90 16.53 17.52 17.10 
Inflationb       
Consumer price index (CPI) 4.7 7.0 0.6 2.9 4.4 9.0 
Producer price index (PPI)  8.9 21.7 7.7 0.9 0.6 2.2 
Exchange rate       
Nominal exchange rate (dram/US$)c 578.76 533.45 457.69 416.04 342.08 305.97 
Nominal exchange rate (dram/€)c 653.76 662.28 570.39 521.20 467.81 450.24 
Real effective exchange rate (December)d 95.6 101.1 108.8 125.1 138.4 148.6 
a Includes currency in circulation, demand and ti me deposits in dram and in foreign currency. 
b Annual average of monthly observations. 
c Annual average of monthly observations. 
d Weighted average of trade with Armenia's 11 main trading pa rtners during 2003-07 (Index 1997 = 100).  An increase represents 
an appreciation of the Armenian dram. 
Source: WTO Secretariat, based on information from the National Statistical Service of the Republic of Armenia. 
14. Estimates by the IMF indicate significant downwa rd rigidity in import prices in response to 
domestic currency appreciations.9  This suggests that there may be insufficient domestic competition 
between importers, particularly in the food sector (Chapter V(4)), and that high transportation costs 
(mainly due to Armenia's two closed borders) s till represent a large portion of the wholesale price of 
imported goods.10   
(ii) Exchange rate policy 
15. There are no foreign exchange controls on paym ents or transfers in Armenia, other than 
measures applied for security a nd prudential regul atory reasons. 
                                                      
6 IMF (2009a). 
7 IMF (2008). 
8 IMF (2009b). 
9 IMF (2008). 
10 Commission of the European Communities (2009).  WT/TPR/S/228 Trade Policy Review 
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16. Over the review period, the CBA has engaged increasingly in foreign exchange market 
interventions in order to reduce the rate of appr eciation of the domestic currency and to prevent 
excessive fluctuations.11  In September 2006, the Armenian authorities agreed with the IMF to 
reclassify their exchange rate regime from "inde pendently floating" to a "managed float with no 
predetermined path or level".  At the end of 2008,  the CBA established a soft peg as the effects of the 
global financial crisis reversed the exchange rate trend and brought severe pressure to depreciate the 
Armenian dram.  In March 2009, the exchange ra te was once again allowed to float (with CBA 
interventions only intended to smooth volatility), wh ich caused a 22% depreciation over the course of 
few days;  the exchange rate remained r easonably stable for the rest of 2009.   
17. According to economic theory, the Armenian dram would be expected to appreciate in real 
terms as productivity and income rise in Armenia.  However, the large appreciation experienced in 
2003-08 was in great part the result of large forei gn exchange inflows (mainly remittances, but also 
official grants and FDI).  As appreciation exp ectations built up, significant "dedollarization" by 
domestic depositors reinforced the appreciative mo vement.  Nonetheless, various IMF studies suggest 
that the appreciation of the real effective exchange rate (REER), of approximately 57%, only 
corrected for a previous undervaluation, and that  after the sharp depreciation of March 2009, the 
REER should have moved much clo ser to its equilibrium level. 
18. After a steady decrease over ten years, deposit dollarization increased rapidly between 
September 2008 and August 2009, from 35% to 66%, as depositors rushed to convert their dram 
deposits into foreign currency in the expectation of  depreciation.  In principle, as the legislation 
allows depositors to choose the currency in which they  wish to maintain their deposits, dollarization is 
not a policy concern.  However, according to the auth orities, high levels of dollarization are carefully 
monitored as they can cause currency mismatches fo r commercial banks and impede the CBA's ability 
to conduct monetary policy.12 
19. Due to the limited external exposure of local ba nks, the recent global financial crisis has had 
only a minor impact on the stability of Armenia's financial system (Chapter VI(4)(ii)).  Although 
interest rate spreads have declined, they remain persistently high (some 10 percentage points) and 
well above most CIS countries.  Of greater concer n is the exposure of Armenian banks to the local 
real estate market and its related debtors;  as prop erty prices fall and construction activity declines the 
banks may see a rise in non-performing loans.   
(3) FISCAL POLICY  
20. The Ministry of Finance is responsible for pr eparing the annual budget and for defining fiscal 
policy.  Changes to the tax legislation were introdu ced during the review period in order to eliminate 
tax exemptions and clamp down on tax evasion.   The tax authority (SRC) reported a 56% 
year-on-year increase in the collection of import duties in 2008, which was in part a result of 
administrative reforms.13  However, more needs to be done with  respect to the implementation of the 
legislation and its recent amendments in order to further broaden the tax base, particularly 
enforcement and collection of taxes at the border  where corruption has been widely publicized 
(Chapter III(1)).  
21. The fiscal deficit was kept reasonably consta nt at around 1.4% of GDP during the review 
period (Table I.4).  Current expenditure decreased in relative terms, which allowed for the generation 
of larger current budget surpluses in 2003-08.  Tax revenues represen ted some 83% of total revenues, 
                                                      
11 IMF (2009a). 
12 IMF (2006). 
13 EIU (2009). Armenia WT/TPR/S/228 
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of which indirect taxes represented 64%  .  In 2006 (latest year available), some 70% of indirect taxes 
proceeds were collected on imported goods.14  In 2009, VAT collection is expected to fall due to the 
decline in consumption.  Although the tax to GDP ratio has increased, it is lower than in most CIS 
countries. 
Table I.4  
Fiscal accounts of the General Governmenta, fiscal years 2003-08  
(Percentage of current GDP) 
 2003 2004 2005 2006 2007 2008b 
Total revenue 17.7 15.7 16.6 16.7 18.9 19.1 
Current revenue  14.3 14.3 15.4 15.2 17.1 18.7 
Tax revenue 13.4 13.5 13.9 14.1 15.7 17.4 
Value-added tax (VAT) 6.6 6.2 6.5 6.2 7.9 8.7 
VAT collected from imported goods .. .. .. .. .. 5.7 
Customs duty 0.7 0.7 0.7 0.7 0.8 1.0 
Excise tax 2.4 2.1 1.7 1.5 1.3 1.3 
Profits and income taxes 2.1 2.8 3.3 3.8 3.9 3.9 
Other taxes 1.6 1.7 1.7 1.9 1.8 2.5 
Non-tax income 0.9 0.8 1.5 1.1 1.4 1.3 
Capital revenue 0.2 0.7 0.7 0.9 0.9 .. 
Official transfers 3.2 0.7 0.5 0.6 0.9 0.4 
Total expenditure 19.0 17.3 18.3 18.0 20.3 19.6 
Current expenditure  13.3 13.3 14.0 12.9 12.8 10.8 
Wages and salaries 1.3 1.7 1.9 1.9 1.8 2.1 
Acquisition of goods and services 9.2 8.9 9.3 7.9 8.0 4.1 
Subsidies 0.9 1.0 0.7 0.8 0.8 2.5 
Interest payments 0.7 0.5 0.4 0.3 0.3 0.3 
Current transfers 1.2 1.2 1.6 1.9 1.9 1.8 
Credit expenditure 0.4 0.6 0.6 0.7 0.7 3.5 
Capital expenditure 5.3 3.4 3.7 4.4 6.8 5.3 
Total surplus or deficit -1.3 -1.6 -1.7 -1.3 -1.4 -0.5 
Memorandum item       
Total public debt (US$ milli on) 1,148 1,164 1, 193 1,193 1,483 1,911 
Total public debt/GDP 40.9 32.6 24.4 18.7 16.1 16.0 
Total external public debt/GDP 39.1 33.3 22.4 18.9 15.8 13.2 
.. Not available. 
a Includes the Central and municipal governments, but excludes state-owned enterprises and social security. 
b Preliminary figures. 
Source: WTO Secretariat, based on information from the National Statistical Service of the Republic of Armenia. 
22. Total public debt remained constant in valu e terms during 2003-08, but decreased as a 
percentage of GDP from 40.9% to 16.0%.  Dom estic public debt is low as private demand for 
government securities is limited and direct govern ment borrowing from the CBA is prohibited by 
law.15 
23. In late 2008, the IMF and the World Bank conclude d that Armenia had a low risk of external 
debt distress due to its relatively low and stable fiscal deficit and the low ratio of debt to GDP.16  On 
the other hand, Armenia's external financing situ ation changed rapidly at the start of 2009 due to 
increasing pressure from the deficit in the current a ccount (see below).  However, its relatively low 
                                                      
14 AEPLAC (2007).  
15 IMF (2009b). 
16 IMF (2009c). WT/TPR/S/228 Trade Policy Review 
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initial debt levels enabled it to increase external  borrowing without threatening its medium-term 
overall debt sustainability.17  
(4) BALANCE OF PAYMENTS  
24. After 2007, the deficit in the current account of  the balance of payments returned to its 
traditionally high levels, following close to zero defi cits during 2004-06 (Table I.5).  The continuous 
growth in remittances inflows was not large enough to compensate for the fast rise in the trade deficit 
boosted by a strong domestic demand.  High interna tional commodity prices did not have a strong 
negative effect on Armenia's trade balance, sinc e natural gas prices were not fully adjusted 
(Chapter VI(3)).   
Table I.5  
Balance of payments, 2003-08  
(US$ million) 
 2003 2004 2005 2006 2007 2008a 
I.  Current account -190.6 -19. 6 -51.7 -117.1 -589.3 -1,355.3 
A.  Trade balance -502.4 -556.9 -707.9 -1,026.3 -1,812.8 -2,964.2 
 Balance of merchandise trade -434.1 -457.9 -587.9 -895.9 -1,600.3 -2,639.4 
Exports (f.o.b.) 696.1 738.3 1,004.9 1,025.5 1,196.6 1,124.0 
Imports (f.o.b.) -1,130.2 -1,196.3 -1,592.8 -1,921.3 -2,796.9 -3,763.4 
 Balance of trade in services -68.3 -98.9 -119.9 -130.4 -212.5 -324.8 
Exports 207.4 332.6 411.1 484.7 580.0 645.8 
Imports -275.7 -431.5 -531.1 -615.6 -792.6 -970.6 
B.  Balance of income and transfers  311.8 622.2 656.2 909.1 1,223.5 1,608.9 
 Net income 93.4 107.4 132.5 215.2 278.8 471.3 
 Money transfers of employeesb 152.9 381.8 428.8 575.9 742.7 929.2 
 Net current transfers 218.5 429.8 523.7 693.9 944.8 1,137.6 
 Private transfers  183.0 451.9 535.0 709.7 927.6 1,161.3 
II.  Capital and financial account 192.1 25.2 47.9 132.9 591.5 1,361.5 
A.  Capital account 89.9 41.3 73.3 86.4 142.8 148.9 
B.  Financial account 102.2 -16.1 -25.3 46.5 448.7 1,212.6 
 Net direct investment 120.5 245.6 232.7 450.1 700.9 925.3 
 Net portfolio investment 0.3 -2.9 -1.6 9.2 -9.2 8.5 
 Net other investments 27.8 -232.5 -94.3 -46.8 303.1 63.2 
 Changes in international reservesc -46.4 -26.3 -162.1 -366.0 -546.2 215.9 
III.  Errors and omissions 1. 5 -5.6 3.8 -15.8 -2.2 -6.2 
Memorandum item       
Current account/GDP (%) -6.7 -0.5 -1.1 -1.8 -6.4 -11.4 
Remittancesd/trade balance (%) 0.67 149.7 136.1 125.3 0.92 .. 
.. Not available. 
a Preliminary figures. 
b Short-term employees, including border, seasonal, and other workers. 
c A negative change corresponds to an incr ease in international reserves.  It incl udes changes in the reserve position and spec ial 
drawing rights in the IMF, but it does not include use of IMF credit.  
d Remittances include compensation of em ployees and other private transfers. 
Source: WTO Secretariat, based on information from the National Statistical Service of Armenia. 
                                                      
17 IMF (2009b). Armenia WT/TPR/S/228 
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25. The appreciation of the real effective exchange rate incurred during most of the review period 
(see above) certainly contributed to the worsening of  the trade deficit, but it was not a determining 
factor as the current account deficit is expected to  widen to 13% of the GDP in 2009 despite the 22% 
devaluation of the nominal exchange rate.18  
26. Armenia's narrow export base and heavy relia nce on remittances make it vulnerable to 
external shocks, such as the recent global economi c crisis.  As a result, notwithstanding a decade of 
strong economic growth, external funds were needed to  finance the balance of payments gap in 2009;  
the IMF approved a request from Armenia to augmen t available resources to about US$830 million in 
June 2009. 
27. Although there are discrepancies between differe nt measures of remittance inflows, they 
represent a significant share of disposable inco me and GDP.  Moreover, anecdotal information 
suggests that there are more Armeni ans living abroad than in Armenia.   The so-called old diaspora is 
concentrated in the United States, while the majority of new migrants are living in Russia.  An IMF 
study indicates that there is a high correlation between remittances and Russia's GDP performance, 
which partly explains the decrease in remittances registered in 2009.19  A survey by the CBA also 
found that 37% of Armenian households received so me form of remittances, and that the vast 
majority of it was used for consumption or investment in real estate.20   
28. From the capital and financial account persp ective, Armenia has benefited from continuous 
inflows of official donors grants and loans as well as foreign direct investment. 
(5) DEVELOPMENTS IN TRADE AND INVESTMENT  
(i) Merchandise trade 
(a) Composition of trade 
29. The composition and direction of Armenia's merchandise trade during the period 2003-08 are 
presented in Appendix tables AI.1 through AI.6 ;  these are based on information from the 
United Nations' Comtrade database. 
30. Armenia's total trade (imports plus exports and re-exports) increased at an average annual 
nominal rate of 23% over 2003-08;  as a proportion of  GDP, trade decreased from 67.1% in 2003 to 
43.3% in 2008.  Over the same period, imports gr ew faster than exports, with the trade deficit 
increasing from US$0.6 billion in 2003 to US$3.1 b illion in 2008;  imports represented on average 
69% of total trade.  Furthermore, Armenia's te rms of trade have improved significantly, due, inter 
alia, to sharp increases in the price of copper and ferro -alloys, while gas prices remained fairly stable, 
and prices of manufacturing goods, in general, decreased.21 
31. During the review period, re-exports repr esented on average 17% of total exports 
(Tables AI.1 and AI.2).  Re-exports covered a wide range of products, but th e majority consisted of 
coffee (re-exported mainly to Russia and Georgi a), non-electrical machines,  textiles (re-exported 
mainly to the United States), clothing, jewellery a nd gold (re-exported mainly to Europe);  processed 
diamonds are not counted as re-exports.  The authoriti es noted that Armenia's relatively liberal trade 
                                                      
18 IMF (2009a). 
19 IMF (2006). 
20 The survey is only available in Armenian, see IMF (2006). 
21 Metal pages online information.  Viewed at:  http://www.metal-pages.com/logon.php?go=/ 
metalprices/historical/. WT/TPR/S/228 Trade Policy Review 
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regime (mainly low tariffs) and the high value of some of these commodities, more than compensate 
for high transportation costs, making re-exports economically feasible.   
32. Armenia's export basket has historically been concentrated in mineral products and processed 
diamonds.  Although there has been some diversifica tion (the share of processed diamonds in total 
exports dropped from 50% in 2003 to 15% in 2008) the export basket continues to be concentrated in 
a handful of products and somewhat biased towards goods with high value relative to weight, due to 
high transport costs (see below).  In 2008, four gr oups of products (i.e. spir its, copper, ferro-alloys 
and diamonds) represented approximately 70% of total exports (Table AI.3).   
33. The composition of imports remained practica lly unchanged in general terms during 2003-08 
(Table AI.4).  Close to 59% of Armenia's imports were ma nufactured goods in 2008.  Amongst 
manufactures, imports of rough diamonds fell significan tly while imports of machinery and transport 
equipment increased.  Imports of iron and steel gr ew tenfold in nominal value terms and doubled in 
relative importance, underpinned by str ong demand from the construction sector.  
34. Both exports and imports are affected by Armenia's closed borders with Turkey and 
Azerbaijan.  This diplomatic conundrum has incr eased transport costs, and made Armenia highly 
dependant on Georgia's transportation routes.  Hi gh and volatile transportation costs hinder Armenia's 
integration into international production chains a nd networks, and its capacity to create new export 
products that are economically sensible.  Thus, trad e would be expected to grow and diversify should 
the borders re-open and transpor t links be re-established.   
(b) Direction of trade 
35. The direction of Armenia's merchandise trade changed somewhat during 2003-08.  Russia 
remained Armenia's main trading partner, accounting for 20% of exports and 20% of imports in 2008.  
If the other countries of the Commonwealth of Indepe ndent States (CIS) are added, the share of total 
trade increased to 31.2%  in 2008.  The share of to tal trade with the European Union (EU27) remained 
high, and the European Union as a group was Armenia's largest trading partner, accounting for nearly 35% of total trade in 2008.  However, trade with specific Member states of the EU changed as trade 
with Belgium (and Israel) fell dramatically due to  the reduction in diamond processing, while exports 
to Germany and the Netherlands increased considerab ly (Table AI.5).  Exports to the United States 
declined in total value terms and as  a percentage of total exports, main ly due to the lack of demand as 
a result of the economic crisis.   
36. The share of the EU27 in imports declined dur ing the period under review, while the share of 
the CIS and Asia increased.  In particular, imports from China increased tremendously making it 
Armenia's second largest provider of imported goods  after Russia (Table AI.6).  Among others, 
imports from China include consumer products in gene ral, furniture, textiles, shoes, and electronics.  
Although Armenia has nine free trade agreements in  force with CIS countries, trade diversion is 
unlikely to be significant given that nearly  three quarters of tariff lines are duty-free. 
(ii) Trade in services 
37. During 2003-08, Armenia's services exports grew slower than services imports, worsening the 
deficit in the balance of trade in services, which re presented 11% of the total trade balance deficit in 
2008 (Table I.6).  In particular, the contribution of transportation and insurance services (mainly 
freight) to the trade deficit has tripled, in part  reflecting Armenia's landlocked nature and closed 
borders.  Trade in tourism services was the fastest growing subsector during the review period, and 
tourism became Armenia's largest generator of services export earnings.  Surprisingly, given the 
recent real estate boom, Armenia imported little in the way of construction services.   Armenia WT/TPR/S/228 
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Table I.6  
Trade in services, 2003-08  
(US$ million) 
 2003 2004 2005 2006 2007 2008a 
Balance of trade in services -68.3 -98.9 -119.9 -130.4 -212.5 -327.1 
Services exports 207.4 332.6 411.1 484.7 580.0 645.0 
Transportation 73.0 73.6 92.2 102.3 132.9 137.7 
Freight 46.2 43.2 58.0 59.2 83.3 76.8 
Tourism services 72.7 171.5 219.9 270.7 304.9 330.5 
Communication  16.7 23.8 28.2 22.9 41.4 62.1 
Construction 7.9 11.9 10.6 9.9 11.2 14.3 
Insurance 7.4 9.2 11.8 14.8 14.7 15.5 
Other services 29.7 42.6 48.4 64.1 74.9 84.9 
Services imports -275.7 -431.5 -531.1 -615.6 -792.6 -972.1 
Transportation -151.3 -178.7 -211.6 -231.9 -361.3 -486.7 
Freight -116.6 -118.3 -147.2 -183.9 -267.8 -369.0 
Tourism services -67.0 -178.9 -236.3 -286.1 -294.3 -324.0 
Communication  -10.9 -12.9 -13.9 -16.5 -17.2 -20.1 
Construction -3.1 -3.3 -2.8 -3.2 -3.8 -5.2 
Insurance -15.4 -18.4 -23.7 -28.7 -48.9 -72.8 
Other services 28.0 -39.3 -42.8 -49.2 -67.1 -81.3 
a Preliminary figures. 
Source: WTO Secretariat, based on information from the National Statistical Service of Armenia. 
(iii) Foreign direct investment 
38. Inflows of foreign direct investment (FDI) gr ew at annual average rate of 38.9% between 
2003 and 2008, and the net stock of FDI in Ar menia reached US$3.4 billion in December 2008 
(Table I.7).  This was driven by large increases of  FDI in telecommunications and financial services, 
as well as the electricity sector since 2006;  together these accounted for approximately 59% of the total FDI stock in 2008 (Chapter VI).  Inflows of  FDI into the food and beverages industry doubled 
over the review period, while investment in ot her manufacturing industries fell dramatically to 
US$3.6 million in 2008.   
Table I.7  
FDI inflows and stock, 2003-08  
(US$ million) 
 Gross inflows 
 2003 2004 2005 2006 2007 2008 Net stock
Dec. 2008 
FDI by economic sector        
Agriculture 0.0 0.0 0.0 0.0 0.0 22.9 24.5 
Mining 12.2 42.9 98.4 66.0 80.9 33.8 218.9 
Food and beverages  12.9 34.7 26.4 11.4 21.2 25.4 237.9 
Other manufactures 73.4 5.1 8.3 6.5 4.3 3.6 122.7 
Tourism, retail, and wholesale trade 8.2 7.8 9.5 19.6 24.9 6.5 103.2 
Construction 1.1 1.0 4.4 6.4 1.0 1.6 20.4 
Real estate activities 4.2 13.0 30.8 40.1 29.9 29.6 179.1 
Electricity, gas, and water supply 3.8 32.3 0.1 142.9 222.8 476.3 1,008.3 
Telecommunications and post 10.1 43.2 56.1 61.9 149.4 157.8 650.6 
Financial services 67.7 20.5 28.8 29.5 93.0 123.6 365.8 
Transport services (incl. pipelines) 3.6 24.4 14.9 33.6 18.2 201.1 291.1 
Other service activities 20.7 10.3 26.1 18.7 29.8 42.1 201.7 
Table I.7 (cont'd) WT/TPR/S/228 Trade Policy Review 
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 Gross inflows 
 2003 2004 2005 2006 2007 2008 Net stock
Dec. 2008 
FDI by country of origin        
Russia 68.4 52.4 12.5 153.9 339.5 735.4 1,914.0 
EU 36.2 124.7 193.4 147.5 130.0 203.4 717.9 
France 9.4 28.4 20.2 16.1 18.7 84.5 261.8 
Argentina 3.6 24.4 11.2 33.6 18.2 87.7 175.4 
United States 10.8 12.2 16.5 38.3 30.8 23.9 171.0 
Canada 11.3 3.4 0.9 17.9 0 0.0 98.8 
Other countries 87.3 18.1 69.0 47.0 159.4 74.1 362.3 
Total 217.7 235.2 303.7 436.7 675.3 1,124.5 3,424.6 
Source: WTO Secretariat, based on information from the National Statistical Service of the Republic of Armenia. 
39. FDI in transportation services surged in 2008 as the construction of the gas pipeline between 
Armenia and Iran started.  Real estate activiti es attracted US$32.6 million on average during 2005-08, 
suggesting that the contribution of the diaspora to the recent construction boom was twofold:  via remittances and FDI.   
40. Russia is by far the main source of FDI capita l inflow into Armenia, accounting for 50% of 
the inflows in 2007, and 65% of inflows and 56% of the stock in 2008.  The EU is the second largest 
source, particularly France, followed by Argentin a and the United States.  Not coincidentally, these 
countries all host large Armenian immigrant populations.