World Market Research Center
Global Insight
May 27, 2008
Armenian Foreign Reserves Fall During Q1
by Venla Sipila
According to data from the Central Bank of Armenia (CBA), the
country’s gross international reserves at the end of March stood at
$1US.602 billion. This level marks a fall of 3.4% in total reserves
since the end of December 2007. Specifically, foreign currency
reserves decreased by a similar amount, to stand at $1US.595 billion
at the end of the first quarter of 2008. Meanwhile, Special Drawing
Rights (SDR) at the International Monetary Fund (IMF) decreased by
nearly 23% over the first quarter, amounting to $7US.5 million at the
end of March. The CBA does not hold any gold reserves.
Significance:Strong foreign currency inflows in the form of workers’
remittances and foreign direct investment (FDI) have in recent years
boosted Armenia’s foreign currency reserves, and import coverage
currently comfortably exceeds the critical level of three months. In
this sense, the fall in reserves over the first quarter of this year
is not alarming. Indeed, Global Insight projects Armenia’s import
cover to decrease somewhat this year, while still expecting reserves
to remain strong enough to pay for imports and provide the means for
any possible currency support requirements. However, while the
reserves counterbalance the weakening impact of rapidly rising imports
on Armenia’s overall external payments position, the currently
more-than-adequate import coverage should not avert attention from the
fact that Armenia’s export potential remains weak. The wide current
account deficit also poses a source of external vulnerability,
especially given Armenia’s reliance on remittances and private
transfers for its foreign currency needs.