WIDE ARMENIAN CURRENT-ACCOUNT GAP NARROWS Y/Y IN Q3 2009
by Venla Sipila

World Markets Research Centre
Global Insight
January 18, 2010

According to the latest balance-of-payments figures from the country’s
National Statistics Service, the Armenian current-account deficit in
the first nine months of the year amounted to US$795.2 million, ARKA
News reports. This level marks narrowing of 8.5%, or US$74 million,
from the same period in 2008. As expected, current-account developments
were largely determined by merchandise trade trends.

Indeed, the trade deficit on a balance of payments basis for the first
three quarters of the year came in at US$1.392 billion, which marks
a narrowing of US$403 million in annual comparison, as a result of
exports falling by some 41% year-on-year (y/y) and imports easing by
around 28%. The deficit on the service balance narrowed to US$166.8
million, while the surplus on the income account also decreased and
stood at US$219.8 million.

Meanwhile, the balance on the current transfers account registered
a surplus of US$555.3 million, also narrowing in y/y terms. The
reported external balance for the January-September period implies a
current-account deficit of US$287.4 million for the third quarter of
2009. This result marks a narrowing of 17% y/y, after annual comparison
had shown deterioration in the second quarter. In quarter-on-quarter
(q/q) terms, the deficit increased by 7.1%, after deepening by 12.2%
q/q in the second quarter and decreasing by over 53% q/q in the
first quarter.

Significance:While the current-account deficit is easing in nominal
terms, ratio of the shortfall to the GDP widened, reaching some
13.3% of estimated GDP for the January-September period, against
10.2% of GDP in the same period in 2008. Thus, Armenian external
imbalance continues to present a major source of risk financial
risk, and financing it has necessitated rapid growth in government’s
external borrowing (seeArmenia: 1 December 2009: ). Reflecting the
severity of the economic downturn and the financial pressures, the
International Monetary Fund (IMF) has even allowed for a modification
in payment schedules of its stand-by programme with the country,
bringing instalments forward, while also accepting revisions to
performance criteria (seeArmenia: 3 November 2009:). Good relations
with multilateral lenders should just keep Armenia’s external finances
manageable, as long as Armenia adheres to IMF conditionality and shows
continued motivation to fulfil its reform targets and development
goals.