ARMENIA’S ECONOMY 32ND FREEST IN THE WORLD
ArmRadio.am
16.01.2007 17:26
According to 2007 assessment of the Heritage Foundation, Armenia’s
economy is 69.4 percent free, which makes it the world’s 32nd freest
economy. Armenia is ranked 19th freest among the 41 countries in the
European region.
Armenia’s score puts it above Europe’s average–an impressive feat
for an impoverished landlocked country. The overall score dropped
sharply during the year by 5.1 percentage points, which partially
reflects new methodological detail.
Armenia rates highly in many areas, such as fiscal freedom, freedom
from government, monetary freedom, financial freedom, business freedom,
and labor freedom. Low tax rates, low government expenditure, and low
revenue from state-owned businesses contribute to its impressive fiscal
and government freedom rankings. Armenia has low inflation, and its
banking sector is both wholly private and well regulated. Commercial
regulations are flexible and relatively simple. There are few
restrictions on foreign investment, except for land ownership.
Armenia could still make some improvement in property rights and
freedom from corruption. The judiciary is fairly weak and subject to
political interference. For a post-Soviet country, however, Armenia
shows an impressive amount of freedom.
Business Freedom – 84.5%
Starting a business takes an average of 24 days, compared to the
world average of 48 days. Entrepreneurship should be easier for
maximum job creation.
Obtaining a business license can be relatively simple, and closing
a business is easy. However, the business environment can be risky
because of the poor implementation and application of business
legislation. The overall freedom to start, operate, and close a
business is relatively well protected by the national regulatory
environment.
Trade Freedom – 75.6%
Armenia’s weighted average tariff rate in 2001 was a relatively low 2.2
percent. Improper implementation of the customs code is a significant
barrier to trade, especially for importers. Consequently, an additional
20 percent is deducted from Armenia’s trade freedom score.
Fiscal Freedom – 93.1%
Armenia has low tax rates. Both the top income tax rate and the top
corporate tax rate are 20 percent. Other taxes include a value-added
tax (VAT) and a vehicle tax. In the most recent year, overall tax
revenue as a percentage of GDP was 15.3 percent.
Freedom from Government – 91.6%
Total government expenditures in Armenia, including consumption
and transfer payments, are low. In the most recent year, government
spending equaled 17.5 percent of GDP, and the government received 3.7
percent of its revenues from state-owned enterprises and government
ownership of property.
Monetary Freedom – 79.7% Inflation in Armenia is relatively low,
averaging 2.6 percent between 2003 and 2005. Relatively low and stable
prices explain most of the monetary freedom score. Government
policies distort prices through direct price controls in
some sectors, such as public transportation, electricity, gas,
and telecommunications. Consequently, an additional 10 percent is
deducted from Armenia’s monetary freedom score to adjust for price
control measures.
Investment Freedom – 60.0%
Officially, foreign investors have the same right to establish
businesses as native Armenians in nearly all sectors of the
economy. Non-residents may not own land but are permitted to lease
it. The major impediments to foreign investors are weak implementation
of business legislation and corruption in the bureaucracy. The
International Monetary Fund reports that there are no restrictions
or controls on the holding of foreign exchange accounts, invisible
transactions, or current transfers and no repatriation requirements.
Financial Freedom – 70.0%
Armenia’s underdeveloped financial sector is dominated by
banking. Following a banking crisis in the 1990s, the government
embarked on a process of bank privatization and regulatory reform,
including adopting International Accounting Standards and minimum
capital requirements. Under the revised rules and standards, many banks
have closed or merged; the number of banks fell from 31 in 2001 to 21
in March 2005. The state no longer has a stake in any bank, and all 21
commercial banks are privately owned. However, banks remain hindered by
difficulty in debt recovery. All financial institutions are overseen
by the central bank. The Ministry of Finance and Economy regulates
the small insurance industry. Foreign insurance companies and banks
are permitted. The active stock exchange includes 190 listed companies.
Property Rights – 30.0%
The judiciary is influenced by the executive and is also underdeveloped
and corrupt, substantially impeding the enforcement of contracts. In
November 2005, the constitution was amended to increase judicial
independence, but it remains to be seen how this translates into
practice. A special Economic Court hears commercial disputes.
Freedom from Corruption – 29.0%
Corruption is perceived as widespread. Armenia ranks 88th out of
158 countries in Transparency International’s Corruption Perceptions
Index for 2005.
Labor Freedom – 80.9%
The labor market operates under flexible employment regulations that
could be improved to enhance employment and productivity growth. The
non-salary cost of employing a worker is moderate, and dismissing a
redundant employee is relatively costless.