YEREVAN, April 11, /ARKA/. The impact of the war in Ukraine and sanctions on Russia are likely to be significant given Armenia’s strong economic links with Russia, according to the World Bank's Europe and Central Asia Economic Update, Spring 2022 report. The WB has downgraded its growth forecast for Armenia for 2022 to 1.2% from the pre-war 5.3%.

According to the report, growth is expected to pick up in 2023 and 2024, but at a slower pace than projected pre-war. In line with slower growth, revenue collection is expected to decline, and spending pressures are expected to rise, particularly through increased social assistance, leading to a delay in fiscal consolidation.

This will push up the debt to GDP to about 67 percent of GDP at the end of 2022, further away from statutory limits. The current account deficit is projected to widen due to lower exports and net remittances.

Exports may be boosted by an increased tourism revenues associated with an inflow of Russian citizens following the onset of the war. Higher commodity prices will keep inflationary pressures elevated in 2022, but CBA’s inflation targeting is expected to anchor inflation in the medium-term as external price pressures subside. Based on the forecasted macroeconomic impact, poverty (using the upper middle income poverty line) could reach 39.6 percent of the population in 2022, which represents a 3 percentage points increase relative to a counter-factual scenario in the absence of the war.

Vulnerability may increase due to decreased remittances, increased utility bills and increased food prices. The forecast is uncertain, with possible downgrades, given the evolving global and regional environment.

Risks include protracted conflict in Ukraine, a prolonged and more significant slowdown in Russia, further disruption in global commodity markets, and still unresolved geopolitical issues around Armenian borders. On the upside, the inflow of persons from Russia, if sustained, may have a positive impact on the economy. -0-