YEREVAN (RFE/RL)–The Armenian Central Bank expects that the economic growth will slow down to 4 percent this year due to negative external effects mainly caused by the ongoing economic crisis in Russia–its chairman Tigran Sarkisian said on Tuesday. He said the authorities’ tight fiscal and monetary policies will keep the annual inflation within a single-digit level in 1999.
According to government data–the Armenian economy in 1998 grew by 7.2 percent against the forecast 5.5 percent–despite the Russian crisis–which badly hit Armenia’s exports in the second half of the year. Russia had a 30 percent share in Armenia’s foreign trade. The year also saw a 1.3 percent consumer price deflation–instead of a projected single-digit inflation. Sarkisian attributed deflation to the much cheaper imports from Russia–caused by its currency’s unprecedented devaluation. The ruble has lost three fourths of its value against the US dollar since last August. He added that the higher-than-expected growth–a strong national currency–the dram–and seasonal factors also played a role.
"A restrained fiscal and monetary policy in 1998 has justified itself," Sarkisian said in his annual address to the parliament. He at the same time admitted that unfavorable external factors prevented a turnaround in Armenia’s huge trade deficit–with the current account deficit still exceeding 20 percent of gross domestic product. He said it is planned to be reduced to 21.2 percent this year.
The trade imbalance is often cited as the main reason for the shakiness Armenia’s of financial market where rate fluctuations occur regularly. Last month–the Central Bank raised its benchmark re-financing rate from 39 to 53.5 percent–following a three percent depreciation of the dram and steep rise in yields on state treasury bills.
Bagrat Asatrian–chairman of the Armenian Bank Association and Sarkisian’s predecessor–has predicted even more serious woes resulting from the current account deficit. Sarkisian said the re-financing rate will be gradually reduced to 35 percent by the end of 1998 if the "external factors" do not prove to be too strong. He pledged a "better coordination of work between the government and Central Bank" to maintain macroeconomic stability.
Also according to the Bank chairman–the past year has been overall successful for Armenian commercial banks–who he said for the first time registered net profits worth 6.2 billion drams ($12 million).