Armenia needs private sector investment and human capital development - EBRD First Vice President

YEREVAN, September 27. /ARKA/. First Vice-President of the European Bank for Reconstruction and Development (EBRD) Jurgen Rigterink was on a week-long visit to Armenia, Georgia and Azerbaijan that started on September 4. In an exclusive interview with ARKA news agency he spoke about the goals of the visit, presented forecasts on Armenia’s macroeconomic indicators as well as recommendations to the government on measures to support the country's economy. 

ARKA: What was the purpose of your recent visit in Armenia? 

Jurgen Rigterink: The region remains an important partner for the EBRD. My last visit to Armenia was just before COVID in 2019 so it was high time for yet another visit. I met with government officials, the central bank governor, private sector clients and our international partners to hear first-hand from all respective stakeholders about the impact the war is having on the region and to assure our partners of our solid commitment to Armenia during these challenging times. It is important to understand what the challenges are and how EBRD can further support the country’s economic development. We discussed the opportunities for developing the financial sector, improving infrastructure, investing in more renewable projects and supporting the private sector including improvement of the investment climate. 

ARKA: In May, the EBRD improved the forecast for Armenia's GDP growth to 5%. What are the expectations today regarding the growth of the Armenian economy at the end of the year, what factors are determining in development?

Jurgen Rigterink: After exceptionally strong growth (14.2 per cent) in 2022, January to July 2023 saw further growth in gross domestic product (GDP) of 10.4 per cent year on year. Construction and services continue to drive GDP, posting double-digit rates of growth, though industrial production is almost flat. Money transfer inflows to individuals, which have been driving high demand for services, have remained robust, but there has been a noticeable rise in outflows in 2023 to date. This month we will have new economic updates with revised figures.

ARKA: In summer, deflation was observed in Armenia: in June, prices decreased by 0.5%, and in July - by 0.1% in annual terms. According to the June forecast of the Central Bank, 12-month inflation will be slightly below the target of 4%. According to the EBRD's expectations, what indicator is possible at the end of the year and taking into account what prerequisites?

Jurgen Rigterink: Inflation eased in 2023 and several factors have contributed to a significant decline. Timely monetary policy tightening, with a total increase in the policy rate of 650 basis points between December 2020 and December 2022, as well as falling global energy and food prices and significant appreciation of the Armenian dram in 2022, drove inflation below zero per cent in July 2023. That allowed the Central Bank of Armenia to cut the policy rate twice in 2023, by 25 basis points each time, first in June and then in August, to 10.25 per cent, the first such reductions in almost three years. Nevertheless, the CBA is being cautious about easing monetary policy, as consumer demand remains strong. We believe Armenia achieved successful disinflation though vigilance on the side of the Central bank is warranted.

ARKA: Armenian dram has shown a steady appreciation against the currencies of trading partner countries since the beginning of Q2 2022: in July of this year, compared to the beginning of 2022, the dram appreciated against the dollar by 19.8% year-on-year, to the euro by 21.7%, to the Russian rouble by 32.4%. At the same time, the Central Bank of Armenia does not see the prerequisites for the devaluation of the dram, but considers possible scenarios for both strengthening and weakening the exchange rate. What, in your opinion, are the scenarios for the behavior of the Armenian currency until the end of the year? 

Jurgen Rigterink: Like most of the Central banks in the world, the Armenian Central bank pursues a policy of inflation targeting. It means that the exchange rate is subject to market fluctuations. Large foreign currency inflows in 2022 caused strengthening of the Armenian dram but this year it is broadly stable against US$ and EUR. Successful disinflation and a stable nominal exchange rate since the beginning of 2023 have contributed to the eventual reversal of a two-and-a-half-year period of real currency appreciation.

ARKA: What recommendations would you give to the government of Armenia regarding measures to support the country's economy and implement reforms?

Jurgen Rigterink: It is important to continue developing the infrastructure to strengthen Armenia’s connectivity with its neighbors to facilitate trade. In this regard we financed the construction of the so called ‘friendship bridge’ between Armenia and Georgia at the Sadakhlo-Bagratashen checkpoint. The upgrade was a very timely initiative as the border crossing is very busy and the older infrastructure would not have been able to support such a large amount of cargo and passenger flow. The border is essential to support regional trade and cooperation between the two countries. 

Enhancing digitalization throughout the country especially in rural areas is a priority. Especially considering Armenia’s capacity and ambition of becoming a regional digital hub. The EBRD supported Telecom Armenia last year to expand their network in rural areas to improve fixed and mobile networks and reliable internet connections around the country. 

Decarbonisation and greening of the economy remains a big challenge. EBRD has been actively supporting the development of the renewable energy sector in Armenia with several investments into solar power projects. Greening the urban and municipal infrastructure is also very important, for example the new, modern, CNG, low-floor buses make a big difference for Yerevan’s citizens offering them a safe and timely journey while contributing to improved air quality.

Armenia also needs quality private sector investments with solid foreign or local sponsors with additional emphasis on skills development that includes youth, women and the rural population. Development of human capital and skills is also important. The private sector has a significant role to play in these areas and we are engaging with clients to support gender and economic inclusion through our investment projects. 

ARKA: How do you assess the actions of the Central Bank of Armenia in the context of the effectiveness of monetary policy, in particular, efforts to promote the development of the capital market, liquidity management?

Jurgen Rigterink: The EBRD has a very active dialogue with the CBA, which is a prudent regulator. The CBA has done a great job in ensuring the resilience of the financial system and the Armenian economy amidst persistent global challenges. One of EBRD’s key private sector partners are local financial institutions and we cooperate on policy and reforms with the Central Bank. We work jointly to deepen the domestic money market, develop local capital markets and help to dedollarise the economy. We have a very productive relationship and still have many reforms to implement together going forward.

ARKA: EBRD announced that it will hold its Annual Meeting in Yerevan in May 2024. How will this meeting benefit Armenia’s economy?

Jurgen Rigterink: The EBRD Annual Meeting is a well-established international event which is unique in bringing together business and government representatives from investor and investee countries. The Annual Meeting is traditionally attended by about 2000 participants [including/and] around 900 business representatives from around the world. Taking advantage of the high level international visitors, the EBRD Annual Meeting provides a unique opportunity for the host country to present itself to an audience of top governmental representatives, potential investors, civil society and the international media. The conference offers the perfect stage for discussion of global issues, promotion, networking and expanding business contacts between participants, both local and international. It also provides a boost to the local economy and supports the establishment and nourishment of regional and international ties. It is an opportunity for the host country to establish itself even more firmly on the international scene and draw the attention of the international community. For a country like Armenia, which also wants to strengthen its regional dimension, hosting the EBRD Annual Meeting can make a significant contribution towards this goal. -0-