Is IMF for Customs Union?

Mark Horton, head of the IMF Armenia expressed concerns about implication of external processes on the Armenian economy.

He said that the processes in Ukraine will have implications, and it will hit Armenia’s economy as it will hit Russia’s economy as well. Russia’s and Armenia’s economies are linked.

“The Russian economy has had impressive growth period, however, it was not due to the existing capital and new investments but limitation of new potential investments and growth. Though the Russian financial situation as better compared to a number of developing countries, there were also massive investment projects such as the one in Sochi, which are over now. Now Russia continues to de highly dependent from prices of energy resources, and even this year the export rates of energetic resources have gone down slightly. From the financial point of view it may affect Armenia’s economy,” said Horton.

This very careful forecast has already happened to the Armenian economy in some way, and the results are seen in the macroeconomic data.

The National Statistical service (NSS) published macroeconomic statistics for January-February.

There are some positive data as well. For example, the economic activity rate has grown by 2.4% compared to the same period of the previous year. Agriculture has grown by 4.9%. After a long stagnation the construction sector is showing positive signs too as it grew by 1.2% ($18.5 billion).

However, production is falling. During the first two months of this year the sector of production has fallen by 4.1%, which is a serious implication.

Foreign trade has reduced by 5.8% (amounted to $819.3 billion). Export reduced by 3.2%, and import – by 6.7%.

Import data has not been published yet. Last year’s concluding cumulative data is not available either. In nine months of last year the level of foreign investments reduced by 1/3, and direct foreign investments – by 2/3.

In Russia the economic situation is not good at all, and if processes continue this way, Armenia’s economy will suffer. Mark Horton says even before the crisis in the Crimea the IMF had been thinking of reducing economic forecast for Russia.

In this instable situation our country is preparing for integration with the Customs Union. The IMF Armenia chief believes Armenia heavily depends on the Russian economy, and due to integration with the CU these links may become even stronger and Armenia will be more dependent from Russia.

Armenian officials respond to such opinions saying that Armenia will contribute to the Customs Union, and the impression is that the Customs Union is joining Armenia but not the vice versa.

Mark Horton is optimistic too as he says that it is not necessary that processes in Russia project in Armenia the same way.

Mark Horton touched upon positive developments as well and said that Armenia’s export to Russia equals $280 million while the market of Moscow is estimated $400 billion, thus there is great potential for export of Armenian products.

The IMF Armenia office head discussed potential benefits Armenia may derive from joining the CU. Such potential benefits include better prices for gas for the coming years that will save Armenia $130-150 million, better conditions for Armenian migrants, etc.

Mark Horton is positive about higher customs fees due to CU tariffs as he said that the Armenian government had asked the CU not to apply higher customs fees for 1,000 product types. “Negotiation is expected to take place in the middle of this year, thus it is difficult to forecast now,” said Mark Horton and added that Armenia may receive more funding from CU countries, especially for Atomic Station operation.

Mr. Horton believes that there are more positive expectations as Russia has invested a lot in Armenia’s energetic, communication, transport and other sectors.

“Theoretically there is possibility that negative expectations may prevail, however, it depends on how potential opportunities will be used,” he said.

This is unprecedented and can be sensation because in fact it turns out that the IMF encourages Armenia’s integration with the Customs Union.

Generally there are potential anywhere and always. For example, there is potential possible opportunity that Armenia may get a ticket to world soccer championship in 2018 and become world champion. In the meantime, no one can say whether theoretically this one is more possible than deriving benefits from the Customs Union.

By Babken Tunyan