FOREIGN INVESTMENT DRIVES GROWTH IN IMPORTS, EXTERNAL DEFICITS…
Publication: Monitor Volume: 6 Issue: 176
After falling substantially in 1999, Armenia’s trade and current account deficits are on the rise this year, raising renewed concerns about the sustainability of the country’s large external imbalances. In 1999, Armenia’s current account deficit ran 15.7 percent of GDP, one of the largest deficits as a share of GDP in the CIS. A strong recovery in imports has triggered the rise in Armenia’s external deficits this year. In the first half, imports increased by 10.2 percent to US$420 million (Russian agencies, September 13). Although growth in exports of finished diamonds, Armenia’s primary export, sparked a 22.9 percent rise in exports, the merchandise trade deficit nonetheless rose to US$284 million in the first half, up 5.0 percent from the same period in 1999 (Russian agencies, September 13). The IMF has not yet released quarterly balance of payments data for Armenia for 2000, but growth in the merchandise trade deficit, by far the largest item on the current account, suggests that the current account deficit will also be up this year.
Encouragingly, this year’s growth in the trade deficit primarily reflects increased imports of investment goods by recently privatized, foreign-owned companies (such as Armenia’s fixed-line telecommunications provider Armentel, which is owned by OTE of Greece) and greater imports of raw materials, particularly unfinished diamonds, for use in export production. Inflows of direct foreign investment, which are up substantially this year, have financed a large share of the current account deficit as foreign firms which won privatization tenders over the past two years have begun to fulfill minimum investment requirements included in the tenders.
…BUT THE PARTY CAN’T LAST FOREVER.