People, money and the economy: an analysis of the situation in Armenia
Socio-economic situation in Armenia
In recent months, there has been a drop in prices in the food market of Armenia. This is noticeable in comparison with a sharp increase in prices for goods, services and rental housing in 2022. Experts believe that inflation and related factors were equally stressful for both the economy and the people of the country.
- “Armenia’s economic growth potential is not infinite.” Opinion
- Modernization of old buildings in Armenia: energy savings and modern design
- Stagnant economic ties in the South Caucasus: Three stories
Increasing pensions and benefits
In the first months of 2023, the Central Bank of Armenia took steps to contain the inflation rate against the backdrop of rising prices around the world.
It has become even more difficult for the elderly and people with disabilities to provide for their most minimal needs. There was an urgent need to increase pensions and benefits.
The average monthly and minimum pensions were increased, as were benefits for old age and disability.
According to the government program, state pensions will be regularly increased until 2026. The minimum and average pension will be equated to the cost of food and consumer baskets.
Since the 2020 war, Armenians are increasingly concerned about security issues and constant tension on the border. Against this background, social and economic problems recede into the background.
However, a small increase in pensions and benefits has become an occasion for people to speak out on this issue, to recall the obligations of the state and their expectations.
“We live on a pension, we have no other income”
Vardush and Aramais calculate all their possible expenses in advance – within the limits of the pension paid to both of them. The wife is 67 years old, the husband is 70. Since July 1, 2023, the total budget of their family in the form of a pension has increased by about 8 thousand drams ($20). Together they receive 110,000 drams ($286). This amount is used to buy food, clothes, pay utility bills and other expenses.
When they first started receiving pensions, they could not live on the amount, and Aramais had to drive a taxi.
“In order to spend less on food, we bought a freezer to freeze fruit and vegetables during the summer months. The children helped to change the windows, changed all the lamps in the house to energy-saving ones, and insulated the walls of the apartment. Now we significantly save on food, electricity and gas,” Vardush shares his “secrets of survival”.
He says that although their income is small, they manage to hold out until the end of the month. This year they even managed to save money for a week in Kobuleti. Children are asked for help only when there are health problems. They have enough for other expenses, they do not complain.
“8 thousand drams is not a big amount, but not a small one. We can buy, for example, a couple of kilograms of meat. It is important that such increases occur every year or two, and not every five or more years. And the state should monitor the prices of goods. Over the past two years, everything has risen in price, even matches, the price of which has never changed,” says the pensioner.
Economic growth is not reflected in the standard of living of the majority
The Central Bank predicts economic growth of 6.9% in 2023. They announce that the influence on price growth from the outside has significantly weakened, and the Central Bank continues measures to curb inflation and strengthen the local currency – the dram. However, with strong demand and expectations of inflation, prices in services and some goods are adjusting more slowly.
An employee at a fruit and vegetable stall says that compared to previous years, people are buying fewer products because they are more expensive.
“At the beginning of the season, when the first shipments of eggplants, tomatoes and beans hit the market, everything was very expensive. People didn’t buy much. Now, we can say that the situation is changing, vegetables are gradually becoming more accessible. It’s good that prices are regulated, people can at least prepare canned food for the winter,” says Gohar.
That is, judging by the forecast of the Central Bank, a certain economic growth is observed in the country. However, it is not inclusive and does not affect the prices and standard of living of the majority of residents. Experts consider this a problem for the Armenian economy: only a few areas provide growth – and “the money goes to a few.”
The influx of people and money is a shock to the economy
Because of the war in Ukraine, many Russians moved to Armenia. For some, the country has become a transit country, some decided to stay here.
The influx of tens of thousands of people was a shock to the Armenian economy, primarily because a large amount of foreign currency entered the country. The dollar and the euro have devalued, the prices for renting apartments, tariffs for services have soared, food and clothing have risen in price. Due to Western sanctions against Russia, Armenia has become a transit for goods and cash flows.
All this has become stressful for the economy. It took about a year for relative stabilization.
Prices have fallen, but people do not feel the changes
According to the statistics committee, in June this year, the price of a food basket compared to the same month last year decreased by half a percent. This was due to a 5.5% decrease in prices for food and non-alcoholic beverages. For other components of the basket: alcohol and tobacco, clothes and shoes, restaurants and hotels – prices are higher than last year.
Thus, vegetables fell in price by 22.3%, vegetable oil by 17.3%. The price of wheat decreased by 21.4%, lentils 18.4%. Bread became cheaper by about 1.5%, and cheese by about 2%.
At the same time, some food prices went up, for example pork by about 3.5%, sugar by 1.6%.
Meanwhile, in the international market, in contrast to Armenia, deflation is more noticeable. According to data published by the Food and Agriculture Organization of the United Nations, as early as March 2023, a 22% drop in prices was recorded in the food market compared to March of the previous year.
Ordinary residents of Armenia do not yet feel the price reduction.
JAMnews talked about the reasons with Narek Karapetyan, an economist and expert at the Amberd Research Center.
“There is a problem of uneven distribution of income”
The economist believes that first you need to understand what changes in the quality of life can be considered tangible.
“In general, there is such a phenomenon: we do not feel the course of changes that occur gradually. We can see them when looking at the longer term. From this angle, deflation, especially food deflation, cannot but be felt,” he says.
At the same time, Karapetyan emphasizes that deflation occurred on the basis of last year’s high prices, therefore, prices continue to remain at a high level.
The expert believes that there is a problem of disproportionate distribution of income in the economy. This has become more pronounced in recent years against the backdrop of economic growth registered under the influence of the influx of people and capital from Russia. Income growth does not affect everyone equally.
As for the increase in pensions and benefits, their meaning, according to the economist, is not to stimulate the economy, but to mitigate social tensions and the consequences of rising prices for a long time.
“By absolute standards, these increases are, of course, small, but I think they are adequate to our capabilities at the moment. If we want significant changes in our social policy, then we need to build a stronger and more efficient economy.”
“Growing financial flows do not reach the regions”
Economic activity in the second quarter of 2023 is supported by strong growth in construction and services.
Last year and in the first half of this year, the fastest growing sectors were information technology, transport, hotel and restaurant business and construction.
However, this growth is not inclusive, as part of the effectively developing areas is geographically concentrated in Yerevan. These financial flows do not reach the regions.
According to the economist, the decline in dynamics is obvious in such areas as agriculture, mining, and healthcare. And these areas just provide significant employment in the regions.
Karapetyan says that the Armenian economy was able to withstand the consequences of the coronavirus and the 2020 Karabakh war. He emphasizes that there are many challenges at the moment, but in general, stability is observed in the country’s economy.
Socio-economic situation in Armenia