Armenia: Net remittances grind to a halt in May

CAUCASUS / CENTRAL ASIA - In Brief 11 Jul 2023 by Ivan Tchakarov

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Net monetary inflows from abroad fell significantly in May.  Net inflows tripled to around US$300mn per month last year as a result of the Russia-Ukraine war, but Jan to May data so far in the year is already indicating a return to pre-2022 levels (Graph 1). A breakdown of the inflows is showing that these swings are expectedly driven by transfers from Russia (Graph 2). There is also some evidence that a good part of inflows are using Armenia only as a hub, because the data also points to sizable outflows to other countries different from Russia (Graph 3). Graph 1 Net monetary transfers from abroad have now fallen to pre-war levels Source: Statistical Office of Armenia, Author's calculations. Graph 2 The decline in inflows is led by Russia Source: Statistical Office of Armenia, Author's calculations. Graph 3 Larger outflows to countries other than Russia suggests that Armenia may be used only as a hub to shift money from Russia to other final destinations Source: Statistical Office of Armenia, Author's calculations. The sharp reduction in net remittances is set to weigh on the external position. Armenia tends to run CA deficits, which have averaged about 6.5 percent of GDP during 2010-2020. Like the rest of the CCA economies, a strong recovery of tourism and personal remittances from Russia have helped engineer a sharp swing in the external balance, with the CA deficit dropping to 3.5 percent of GDP in 2021 and switching to a small surplus of 0.8 percent of GDP in 2022. Now that net monetary inflows have declined significantly and brisk economic growth continues apace, the CA positon is set to deteriorate to a deficit of about 4 percent of GDP over 2023 and 2024.