Haykaz Fanyan: Armenia’s economy shows signs of ‘Dutch disease’

The economic growth caused by the Russian-Ukrainian conflict in Armenia has signs of ‘Dutch disease’. In particular, the national currency strengthened more than allowed, leading to the increase of the cost of local products, and making them less competitive for the foreign market. Economists consider such a situation a ‘Dutch disease’ syndrome. In an interview with Alpha News, Haykaz Fanyan, director of Access analytical center, states that although Armenia’s economic problems are similar to ‘symptoms of the Dutch disease’, he would not like to use this term.

“I wouldn’t call it ‘Dutch Disease’ in the classical sense. There has been a significant change in our trade balance, and this has an impact on the exchange rate and has a chain effect on other indicators,” Fanyan says.

“Dutch disease” is a term used in the economics and media circles, which was coined when large oil and gas reserves were discovered in the Netherlands in the 1970s, leading to structural changes in the economy. According to Haykaz Fanyan, there has been an increase in the re-export rather than the export of raw materials in Armenia. He believes that the economy can be compared to the human organism. When an organ changes, it affects the rest of the organ systems. Against the background of dram appreciation, Armenian products have become less competitive in the main export countries.

“If the cost of any product produced in Armenia used to be 1,000 drams, a little more than 2 dollars at the exchange rate of 2021, today the dollar exchange rate is 386 drams, therefore, the price of that product is already 2.6-2.7 dollars,” the expert explains, adding, that the price of the exported product is already about 15-20 percent more expensive.

According to Haykaz Fanyan, the same economic behavior was recorded in Kazakhstan, Kyrgyzstan and some EAEU countries. Fanyan emphasizes that the external factors affecting our economy will disappear at some point.

“We are forming a high base and every year it will be more difficult to provide economic growth beyond that base,” Fanyan notes, adding that he does not believe in an economic apocalyptic conclusion.