Why are the authorities weakening the economy?

The Central Bank of Armenia left the refinancing rate unchanged for the third time in a year, maintaining it at 6.75%. This decision is due to both external and internal risks associated with the economic situation. To understand what is going on, it’s important to recall that the Central Bank uses this rate to control inflation—raising it when prices surge and lowering it if inflation falls below the target. Last year, consumer prices were below the target, and the rate was gradually reduced. Now there is a new wave of inflation, and the Central Bank is hesitant to continue easing its policy.

Among the main concerns of the regulator are geopolitical instability, in particular, the protracted conflict between Iran and Israel, as well as possible global economic shocks. Domestically, the alarm is caused by rising prices, especially amid signs of an overheating real estate market, about which the Central Bank has already issued warnings.

But are external factors the only threats to Armenia’s economy? There are more and more questions. For example, the tax policy is already yielding the first negative results: the number of micro-enterprises closing down is growing. The country continues to lose its industrial potential, and the drivers of the economy are trade and services, i.e., consumption. This makes the economy vulnerable and dependent.

Agriculture, the most important sector in terms of food security, faces institutional problems. Public debt is rising. Investment attractiveness, already in bad shape, is receiving new blows, from politicization of investment projects to interference in private property.

In light of all this, a legitimate question arises: why do the authorities’ actions, including fiscal policy and recent moves, carry risks of further weakening an economy that is already under pressure from external and internal shocks? This is no longer just a set of random decisions but perhaps a reflection of a certain direction.