Tadevos Avetisyan: "After the Elections, a Deeper Wave of Currency Devaluation Should Be Expected"

The devaluation of the Armenian dram and the appreciation of the dollar are influenced by numerous factors that are deepening. Specifically, there has been a decline in economic activity indicators, exports continue to shrink, and transfers have decreased overall. Most importantly, there has been a capital outflow from our country, meaning that a negative influx of foreign direct investments was recorded last year, something that hadn’t happened in the previous decade. Economist Tadevos Avetisyan stated this in an interview with ArmDaily.am.

“In other words, there was an outflow of investments in 2020, with more than 7 billion drams of net foreign investments leaving the country. Meanwhile, people see that the dram is depreciating and prefer to keep their savings in foreign currency, which further deepens the crisis,” he noted.

He pointed out that the Central Bank regularly attempts to intervene in the short term, either by selling dollars from reserves, which is, by the way, a public expense. When reserves are sold and the state reserves decrease, this poses significant long-term risks regarding our country's solvency and the stability of the currency market.

“The Central Bank is also raising the refinancing rate, but this can’t be applied endlessly because when the refinancing rate increases, money becomes more expensive. Already, in this economic environment, there is a large demand for exchange capital and credit resources. When money becomes expensive, it hinders economic activity. Thus, we enter a negative cycle: to appreciate the national currency or halt its decline, the Central Bank raises the refinancing rate, which leads to a reduction in economic activity, and that decrease has negative repercussions on the national currency. In short, the economy is being exhausted day by day, and the face of the economy is the national currency, whose devaluation is a result of negative phenomena that have a stable nature and are leading our economy to decline. To put it briefly, the interventions by the Central Bank will only have a short-term effect; no matter how much the Central Bank uses its tools, it will not be able to solve the problem,” he remarked.

“As a result, as soon as the effect of the applied tools passes, we will again face devaluation of the national currency. Now, before the elections, they will certainly intensively apply these tools, trying to bring about some stability at the expense of all our resources, as these interventions involve the state's reserves. I predict that the refinancing rate will be increased once more before the elections; this will also be at our expense. Lastly, after the elections, we should expect a deeper wave of currency devaluation because it is impossible to solve fundamental and long-term problems with short-term tools. Regardless of how the political processes unravel, we will witness high volatility and a new phase of instability in the subsequent stage.”