Russian Money is Going Back: What Awaits Armenia's Economy?

What awaits Armenia’s economy?

Analysis of International Money Transfers

The Russian-Ukrainian war radically changed Armenia’s economic picture. In 2022, an unprecedented volume of capital entered Armenia, mostly from Russia. Transfers increased 2.5 times, reaching $5.2 billion from $2.1 billion. The money received from Russia alone quadrupled, going from $865 million to $3.6 billion.

This massive capital inflow led to two important changes. First, the dram appreciated sharply; the dollar went from 480 drams to 405 drams. Second, the profitability of the banking system grew unprecedentedly: profits nearly tripled, reaching 255.6 billion drams. Ardshinbank alone recorded a profit of 62.2 billion drams.

Chart 1.

Interestingly, until 2022, most of the transfers from Russia were money sent by “migrant workers”. However, from 2022, the picture changed drastically; the transfers became mainly commercial in nature. This change meant that Armenia had become an “importer” of capital rather than labor. Since the income tax refund law was fully operational in Armenia, a significant part of this capital was directed to the construction sector.

Chart 2.

In 2023, the growth rate slowed down, amounting to 9.7 percent, but the volume of inflows continued to be impressive at $5.7 billion. In 2024, the picture changed again. Transfers into Armenia slowed down, while money leaving Armenia grew significantly.

December 2024 is particularly noteworthy. In that month alone, $691 million entered from Russia, compared to $300 million in previous months. This sharp spike without any economic justification may indicate that we are on the threshold of a new phase of capital outflow.

Chart 3.

Where is the money going from Armenia? Interestingly, the lion’s share of the outflow, 20.3 percent, goes to the United Arab Emirates. This is not a coincidence; nearly half of Armenia’s exports go here, which is mostly the re-export of gold and diamonds from Russia. In second place is the USA with 13.5 percent, and third is Switzerland with 10.5 percent. These three countries account for almost half of the outflow.

Chart 4.

The most interesting change occurred with the transfers of “migrant workers”. In 2013, about 20 percent of Armenia’s income came from labor migration when 1000 rubles was worth 12 thousand drams. Today the picture is completely different: the ruble has depreciated (1000 rubles is 4000 drams), while the dram has strengthened. As a result, the weight of income from labor migration in the GDP has dropped to 4 percent, only half of which comes from Russia. Yesterday’s “migrant worker” is building new structures in Yerevan today.

Chart 5.

In our analyses, we see signs of a potential economic downturn. The reduction in capital inflow (9.7 percent growth in 2024 compared to 146 percent the previous year) and the growth of outflow (14.7 percent) pose a serious challenge to the stability of the banking system. We must not allow the impressive numbers of the last two years to obscure the real picture. The economic growth driven by capital inflows from Russia and the re-export of gold may have a temporary nature. It is necessary to realistically assess our economic capabilities.

• Please note that there is a certain terminological misunderstanding between the terms transfers and bank remittances. Bank transfers include all types of transfers, including for commercial purposes. Remittances are only non-commercial transfers made by individuals. The confusion arises because the English term “transfers” refers to all types of commercial and non-commercial transfers. In the charts, the English term “transfers” represents all types of commercial and non-commercial money transfers. All data in this analysis are taken from official sources, specifically Central Bank data. The calculations and prediction code are fully available on github; they can be verified by visiting our github page, where the data, calculations, and chart code are provided.