Armenia’s total goods exports to Russia account for about 6 percent of the GDP, but the problems mainly concern agricultural products and several branches of the processing and food industries. So, in the event of a negative development of events, this could lead to a reduction in Armenia’s GDP of up to 2 percent, governor Martin Galstyan of the Central Bank of Armenia (CBA) announced during a press conference Tuesday.

Galstyan discussed in detail the current export restrictions from Armenia to Russia and the economic risks arising from them. In his assessment, the main question is what kind of resilience the Armenian economy will demonstrate in the event of continued sanctions or tightening import and export conditions by Russia. The CBA has conducted a sensitivity analysis in this regard, identifying the Armenian products that are most vulnerable in terms of export to Russia.

“If, for example, we [i.e. Armenia] fail to diversify markets and remain exclusively in the Russian market, the impact on our inflation may be expressed in an increase in supply within Armenia. As a result, we expect certain anti-inflationary phenomena; in particular, in the case of vegetables, still or carbonated mineral waters, alcoholic beverages, as well as stone fruits,” Galstyan explained.

According to him, if Armenia’s foreign markets are diversified and export amounts are maintained, the negative impact will be mitigated very quickly. The share of exports of such basic products as alcoholic beverages in the total amount of consumption is huge, so the decisions of Russia directly hit this sector.

The CBA governor clarified that vulnerable sectors provide about 1.5-2 percent of Armenia’s GDP in total, adding that this is precisely what determines the maximum 2 percent decline predicted by the regulator. This may happen if new markets for the sale of Armenian products are not found or production stops.

In addition, the risks of expanding this chain are causing concern among Armenian business entities, as problems arise with the import of winter wheat seeds or milk powder from Russia, which may affect their loan repayment obligations.

“If [Armenia’s] exports are significantly reduced and this cannot be neutralized by other components of the balance of payments—for example, on the account of capital flows, the situation may put pressure on the [Armenian] dram exchange rate against the [US] dollar,” noted Martin Galstyan.

In such a case, CBA, together with the government of Armenia, is already considering scenarios for supporting the country’s economy through the banking system, the application of which Armenia has already had experience in applying during the coronavirus pandemic and the 2020 Nagorno-Karabakh war.