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Armenia: A growing political instability in a complex geopolitical environment COFACE armenews.com - 25/3/2016 Last Updated: January 2016 Low growth affected by the contraction of the Russian economy Armenian economic growth fell in 2015, partly because of the Russian recession. Russia is an important source of income for Armenians through expatriate remittances and is the main market for Armenian exports. The slowdown, however, was limited by the increase in production of agricultural and mining sectors. Good harvests have indeed led to an increase in activity in the agricultural sector while the mining sector was boosted by the opening of a copper plant. The economy, however, still suffers from major structural problems. The level of investment has been halved since 2008 (46% of GDP to 23% in 2015) while the deficit of infrastructure and competition in the domestic market, weak institutions, high unemployment rates and persistent (around 18%) and the environment degraded cases are among the most important sources of vulnerability. The Extended Fund Facility approved by the IMF in 2014 and the loan granted by the World Bank in 2015 to modernize the public sector is in this respect a support vector for the economy and the implementation of structural reforms. After an increase in 2015, inflation is expected to decline in 2016 as a result of the stabilization of the Armenian dram and the grant by the Government of the electricity price. Fiscal balances and current remaining deficit The budget deficit widened in 2015 because of the slowdown. Despite the budgetary consolidation measures that will be implemented to control the deficit including through the continuation of tax collection efforts, the need to finance essential spending in infrastructure (especially roads) as well as structural reforms maintain a significantly negative budgetary balance in 2016. This should also be affected by the government's commitment to subsidize the increase in electricity prices and weak demand from neighboring countries of the Eurasian Economic Union that prevents generate additional revenue for the government through tariffs. The issuance of a Eurobond of $ 500 million in May 2015 and the disbursement of $ 16.3 million from the IMF under the Extended Credit Facility program have led to a sharp rise in public debt in 2015. It expected to remain at a high level in 2016. the current account balance remained in deficit in 2015. Despite the depreciation of the ruble reducing the value of imports, the decline in exports to Russia coupled with a decline in remittances from Russia had a significant impact on the balance. Furthermore, the Eurasian Union penalty to provide real business opportunities and had little impact on exports in 2015. In a context of still worse conditions in Russia, the current account deficit will remain high in 2016. Increasing political instability in a complex geopolitical environment The second term of President S. Sargsyan reelected in 2013 is marked by growing political instability, like the replacement of Prime Minister Tigran Sargsyan under threats of demonstrations by the opposition parties in April 2014. This policy instability results a slowdown in the implementation of structural reforms and is likely to continue given the discontent of citizens to the government's inability to meet their expectations (unemployment, corruption, inequality). Thus, the series of events in 2014 continued and intensified in 2015, especially through the protests against the 16% increase in the electricity price. Finally, the opposition organizes and calls for changes to lead the country, raising fears the continuing protests and a deterioration in the social and political situation. The referendum of December 6, 2015 transformed the regime in parliamentary system and extended the presidential term from 5 to 7 years. It causes a reduction of presidential powers and suggests a stabilization of the political situation from the next presidential elections in 2018. Nevertheless, this apparent progress may reflect the will of the current president (who may represent the next election) of retain power by becoming prime minister in the next elections. It is for this reason that the referendum results are strongly contested by the opposition and international observers. Regionally, the dispute with Azerbaijan over Nagorno-Karabakh territory has few chances to evolve, leaving the situation in the state of latent conflict. However, the risk of cross-border violence access can not be excluded. Furthermore, diplomatic relations with Turkey are expected to remain at a standstill since the ratification by the leaders of the peace protocols is now subject to the withdrawal of Armenian armed forces of Nagorno-Karabakh. Membership in the Eurasian Economic Union (UEEA) created in 2015 and allowing the free movement of workers, goods and capital, strengthens regional integration of Armenia. It also highlights the influence of Russia on the member countries. http://www.armenews.com/article.php3?id_article=122325