Armenia: How will new PM impact investors?

05 June 2018

Serzh Sargsyan’s bid to retain power by transitioning from president to prime minister led to peaceful protests that forced his resignation in April 2018. Nikol Pashinyan, the leader of the protest movement, replaced Sargsyan as prime minister in May 2018. However, Pashinyan’s agenda is likely to face opposition in parliament, limiting the scope for significant reforms.

Security Environment

Following a decade in power as president, Serzh Sargsyan switched to the role of prime minister in April 2018, prompting peaceful protests nationwide that led to his resignation later in the same month. Sargsyan’s appointment, which took place as Armenia transitions to a parliamentary system that strengthens the powers of the role of prime minister, was viewed by many as an illegitimate extension of his rule.

Protest leader and opposition politician Nikol Pashinyan replaced Sargsyan as prime minister following his election by parliament in May 2018. In the coming weeks, Pashinyan will present his programme to parliament.

While the election of Pashinyan will reduce the likelihood of mass protests in the short-term, the risk of civil unrest will remain. Popular demand for reform may be frustrated if Pashinyan fails to meet expectations, while the ruling Republican Party of Armenia (HHK) retains a majority in parliament and has offered no pledges of support for Pashinyan’s proposals.

Parliamentary gridlock remains likely unless early elections are called in the coming months, which Pashinyan has advocated. Further protests would pose a significant risk of business interruption, as demonstrations in April and early May 2018 attracted tens of thousands of people and led to roadblocks in Yerevan and suspensions of public transport. The risk of intervention by Russia, which maintains a military base in the country, is likely to temper any moves by Pashinyan to strengthen Armenia’s ties to the European Union. While low-level skirmishes persist on the border between Armenia and Azerbaijan over the disputed status of Nagorno-Karabakh, full-scale war remains unlikely.

Trading Environment

Pashinyan has not been forthcoming with details of any specific policies but economic policy is likely to remain broadly unchanged. Real GDP growth is forecasted to decelerate from 7.5% in 2017 to 5.0% in 2018, yet growth will continue to be driven by robust export volumes and recovering domestic consumption. Armenia’s government debt profile also benefits from a high level of concessional loans with low interest rates. Government debt is moderate at 58.6% of GDP in 2017, and is forecasted to gradually decline to 54.2% by 2019. While the level of foreign-currency debt is high at 81%, foreign exchange reserves are stable at USD 2.1 billion, equivalent to 6.5 months of import cover. However, Armenia remains vulnerable to any economic downturn in Russia, its largest trading partner and a key source of remittances.

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Investment Environment

Pashinyan’s election to the role of prime minister raises the prospect that business friendly measures will be introduced. Pashinyan has indicated that he will seek to encourage foreign investment and break up economic monopolies, but there is a lack of clarity surrounding his policies and he may find it challenging to pass reforms in parliament. Armenia’s mining sector is likely to be supported by rising copper prices, which are forecasted to increase from USD 6,200 per tonne in 2017 to USD 7,000 in 2018. In addition, the Amulsar gold mine, which contains 7.8 tonnes of gold, is due to come online later this year.

Armenia’s judiciary is not entirely independent and has traditionally sided with the government, while bribes are frequently solicited in order to secure contracts or influence the judiciary. However, expropriation and contractual agreement repudiation are relatively rare, and Armenia’s business environment has gradually improved in the past 5 years. In 2016 and 2017, Armenia introduced laws to strengthen contract enforcement, including the introduction of an automated system that randomly assigns judges to cases. In addition, Armenia signed a Comprehensive and Enhanced Partnership Agreement with the European Union in November 2017, which is likely to support attempts to improve the regulatory environment.

Armenia Pricing Outlook
* Underwriters remarked that they rarely see Armenian enquiries.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Argentina, Iran, Côte d'Ivoire and Mozambique all of which have been the subject of recent enquiries from JLT's client base.

World Risk Review June2018

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email