Financial Crime World

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Financial Institution Risk Assessment in Armenia: A Complex Landscape

A country with significant mineral resources and comfortable foreign exchange reserves, Armenia’s business environment is mediocre at best. The corporate default probability is high due to a very uncertain political and economic outlook. Despite its strengths, including a willingness to reform and membership in the Eurasian Economic Union, Armenia’s economy faces numerous challenges.

Weaknesses Abound

  • Dependence on minerals: Armenia’s economy is heavily reliant on mineral resources, making it vulnerable to fluctuations in global commodity prices.
  • Strong reliance on Russia: The country’s security, trade, and foreign investment are all closely tied to Russia, exposing it to external shocks.
  • Heavily dollarized banking system: About 75% of public debt is denominated in foreign currencies, making the economy susceptible to exchange rate fluctuations.
  • Moderate recovery expected in 2022: The economy is expected to continue its moderate recovery, driven by private consumption and remittances from Russia.
  • Low vaccination rate hinders expansion: Armenia’s low vaccination rate will hinder further economic expansion.
  • Central Bank of Armenia to tighten monetary policy: Inflation control remains a concern, with the Central Bank likely to tighten monetary policy further.

Conflict with Azerbaijan Weighs on Political Scene

  • Ongoing conflict creates tensions: The ongoing conflict between Armenia and Azerbaijan over Nagorno-Karabakh has created tensions in the political scene.
  • Volatile situation: The situation remains volatile, and its impact on the economy is uncertain.

Conclusion

Armenia’s financial institution risk assessment presents a complex landscape of strengths and weaknesses. While the country has significant mineral resources and comfortable foreign exchange reserves, its dependence on minerals, strong reliance on Russia, and heavily dollarized banking system make it vulnerable to external shocks. The government’s strategy focuses on structural reforms and promoting economic growth, but the ongoing conflict with Azerbaijan remains a major concern.