In terms of real effective exchange rate, the Armenian dram appreciated by 33.6% in 2022, according to a Eurasian Development Bank's study. It says at the end of June 2023. the dram's appreciation was 40% compared to the beginning of 2022.
"The Armenian dram has demonstrated steady strengthening against the currencies of trading partner countries since the beginning of Q2 2022. By the end of July 2023 compared to the beginning of 2022, the Armenian dram has strengthened against the US dollar by 19.8% yoy, against the euro by 21.7% yoy, and against the Russian ruble by 32.4% yoy," according to EDB.
The EDB notes that the strengthening of the dram was driven largely by the arrival of financial resources brought by foreign nationals, as well as remittances and other capital inflows.
"The net inflow of cross-border money transfers through the banks in 2022 amounted to 2.6 billion US dollars or 13.2% of GDP, which is four times higher than the average for the past five years (665 million dollars or 5.2% of GDP).
In January-June 2023, this figure increased by another 897 million dollars, or 90% y/y. Growth in export earnings from the supply of goods (+80% in 2022 and +72.8% y/y in H1 2023) and services (+2.4 times in 2022 and +2.2 times y/y in Q1 2023), as well as net FDI inflows of $998 million (+2.7 times y/y in 2022) also contributed to the country's foreign exchange supply.
The bank's analysts note that the Central Bank of Armenia estimates that at the end of 2022, there were 99,000 non-residents in the country, 51,000 of whom were foreign nationals, employed mainly in the IT sector, while the number of tourists visiting the country in 2022 increased by 90% yoy, and by 70.3% yoy in the first half of 2023.
"Tourist activity and the generally high number of foreign visitors have generated increased demand for the national currency - in addition to the already increased demand for the Armenian dram following the expansion of consumption due to remittance inflows," according to the study.
The study also notes that shocks that can cause "Dutch disease" - in Armenia's case, a large inflow of capital and remittances - are usually associated with periods of economic boom.
"These are consequences of the abundance of foreign exchange, which also has important beneficial effects, such as general income growth, availability of imports of capital and investment goods," EDB experts explain.
According to the base scenario of the EDB's forecast, the nominal exchange rate of USD at the end of the year will be near 397 drams, ARKA reports.
