Armenia

Armenia is an upper-middle-income country nestled in the South Caucasus region at the crossroads of Europe and Asia. Despite being landlocked and facing regional connectivity challenges, the country has made notable progress in digital innovation, education, infrastructure, and democratic governance.

Armenia became a donor to the International Development Association (IDA) in 2023 — just nine years after graduating from IDA support and four years after achieving upper-middle-income country status. Today, Armenia is navigating a transformative phase of peacebuilding, internal reforms, and foreign policy realignment.

The aftermath of dual crisis in 2020 and the consequences of the 2023 refugee crisis have placed new demands on the state, requiring the expansion of housing, jobs, social services, and psychological support. Despite this pressure, the economy has shown notable resilience, supported by prudent macroeconomic management, namely inflation targeting, fiscal responsibility, and sound financial sector oversight.

The country is deepening its engagement with Western partners, while also seeking to stabilize regional relations. The Washington Declaration of August 2025 and the subsequent launch of the Trump Route for International Peace and Prosperity (TRIPP) in early 2026 marked an important step in Armenia’s economic and diplomatic landscape. The US-led initiative establishes multimodal transit connectivity through Armenian territory, linking Azerbaijan to its exclave Nakhichevan. Additionally, Armenia is advancing implementation of its Visa Liberalisation Action Plan, while the broader relationship has expanded through a new EU–Armenia Strategic Agenda and increased cooperation on trade, connectivity, security and resilience. Armenia has also formally launched a process toward closer European integration, although it is not currently an EU candidate country.

The Government of Armenia’s prioritizes consolidating peace and security, accelerating economic transformation and job creation, investing in human capital, modernizing infrastructure and energy systems, and strengthening democratic institutions, public administration, and digital governance.

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Following a strong 7.1% growth in 2025, growth has remained robust at 6% year on year in H1 2026 driven mostly by consumption and high services growth on the supply side. Private consumption grew 4.7% fueled by record-high tourist arrivals, high remittances and growing real wages. Public consumption rose sharply by 13.8% year on year driven by high public health insurance spending and the use of goods and services. Growth is projected to moderate to 5.6% in 2026.

Average inflation rose to 4.5% in July 2026 (from 3.2% a year earlier), driven by food (7.5%) and health (3.8%). Inflation is expected to remain elevated in 2026 and 2027, before declining gradually towards the CBA's 3% target. Continued growth and easing inflation over the medium term are expected to support further gains in living standards, with poverty at the UMIC line projected to decline gradually from an estimated 46.5% in 2025 to 43.7% by 2028.

The dram appreciated 3.7% year on year against the USD between January and July 2026, driven by strong inflows from tourism, remittances, and rising foreign investment. Gross reserves reached $6.2 billion at end-July, equivalent to 4.1 months of imports.

In H1 2026, the trade deficit widened to 8.1% of estimated annual GDP (from 7.6% in H1 2025). The large deficit was partially compensated with service sector surplus and increase in transfers. Mainly from Russia, tourist arrivals rose 6% year on year in Jan–July 2026 and net non-commercial money transfers grew 21.7% year on year in H1 2026. In H1 2026, Armenia achieved a budget surplus of 0.5% of estimated annual GDP, compared with a planned deficit of around 2.5%. This outcome reflects a 9% revenue overperformance, driven by stronger economic activity and sound tax administration, together with a 30% under-execution of capital expenditures. Debt declined to 41.7% of GDP at end-July 2026, from 46.8% at end-2025.

Risks to the outlook are balanced. On the downside, escalating tensions with Russia on trade, or renewed disruption in the Middle East could sustain elevated energy and food prices and weigh further on trade and investment. On the upside, normalization of relations with neighbors, including the finalization of the peace agreement with Azerbaijan, continued progress on TRIPP, operations at the Amulsar mine, and planned AI-data-center investments, could add to medium-term growth if implementation continues on schedule.

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For 34 years, the World Bank Group has been a key partner for Armenia, with a strong record of investments across sectors. The new Country Partnership Framework for the period of 2025-2029 was approved in January 2025.

The current portfolio includes the following projects:

• A $29.9 million loan for the Fourth Public Sector Modernization Project to improve the efficiency of and access to selected public services for businesses and citizens.
• A $9 million grant from the Green Environmental Fund and Swedish Government for the Armenia Resilient Landscapes Project (May 2024) to increase the area under sustainable landscape management and promote sustainable economic activities to communities in targeted landscapes in Armenia.
• A $40 million loan for the Enabling the Energy Transition Program for Results (May 2024) to integrate renewable energy into the power grid and strengthen the financial sustainability of the transmission company.
• A $109.4 million loan for the Enabling Universal Health Coverage Program for Results (June 2024) to improve primary healthcare quality, enhance spending efficiency, and reduce financial barriers to access.
• A $100.2 million loan for the Tourism and Regional Infrastructure Project (April 2025) to improve access to climate-resilient infrastructure and strengthen tourism investments in seven regions.
• A $80 million loan for the Water and Irrigation Services Enhancement Program (June 2025) launching a 10-year initiative to expand access to irrigation and drinking water in rural areas, create jobs, and build water resilience. The program will mobilize $435 million in total, including $330 million from IBRD and co-financing from France, the EU, and the Government of Armenia.
• A $250 million loan for the Armenia Housing Response and Mortgage Market Enhancement Project (December 2025) to improve refugees’ access to housing solutions and deepen the mortgage market.
• A $200 million loan for the Armenia Economic Transformation Development Policy Operation (March 2026) to support modernization of the investment and business environment, strengthen competition and consumer protections, and embed resilience into the country's fiscal and regulatory systems.

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The World Bank Group’s five-year Country Partnership Framework (CPF) for Armenia was discussed by the Board of Directors in January 2025. The strategy emphasizes the need for a stronger focus on building resilience to economic shocks, fragility and conflicts, natural hazards, and climate change. The proposed CPF will help Armenia in achieving: (1) more and better jobs by ensuring better conditions for private sector growth and addressing skill gaps in the workforce; (2) stronger human capital by enhancing access to quality healthcare and improving social protection, and (3) a resilient economy by advancing climate-adaptive economic activities and strengthening government and organizational systems, including public financial management, strategic planning, and public administration reform. The new strategy placed a focus on mobilizing private capital through close collaboration across the World Bank Group’s institutions: the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA).

IFC, with its focus on the private sector, is set to boost investments in infrastructure and real sectors, including through public-private partnerships (PPPs). Under the CPF, IFC aims to support the private sector’s contribution to sustainable infrastructure development, such as green energy, water, connectivity, and greener transport.

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