2018 Index of Economic Freedom

Armenia

overall score68.7
world rank44
Rule of Law

Property Rights55.3

Government Integrity40.5

Judicial Effectiveness47.4

Government Size

Government Spending80.0

Tax Burden84.7

Fiscal Health67.2

Regulatory Efficiency

Business Freedom78.7

Labor Freedom69.9

Monetary Freedom75.8

Open Markets

Trade Freedom80.0

Investment Freedom75.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 3.0 million
  • GDP (PPP):
    • $25.8 billion
    • 3.0% growth
    • 3.5% 5-year compound annual growth
    • $8,621 per capita
  • Unemployment:
    • 16.8%
  • Inflation (CPI):
    • -1.4%
  • FDI Inflow:
    • $338.0 million
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Armenia’s economic freedom score is 68.7, making its economy the 44th freest in the 2018 Index. Its overall score has decreased by 1.6 points, with a sharp decline in fiscal health and lower scores for investment freedom and labor freedom overwhelming modest improvements in judicial effectiveness and monetary freedom. Armenia is ranked 20th among 44 countries in the Europe region, and its overall score is slightly below the regional norm but well above the world average.

Armenia’s geographic isolation, narrow export base, and pervasive monopolies in important business sectors have made it particularly vulnerable to deteriorations in global commodity markets and economic challenges in Russia. Nevertheless, modest diversification has produced greater economic dynamism, and a decade of strong economic growth has reduced poverty and unemployment. Broad simplification of business procedures has facilitated regulatory efficiency. Cronyism and undue influence, despite some progress in tackling corruption, remain concerns.

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Background

Armenia was a Soviet republic until independence in 1991. President Serzh Sargsyan of the center-right Republican Party won a second five-year term in 2013. A cease-fire in Armenia’s 25-year occupation of Azerbaijan’s Nagorno–Karabakh region has been in effect since 1994, but four days of intensive fighting in 2016 left dozens dead on both sides. Turkey closed its border with Armenia in 1993 in solidarity with Azerbaijan; now Armenia’s only two open trade borders are with Iran and Georgia. The economy relies on manufacturing, services, remittances, and agriculture. Armenia joined the Russian-backed Eurasian Economic Union in 2015 and has shown some interest in expanding economic ties with the Euro-Atlantic community. Recession in Russia, a sizable market for Armenia’s exports, has impeded economic growth.

Rule of LawView Methodology

Property Rights 55.3 Create a Graph using this measurement

Government Integrity 40.5 Create a Graph using this measurement

Judicial Effectiveness 47.4 Create a Graph using this measurement

Corruption is pervasive and aggravated by Russia’s consolidation of its influence over Armenia’s economy and regional security. Armenian law protects secured interests in personal and real property. The judiciary lacks independence and transparency. All disputes involving contracts, property ownership, or commercial matters are resolved in courts of general jurisdiction, which handle both civil and criminal cases and have long backlogs.

Government SizeView Methodology

The top individual income tax rate is 26 percent, and the top corporate tax rate is 20 percent. Other taxes include value-added and excise taxes. The overall tax burden equals 21.3 percent of total domestic income. Over the past three years, government spending has amounted to 25.8 percent of total output (GDP), and budget deficits have averaged 4.1 percent of GDP. Public debt is equivalent to 51.8 percent of GDP.

Regulatory EfficiencyView Methodology

Armenia’s regulatory system is not transparent. Many economic sectors are controlled by businessmen with government connections whose loyalty is rewarded with market dominance. Unemployment is high, but there is also a shortage of workers with vocational skills such as welding and plumbing. The government has manipulated electricity subsidies and other energy prices to gain public goodwill before the February 2018 elections.

Open MarketsView Methodology

Trade is significant for Armenia’s economy; the combined value of exports and imports equals 76 percent of GDP. The average applied tariff rate is 2.5 percent. Nontariff barriers impede trade. In general, government policies do not significantly impede foreign investment. The financial sector, dominated by banks, is evolving. The relatively small and fragmented banking sector is fairly well capitalized and open to foreign competition.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Switzerland81.70.2
2Ireland80.43.7
3Estonia78.8-0.3
4United Kingdom781.6
5Iceland772.6
6Denmark76.61.5
7Luxembourg76.40.5
8Sweden76.31.4
9Georgia76.20.2
10Netherlands76.20.4
11Lithuania75.3-0.5
12Norway74.30.3
13Czech Republic74.20.9
14Germany74.20.4
15Finland74.10.1
16Latvia73.6-1.2
17Austria71.8-0.5
18Macedonia71.30.6
19Romania69.4-0.3
20Armenia68.7-1.6
21Poland68.50.2
22Malta68.50.8
23Bulgaria68.30.4
24Cyprus67.8-0.1
25Belgium67.5-0.3
26Hungary 66.70.9
27Kosovo66.6-1.3
28Turkey65.40.2
29Slovakia65.3-0.4
30Spain65.11.5
31Slovenia64.85.6
32Albania64.50.1
33Montenegro64.32.3
34France63.90.6
35Portugal63.40.8
36Italy62.50.0
37Serbia 62.53.6
38Bosnia and Herzegovina61.41.2
39Croatia611.6
40Moldova58.40.4
41Russia58.21.1
42Belarus58.1-0.5
43Greece57.32.3
44Ukraine51.93.8
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