2020 Index of Economic Freedom

Armenia

OVERALL SCORE70.6
WORLD RANK34
Rule of Law

Property Rights60.7

Judicial Effectiveness54.1

Government Integrity43.4

Government Size

Tax Burden84.9

Government Spending80.6

Fiscal Health68.8

Regulatory Efficiency

Business Freedom81.0

Labor Freedom72.5

Monetary Freedom76.0

Open Markets

Trade Freedom80.6

Investment Freedom75.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 3.0 million
  • GDP (PPP):
    • $30.4 billion
    • 5.0% growth
    • 3.9% 5-year compound annual growth
    • $10,176 per capita
  • Unemployment:
    • 17.7%
  • Inflation (CPI):
    • 2.5%
  • FDI Inflow:
    • $254.3 million

Armenia’s economic freedom score is 70.6, making its economy the 34th freest in the 2020 Index. Its overall score has increased by 2.9 points due to a significant spike in the fiscal health score. Armenia is ranked 18th among 45 countries in the Europe region, and its overall score is just above the regional average and well above the world average.

Economic freedom has remained fairly constant in Armenia during the past 15 years, with the economy vacillating between moderately free and mostly free. GDP growth in the past two years has been especially robust as the economy has rebounded from a 2015–2016 regional slowdown. The government is pursuing structural reforms, export promotion, and greater foreign investment to boost future economic growth.

To attract greater investment and finally break out of its holding pattern to move higher into the mostly free category, Armenia will need to focus more intently on improving judicial effectiveness and government integrity.

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Background

Armenia was a Soviet republic until independence in 1991. Massive protests against corruption in 2018 led to the election of a new reform-minded government headed by Prime Minister Nikol Pashinyan with the support of a sizeable parliamentary majority, but corruption remains a persistent problem. Armenia’s 25-year occupation of neighboring Azerbaijan’s Nagorno–Karabakh region and other territories remains one of post-Soviet Europe’s frozen conflicts. The economy relies on manufacturing, services, remittances, and agriculture. Russia is Armenia’s principal export market, and Armenia joined Russia’s Eurasian Economic Union in 2015. It also signed a Comprehensive and Enhanced Partnership Agreement with the European Union in 2017. The government relies heavily on loans from Russia and international financial institutions.

Rule of LawView Methodology

Property Rights 60.7 Create a Graph using this measurement

Judicial Effectiveness 54.1 Create a Graph using this measurement

Government Integrity 43.4 Create a Graph using this measurement

The World Bank’s 2019 Doing Business report ranked Armenia 14th among 190 economies for ease of property registration. Courts suffer from low levels of efficiency, independence, and professionalism, and strengthening the judiciary needs to be a priority. Corruption is pervasive, is not regularly prosecuted, and has been aggravated by Russia’s consolidation of its influence over Armenia’s economy and regional security.

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 20.8 percent of total domestic income. Government spending has amounted to 25.4 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 4.1 percent of GDP. Public debt is equivalent to 48.5 percent of GDP.

Regulatory EfficiencyView Methodology

The processes for starting a business and enforcing contracts have been streamlined. The time needed to connect to the electricity grid has been reduced, and protections for minority investors have been strengthened. There is an abundance of skilled labor but a shortage of vocational workers. The government continues to subsidize electricity and began a new program of subsidized community grants in 2018.

Open MarketsView Methodology

The total value of exports and imports of goods and services equals 90.4 percent of GDP. The average applied tariff rate is 2.2 percent, and nine nontariff measures are in force. 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
1Switzerland820.1
2Ireland80.90.4
3United Kingdom79.30.4
4Denmark78.31.6
5Estonia77.71.1
6Georgia77.11.2
7Iceland77.10.0
8Netherlands770.2
9Lithuania76.72.5
10Luxembourg75.8-0.1
11Finland75.70.8
12Sweden74.9-0.3
13Czech Republic74.81.1
14Germany73.50.0
15Norway73.40.4
16Austria73.31.3
17Latvia71.91.5
18Armenia70.62.9
19Bulgaria70.21.2
20Cyprus70.12.0
21Romania69.71.1
22North Macedonia69.5-1.6
23Malta69.50.9
24Azerbaijan69.33.9
25Poland69.11.3
26Belgium68.91.6
27Slovenia67.82.3
28Kosovo67.40.4
29Portugal671.7
30Albania66.90.4
31Spain66.91.2
32Slovakia66.81.8
33Hungary 66.41.4
34France662.2
35Serbia 662.1
36Turkey64.4-0.2
37Italy63.81.6
38Bosnia and Herzegovina62.60.7
39Croatia62.20.8
40Moldova622.9
41Belarus61.73.8
42Montenegro61.51.0
43Russia612.1
44Greece59.92.2
45Ukraine54.92.6
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