COVID-19

Impact and response

in Armenia

March 26, 2020

 THE GLOBAL SPREAD

COVID-19 Confirmed Cases, Mar 26,2020 EVENT TIMELINE

The number of daily new cases in China peaked after two months from the
start of the spread of the virus. As a result of the undertaken measures the
number of daily new cases has since been declining. During the past week
only a few new daily cases were reported in China.
The measures taken by China resulted in a sharp decline of economic
activity in the country. However, as of today more than 80% of industrial
activity has been recovered.
The epicenter of the virus outbreak (Hubei Province), where a lockdown
was announced on the 23rd of January, is on its track to recovery. The
normalization of the situation is expected by early 2nd quarter.
Currently the virus spread is accelerating in US and European Union, with
Italy being the epicenter of the outbreak.
WHO has announced a pandemic on the 11th March. The same day US
enforced a temporary flight ban from the Schengen Zone.
Countries are closing all businesses not deemed to be essential to the
nation’s supply chain of vital requirements and stiffened fines for people
leaving their homes.
Taking the case of China into consideration, the normalization of economic
activity in other countries can be expected in 2-3 months after undertaking
the effective measures for limiting the spread of the virus.

STATISTICS BY REGIONS (MAR 26,2020)

Total Cases Deaths Recovered Active Cases Trend
China 81,285 3,287 74,051 3,947
Western Pacific Region 18,632 267 5,309 13,056
Eastern Mediterranean Region 35,407 2,340 11,142 21,925
South-East Asia Region 2,839 107 195 2,537
European Region 279,039 15,915 29,635 233,489
Region of the Americas 112,149 2,106 2,999 107,044
African Region 2,458 46 74 2,338
World 531,809 24,068 123,405 384,336
0 10 50 100 500 5.000 40.000 100.000
Armenia 290 1 18 271

Source: Ourworldindata.org/coronavirus, WHO Source: Worldometers, WHO

THE GLOBAL SPREAD

THE GLOBAL SPREAD IS ACCELERATING WITH MORE REPORTS OF LOCAL

TRANSMISSION

> 530.000 > 24.000

Impact REPORTED CONFIRMED DEATHS

to date CASES

> 200 > 100 ~ 90

COUNTRIES OR COUNTRIES OR TERRITORIES COUNTRIES OR TERRITORIES

LATEST AS OF MARCH 26, 2020

TERRITORIES WITH WITH EVIDENCE OF LOCAL WITH MORE THAN

REPORTED CASES TRANSMISSION 100 REPORTED CASES

< 0.2% ~ 60% > 10

CHINA’S SHARE OF NEW REPORTED CASES NEW COUNTRIES

NEW REPORTED CASES ON MARCH 20-26 WITH CASES
MARCH 20-26 FROM EUROPE MARCH 21-26

Source: Worldometers, WHO

 THE SPREAD IN ARMENIA

COVID-19 daily confirmed cases in Armenia

20 r 20 r 20 r 20 r 20 r 20 r 20 r 20 r 20 r 20 r 20 r 20 r 20 r 20 r 20 r 20 r 20
ar Ma Ma 3 Ma 4 Ma 5 Ma 6 Ma 7 Ma 8 Ma 9 Ma 0 Ma 1 Ma 2 Ma 3 Ma 4 Ma 5 Ma 6 Ma
1M 11 1 2 1 1 1 1 1 1 1 2 2 2 2 2 2 2

EVENT TIMELINE
On February 24 after sharp increase of Covid-19 in Iran Armenian government decided to close the land border with Iran for two weeks and make some restrictions in air
communications.
On 1 March 2020, coronavirus pandemic was confirmed to have spread to Armenia when its first case was confirmed. Prime Minister Pashinyan announced closure of all
educational institutions, including schools, universities and kindergartens.
On March 11, three people who had arrived from Italy, including two Armenian citizens and one Italian working in Armenia, also tested positive for COVID-19.
On 16 March, Government declared a state of emergency lasting until 14 April to prevent the spread of the coronavirus.
On 20 March The National Assembly of Armenia adopted penalties for the violation of the request to be isolated or self-isolated providing a fine of 300-500 times the minimum
wage, but if the same action has led to mass spread of the disease the person will be punished by 3 months remand or imprisonment for maximum 5 years. A violation of the
restrictions on publication of information is also subject to a fine.
As of 26 March, there are 290 confirmed cases. Armenian government ordered the closure of all cafes, restaurants and most other businesses due to a continuing spread of
coronavirus in Armenia
From 25 March every person is required to complete a movement sheet each time before leaving home during the emergency.
On 26 March, the first death was recorded.
Source: Worldometers, WHO
PUBLIC EXPECTATIONS

THE CORONAVIRUS WILL HAVE A FINANCIAL WHAT LEVEL OF THREAT DO YOU THINK THE CORONAVIRUS
IMPACT ON YOU AND YOUR FAMILY ? POSES TO YOUR JOB OR BUSINESS ?

WHAT LEVEL OF THREAT DO YOU THINK

THE CORONAVIRUS POSES TO YOUR COUNTRY ?
Majorities in most countries foresee a personal financial impact

Rapidly increasing concern about threat posed to “Your job or business”

Rise in perception of threat to country, especially in countries where confirmed

COVID-19 cases rise rapidly

The spread of the virus creates negative economic expectations for consumers
and business, which can have a long-term effect on world economy

Source: IPSOS, March 12-14,2020

 MARKETS’ REACTION
All major equity market indices are down
sharply amidst the uncertainties related to COVID
19 spread Compared to the beginning of the year,
MSCI China declined by 16, S P 500 by 29, MSCI
World by 30 and FTSE 250 by 38. Investors are
looking for relatively safe assets.
The US Dollar interest rates are declining. On
15th March, the US Federal Reserve cut its policy rate
to 0 -0.25% and scaled up its quantitative easing
tools to stimulate the economy amid the risks
associated with COVID-19. On the backdrop of
falling equity indices, safer investment is becoming
more attractive, increasing demand on US Treasury
securities.
Except for oil, prices in the commodity markets
are declined relatively little. The recent drop in oil
price echoes the price war between Russia and Saudi
Arabia. The oil price had been decreasing even
before, amid declining global demand due to COVID
19. The relatively little decrease of prices in
commodity markets indicate that demand and
expectations regarding the global economic growth
has not declined to an extent that the oil price would
indicate.
THE GLOBAL ECONOMY GROWTH EXPECTATIONS
CHANGE IN GDP GROWTH IN 2020 RELATIVE TO BASELINE, PERCENTAGE POINTS
Note: Simulated impact of weaker domestic demand, lower commodity and
equity prices and higher uncertainty. Base-case scenario with the virus
outbreak centered in China; broader contagion scenario with the outbreak
spreading significantly in other parts of the Asia-Pacific region, Europe and
North America. Commodity exporters include Argentina, Brazil, Chile, Russia,
South Africa and other non-OECD oil-producing economies.
Source: OECD interim Economic Assessment, 2 March 2020
On the assumption that the epidemic peaks in China in the first quarter
of 2020 and outbreaks in other countries prove mild and contained,
global growth could be lowered by around ½ percentage point this
year relative to that expected in the November 2019 Economic Outlook.
Accordingly, annual global GDP growth is projected to drop to 2.4% in
2020 as a whole, from an already weak 2.9% in 2019, with growth
possibly even being negative in the first quarter of 2020.
Prospects for China have been revised markedly, with growth slipping
below 5% this year, before recovering to over 6% in 2021, as output
returns gradually to the levels projected before the outbreak.
The adverse impact on confidence, financial markets, the travel sector
and disruption to supply chains contributes to the downward revisions
in all G20 economies in 2020, particularly ones strongly interconnected
to China, such as Japan, Korea and Australia.
Provided the effects of the virus outbreak fade as assumed, the impact
on confidence and incomes of well-targeted policy actions in the most
exposed economies could help global GDP growth recover to 3¼ per
cent in 2021.
A longer lasting and more intensive coronavirus outbreak, spreading
widely throughout the Asia-Pacific region, Europe and North America,
would weaken prospects considerably. In this event, global growth
could drop to 1½ per cent in 2020, half the rate projected prior to the
virus outbreak.
Source: OECD
ECONOMIC SITUATION IN ARMENIA AND TAKEN MEASURES

The continued spread of coronavirus worldwide significantly increased uncertainties in the world economies and financial markets, reflected in the continued decline of
developed countries' stock indices, the decline in commodity prices, the devaluation of the currencies of developing countries, and consequently, the impact of this on
the Armenian economy is estimated to be deflationary by the CBA. According to the CBA estimates, these effects are also reflected in the simultaneous reduction of
aggregate supply and demand in the behavior of the Armenian economy. The main impact is on the services sector, especially the sub-sectors related to tourism and
entertainment, and export based industries.

TAKEN MEASURES:

Given the CBA price stability objective and assessing the current inflation developments, future impacts of the world
economy and the uncertainties created, the CBA Board reduced the refinancing rate by 0.25 percentage points.

The Government of Armenia initiated an unprecedented economic package of 300 million USD to soften the impact of
the current situation. A part of it will be directed to a targeted aid and the major part will be flexible financing
opportunities for businesses.

Starting from 18th March, the construction of a new modular facility has started for “NORK” Infection Clinical Hospital.

The Treasury Account has been opened to support the prevention and treatment measures of COVID-19 in the Republic
of Armenia
BASELINE SCENARIO

BASELINE SCENARIO DESCRIPTION

ASSUMPTIONS

China and East Asian countries continue their current recovery and control over the virus by late Q1 or early Q2 2020
European and US case count growth continue to rise rapidly until mid – April. A gradual recovery is expected to take 2-3 months
The number of infected patients moderately increases in Armenia. After reaching the peak at the end of April, cases decline and situation starts to
normalize within 2-3 months
Oil price remains at around current levels over the next months. Price growth starts in H2 reaching around USD 45-50(Brent) by the year-end. Copper
price remains at around current levels (3-months future price around USD 4700-4800). Price growth starts in H2 reaching around USD 6000-6200 by
the year-end.
IMPACT ON THE
ARMENIAN ECONOMY

2020 tourism inflows down 40% YoY in USD. The decline will reach its peak in Q2, followed by a gradual recovery
Personal remittances down 30% YOY in USD mainly due to the deterioration of the Russian economy and the depreciation of the ruble
The drop of oil and copper price will reduce Armenia’s net inflows, despite the savings from cheaper oil imports due to the deterioration of the Russian
economy and a fall in global demand
The shock will hit exports, imports and FDIs , but the impact will be less severe compared to tourism and remittances
Consumer and business confidence will recover gradually, starting from the end of Q2
The net loss in tourism, goods exports, remittances, FDIs and imports will amount to USD 380 - 450mln
The AMD refinancing rate may decrease by 0.25 percentage point until the end of the year
The lower USD interest rates are expected to be transmitted to the domestic market, at least to some extent
Inflation will stand at around 1.5-2.0% by the end of 2020
The grace period on loan repayments in vulnerable sectors and the injection of USD 300 mln financial resources into the economy by Government of
Armenia will significantly soften the liquidity shortage, mitigating the negative impact on GDP growth and employment
The fiscal stimulus is strong through higher government spending
In the above-mentioned scenario, Armenia’s GDP growth will be around 1.5-2.0% in 2020, with a sharp drop in Q2
STRESS SCENARIO

STRESS SCENARIO DESCRIPTION

ASSUMPTIONS

The virus is not seasonal and the time needed to fight with COVID-19 prolonged in both China and other countries. Recovery is not seen until the
end of Q3
The number of infected patients rapidly increases in Armenia reaching the peak through the end of June, cases decline and situation starts to
normalize from Q4
The global economy falls into recession, prices of oil and other commodities decline further. Recovery starts only from Q4.
Demand for safe assets increases further. Recession hits the developing countries the most
IMPACT ON THE
ARMENIAN ECONOMY

As a result of a loss of the summer season to a significant extent, 2020 tourism inflows are down by 80% YoY in USD terms
The recession hits Armenia’s trade partners, with oil-exporting countries affected the most. Armenia’s net inflow declines further
Consumer and business confidence recovers only starting from Q4 2020
Inflation will reach around 3-4% by the end of 2020
The fiscal stance is even more expansionary through reduced/deferred taxes and increased government spending
Under this scenario, the economy of Armenia is in recession. GDP growth turns positive only in Q1 2021.
ARMENIA’S DEPENDENCE ON TOURISM AND COVID-19 IMPACT

According to the baseline scenario, the second quarter

inflows will be the most adversely affected

The situation is expected to improve gradually from July

and by the end of the year, YoY decline will stop

Overall, in the baseline scenario, for the full year 2020

40% reduction in tourism revenues is assumed which is
about USD 500-550 mln.

Source: ArmStat Source: Inecobank forecast, ArmStat

THE AMD EXCHANGE RATE

From the beginning of the year, the USD

appreciated against AMD, RUR, EUR
accordingly by 3.3%, 26% and 3.9 %

From Jan 2019 to Feb 2020 International

reserves have increased by USD 650 bln. The
latter increases the central bank's ability to
limit sharp short-term currency fluctuations

We estimate the net loss in tourism, exports

of goods, remittances, FDIs and imports to
total USD 380-450mln. Besides the
decrease in currency inflow and lower oil
prices, the decrease in imports is also caused
by the worsened consumer and business
confidence leading to lower domestic
demand
Jan.19

Feb.19

Mar.19

Apr.19

May.19

Jun.19

Jul.19

Aug.19

Sep.19

Oct.19

Dec.19

Jan.20

Feb.20
Nov.19

Source: CBA, investing.com

THE INFLATION AND THE POLICY RATE

Due to low inflation environment in recent years,

the central bank of Armenia gradually cut the
policy rate

In the first two months of 2020, a low inflation

environment was also recorded. In February there
was even a deflation by 0.5%

Given the CBA price stability objective and

assessing the current inflation developments,
future impacts of the world economy and the
uncertainties created, the CBA Board reduced the
refinancing rate by 0.25 percentage points in
March.

Given the current economic situation and its future

consequences, as well as the low inflationary
environment, a stimulating monetary policy is
expected. In the baseline scenario 0.25 percentage
point policy rate cut and 1.5-2% inflation are
expected until the end of the year.

Note: inflation - CPI

Source: ArmStat, Inecobank forecast
GDP GROWTH OUTLOOK

In the baseline scenario, a sharp decline in Q2 is

expected, though, the growth will recover from
Q3. For the full year 2020 GDP growth will remain
positive, ranging 1.5-2.5 %

The biggest pressure on the growth will come from

the reduced tourist arrivals, personal remittances,
commodity prices and export, particularly to the
Eurasian Economic Union. Also, the reduction in
other inflows combined with the deteriorated
consumer and business sentiments will affect the
growth negatively

The higher spending and the injection of USD 300

mln financial resources into the economy by the
government, the supportive monetary policy
stance and the grace period on loan repayments in
vulnerable sectors will significantly soften the
liquidity shortage mitigating the negative impact
on GDP growth and employment

Source: ArmStat, Inecobank forecast

IMPACT ASSESSMENT BY SECTORS

Relatively strong adverse impact is expected on Tourism, Aviation, Cafes Restaurants and the related sectors
Traditionally, Durable Consumer Goods are also vulnerable
Demand on Clothing, Footwear and Textile is decreasing driven by the social distancing
Alcohol Industry is sensitive due to the high share of oil-exporting countries in total wine exports
Increasing preference of holding liquid assets and aversion to taking the long term financial liabilities adversely affects the
Development sector The effect may, in turn, be exacerbated by devaluation of the AMD
Commodity industry depends on the global markets, although current commodity prices are relatively stable
Adverse effects on the Commercial Real Estate are mainly driven by the reduced turnover of the tenants and the depreciation of the
AMD
Due to increasing home consumption, the FMCG sector will remain resilient, but the risks associated with supply chains are
elevated
Increased demand on distance communication is positive for the Telecom but the sector is sensitive to the exchange rates due to
the USD denominated CAPEX
Healthcare-related expenditures are anticipated to grow. Nevertheless, regular appointments are expected to decline
The acceleration of financing Infrastructure Projects are warranted, although risks of bottlenecks in the supply chain are in place
PROPOSALS TO MITIGATE THE IMPACT ON THE ECONOMY

First and foremost, additional fiscal support for health services is required, including sufficient resources to ensure adequate
staffing and testing facilities, and all necessary prevention, containment and mitigation measures

Increase of state support to 5% -7% of GDP. Additional support may be financed through the issuance of government bonds

In the short term, the provision of adequate liquidity in the financial system is also a key policy, allowing banks to provide help
to companies with cash-flow problems, particularly small and medium-sized enterprises, and ensuring that otherwise solvent firms
do not go bankrupt whilst containment measures are in force

Providing government guarantees for bank loans to companies operating in selected sectors

Returning tax overpayments and prepayments to businesses

Providing temporary assistance, such as subsidizing salaries below 250.000 AMD, cash transfers to or unemployment
insurance, for workers placed on unpaid leave, and by guaranteeing to cover virus-related health costs for all, retrospectively if
needed

The uncertainty related to the coronavirus outbreak makes it essential for monetary policies to remain supportive in all
economies to ensure that long-term interest rates remain low

More broadly, lower policy interest rates and stronger government spending can help boost confidence and assist with the recovery
of demand once the outbreak eases and travel restrictions are removed.
INECOBANK CONTINGENCY PLANNING

In view of the present situation of Corona Virus outbreak in the whole world, Armenia is also facing the challenge, currently in a
state of emergency declared for March 16-April 14. Given the circumstances Inecobank strives to be proactive in response and
quick enough to adapt in terms of contingency planning and business continuity.

Our primary concern remains the health and safety of our customers, employees and the communities we serve. In parallel, an
important part of our business contingency plan is to ensure that we have the resources both in place and on time to continue
offering our customers a complete range of services without interruption and without safety risks.
In this context, the following measures have been taken:

FOR THE COMMUNITY: People first!

As of 26th March, 2020 there are 290 confirmed cases of COVID-19 in Armenia, 18 of which are already recovered and
fortunately there are no cases of death. Starting from 18th March, the construction of a new modular facility has started for
“NORK” Infection Clinical Hospital. Considering the importance of being united for overcoming this challenge on 19th March
Inecobank transferred 20 million AMD to contribute to this initiative aimed at saving lives.
Responding quickly to the unified combat against the new coronavirus we also developed COVID19 template in our “InecoMobile”
application with the help of which it became possible to transfer funds within a few seconds to the Treasury Account opened by the
RA Ministry of Finance. In only 1 day after the announcement and the active campaign of this tool an amount of more than 10
million AMD was transferred as donation to the initiative.
The Treasury Account has been opened to support the prevention and treatment measures of COVID-19 in the Republic of
Armenia.
INECOBANK CONTINGENCY PLANNING

FOR OUR
CUSTOMERS:
Being the market leader in digital banking and having high digital penetration equaling to transaction volumes of 15 branches, we
encourage our customers to avoid visiting braches and serve from our online channels, by ensuring the operation of InecoOnline
and InecoMobile systems with full functionality, the 24/7 operation of our Contact Center, availability of Inecobank terminals for
unavoidable cash operations.

In parallel, the operation of our full network of branches is ensured on the basis of several working shifts of employees, with a
number of additional security and infection prevention measures on place.

Individual customers of the Bank have been given the opportunity to make their payments for the period of March 10-April 30 till
April 30 inclusive without any penalties and without calculation of overdue days.

The Bank has expressed its willingness to provide an individualised approach to support as much as possible those legal entity and
private entrepreneur customers whose business activity is affected by the current situation.

In developing our supportive response to our customers we coordinate our decisions with the current regulations introduced by
Government and The Central Bank of Armenia (hereafter CBA).
INECOBANK CONTINGENCY PLANNING

FOR OUR
EMPLOYEES:
A significant part of the Bank's employees have been granted remote working access, with ensured full working capacity and
continuous operational engagement.

The Bank provides full remuneration to all employees not working full time due to the decline in business activity, despite the fact
that the local legislation provides the employer with the possibility of partial remuneration or a forced leave.

Employees of all departments have been redistributed into different groups and locations to ensure the continuity of critical services
and functions.

All employees of the Bank are regularly informed about the measures for prevention of coronavirus, the rules of ethical and
business conduct introduced by the Bank.

All meetings and discussions at the Bank are conducted remotely by telephone or other means of communication.

All processes of internal and external training and recruitment are conducted online during the state of emergency.
INECOBANK CONTINGENCY PLANNING

FOR BUSINESS
CONTINUITY:
The list of critical roles and functions of the Bank has been reviewed and updated and measures have been taken to ensure its
continuous implementation.

The schedules of employees with possible interchangeable functions have been reviewed based on the factors of capability to work
and to attend the workplace to ensure the business continuity concept of the Bank.

The scheme and procedure have been defined for the communication of all participants involved in the activities defined by the
Emergency Plan for the exchange and publication of information within and outside the Bank. A list of information subject to
emergency monitoring has also been established and is constantly being reviewed. The concept of going concern is also supported
by the Bank’s growing performance. As of February 2020 the Bank has recorded stable results in terms of liquidity and capital
adequacy giving the base to not only ensure the Banks normal activity and mitigate the risks of possible disruption, but also
preparing the ground for initiating support to our customers.

Current liquidity ratio is estimated to be 23.8% and the Bank aims to increase it up to 30 % in the coming two months for which
there is already a special developed pipeline. Capital adequacy ratio as of February is 15.3 % which provides us with a healthy
buffer over regulatory minimum of 12 %.

Legal notice

The materials contained in this report have been prepared by Inecobank’s Strategy Development Division solely for information
purposes and have not been independently verified. No reliance should be placed on the accuracy, completeness or correctness of
the information or the opinions contained in this report.
For further enquiries, please contact:
+37410 510 510
www.inecobank.am
inecobank@inecobank.am