Important notice

Notes:

In nominal terms, Armenia recorded wage growth in both the public and private sectors. Nominal public sector wages increased since 2010 due, in part, to the Government’s decision to raise public sector wages in an effort to curb corruption and retain workers. Nominal public sector wages grew by 5.4% in 2013 and 12.4% in 2014.

The minimum monthly wage remains low in Armenia compared to the level of average monthly wages. In 2010, the minimum wage was AMD30,000, or 29.2%, of average nominal wages. In 2011 and 2012, the minimum wage was AMD32,500, 30.1% and 30.8%, respectively, of average nominal wages. In the first half of 2013, the minimum monthly wage was AMD35,000; from 1 July 2013 to 30 June 2014, the minimum wage equalled AMD45,000. From 1 July 2014, the minimum wage was raised to AMD50,000.

Employment

The following table sets forth key employment statistics for the periods indicated:

Notes:

The unemployment rate in Armenia remains relatively high, although in recent years it has fallen, which is consistent with the country’s growth in real GDP. In 2011, the unemployment rate fell to 18.4%, supported by 4.7% growth in real GDP. In 2012, the unemployment rate declined to 17.3%, aided by a real GDP growth rate of 7.2%. In 2013, the unemployment rate further declined to 16.2%, while real GDP grew by 3.5%. In the nine months ended 30 September 2014, the unemployment rate increased to 17.5% mainly as a result of (i) the passage of the 2014 Employment Law (as defined below), which expands the group of people who can claim unemployment benefits to persons with disabilities and certain agricultural landowners and (ii) a significant increase in the number of economic migrants returning from Russia as a result of changes in Russia’s migration policies and the downturn in the Russian economy.

The services industry is the leading source of employment in Armenia, followed by agriculture. In 2013, the services industry and agriculture employed 46.7% and 36.3%, respectively, of Armenia’s workforce. A significant share of the labour force is also employed in industry and construction. In 2013, industry employed 11.3% of Armenia’s labour force and construction 5.7%.

In January 2014, a revised employment law (the “2014 Employment Law”) was passed, according to which 13 focus areas have been developed in an effort to boost employment. These include (i) lump-sum reimbursements to employers for costs incurred in seeking out unemployed people of certain categories; (ii) partial wage reimbursement to employees for costs incurred in obtaining additional work skills or in assisting those with disabilities; (iii) seasonal work assignments in the agricultural sector; and (iv) improved vocational training and job placement activities.

Social Insurance System

Poverty Assessment

Since 1996, Armenia has relied on the Integrated Living Conditions Survey (“ILC Survey”) to gather information on the living conditions of households. With assistance from the World Bank, Armenia has taken steps to improve the ways in which it collects statistical information and over time has expanded the sample size of its ILC Surveys. Since 2001, the ILC Surveys have been administered on an annual basis.

Armenia relies on both an income and consumption approach for assessing poverty levels. A consumption aggregate comprised of both food and non-food baskets as well as an estimated rental value of durables is an important tool for measuring poverty because consumption is considered to be more accurately declared and less sensitive to changes than income. Based on the consumption approach, Armenia has established three poverty lines: an upper poverty line, a lower poverty line and an extreme (or food) poverty line. Those whose monthly consumption is below the upper poverty line are deemed “poor;” those whose consumption is below the lower poverty line are deemed “very poor;” and those whose monthly consumption levels are below the food poverty line are classified as “extremely poor.”

The table below sets forth certain information about Armenia’s poverty levels for the years indicated:

Notes:

(2) Poverty gap indicates, in percentage terms, the extent to which the average consumption of the poor falls short of the poverty line.

In 2010, compared to 2009, the share of Armenian households classified as poor increased by 5.0%, while the share of Armenian households classified as extremely poor fell slightly. In 2011, compared to 2010, the share of poor households declined slightly, although the share of extremely poor households increased to 3.7% from 3.0%. In 2012 and 2013, poverty levels declined, with the share of poor households falling to 32.4% in 2012 and 32.0% in 2013 and the share of extremely poor households falling to 2.8% in 2012 and 2.7% in 2013. Armenia’s poverty gap dropped sharply in 2012 compared to 2011, only to slightly increase in 2013. Although the economic situation deteriorated significantly in the last two months of 2014, the Ministry expects only a slight increase in overall poverty levels in 2014.

Under the Law on Benefits, which was passed in October 2005, families classified as poor or extremely poor are entitled to receive a poverty family benefit or lump-sum financial assistance. Poverty benefits are paid out of the State Budget and are classified as social transfers within the expenditure ledger of the State Budget.

The Law on Social Insurance in the Event of Employment and Unemployment (the “Unemployment Law”), which was passed in October 2005, regulates the provision of unemployment benefits. A person is entitled to unemployment benefits in the circumstances enumerated in the Unemployment Law.

The table below sets forth certain information about Armenia’s unemployment allowances for the years indicated:

Unemployment Benefits

	For the year ended 31 December
	2009	2010	2011	2012	2013
Average number of persons receiving unemployment benefits	22,880	24,546	17,867	12,818	10,090
Per capita monthly unemployment benefit (AMD)(1)	18,000	18,000	18,000	18,000	18,000
Total amounts of unemployment benefits paid out of State Budget (AMD millions)	4,539.4	4,707.1	3,589.5	2,427.1	1,945.7

_____________________________

Note:

The Law on Health Insurance regulates health insurance policy, the rights and obligations of payments, the activities of health care participants and other important health care issues. The Ministry of Health Care oversees Armenia’s health insurance system. There is no system for mandatory health insurance in Armenia.

Under the Decree of the Prime Minister dated 14 April 1997, certain categories of students are entitled to grants from the State Budget. The table below sets forth certain information regarding student subsidies for the years indicated:

Note:

The basic eligibility criteria for state pensions are as follows: (i) reaching the retirement age (63) years for both men and women); (ii) disability; or (iii) the death of a household’s primary provider.

Armenia launched a new mandatory funded pension in January 2014. Armenia’s pension system (the “Pension System) currently consists of two components: the State pension (the “State Pension”) and the funded pension (the “Funded Pension”).

State Pension

The State Pension is composed of a fixed amount (the “Basic Component”) and a variable component (the “Variable Component”). The fixed amount is set by law and is modified on an annual basis by the National Assembly. The Variable Component is determined largely on the basis of past contributions and length of employment, but is also subject to certain annual adjustments.

The State Pension is funded by social contributions made by employers and employees. Since 1 January 2005, these social contributions are made directly to the State Revenue Committee rather than to a separate pension fund.

Funded Pension

The Funded Pension, which consists of funds accumulated in a pensioner’s individual pension account, has two components: the voluntary pillar (the “Voluntary Pillar”) and the mandatory pillar (the “Mandatory Pillar”). The Voluntary Pillar has been in effect since 1 January 2011, while the Mandatory Pillar came into effect on 1 January 2014. The Mandatory Pillar has been the subject of public protests and constitutional challenge (as discussed below).

Anyone, regardless of age, may contribute to the Funded Pension through the Voluntary Pillar, and an individual who is required to make funded pension contributions under the Mandatory Pillar may also make voluntary funded contributions in excess of his mandatory payments.

Those born on or after 1 January 1974 must contribute a percentage of their salary to their private individual pension account, with a matching Government contribution, as described below. Those who were born before 1 January 1974 may also contribute to the Mandatory Pillar by selecting a pension fund through an application process. However, once such an individual decides to contribute to the Mandatory Pillar, he will not have the right to change this decision. For those individuals born before 1974 who decide to contribute to the Mandatory Pillar, contributions are made on a pay-as-you-go basis.

Individuals have the ability to choose the pension fund or fund manager for the management of their funded contributions. They also have the ability to change pension funds or fund managers and may invest in more than one fund, whether operated by a single manager or a team of managers. Currently, there are three private fund managers, of which one – Capital Asset Management – manages voluntary contributions and two – Amundi-Acba Asset Management CJSC and C-Quadrat Ampega Asset Management Armenia LLC – manage contributions made under the Mandatory Pillar. Should an individual fail to choose a fund or manager, his pension contributions will be managed by a fund manager randomly selected by computer. Private pension funds and fund managers may invest pension savings in a variety of assets, including securities of Armenian public and private issuers and bank accounts in drams or foreign currency.

The Government is expected to match an employee’s contributions to his private pension account, subject to an overall cap. The mechanism for making matching contributions, as currently drafted, is as follows: For an employee who earns up to AMD500,000 a month, he will be required to pay 5% of his salary to his personal account, and the Government will match this 5%. For those individuals with monthly incomes greater than or equal to AMD500,000, the Government will contribute AMD25,000 and employees will each pay the difference between 10% of monthly income and AMD25,000, such that total contributions equal 10% of income.

Shortly after the launch of the Mandatory Pillar, protests began. Protestors declared that the compulsory nature of the deductions was unconstitutional and the age limits unjust. The protest movement began mainly within the IT industry, where a disproportionate share of employees earn monthly salaries higher than AMD500,000 and thus are eligible for fixed-amount Government contributions rather than matching contributions. Fixed-amount contributions, the protestors claimed, are more susceptible to inflation than percentage matching contributions. In March 2014, the Constitutional Court declared eight articles of the law “On Funded Pensions” unconstitutional. In response to this decision, in June 2014, amendments to the Law on Funded Pensions were adopted, according to which public sector employees were given the opportunity to postpone participation in the Mandatory Pillar until 1 July 2017, provided they submit the required application form before 25 December 2014. From 1 July 2017, all employees in Armenia will be required to participate in the Mandatory Pillar.

In 2013, the Government introduced several other reforms in an effort to make the Pension System more efficient and transparent. It completed the integration of the personal income tax and social contributions regimes, as well as the roll-out of a new electronic system for individual accounting of personal income tax payments and pension contributions. The Government has also taken steps to integrate and streamline the work of agencies that provide services to pensioners or otherwise disburse social payments.