This section provides an overview of efforts to channel financing towards the SDGs, with a focus on practical steps taken to mobilize funding through the national budget, tax reform and regulatory reform.

Armenia’s potential SDG financing is through FDI, stock and bonds, bank loans, financial services, remittances, ODA and state budget. Addressing and improving Armenia’s external debt is necessary to be able to effectively finance the SDGs. Armenia has prioritised investment promotion in its policy agenda and the GoA has encouraged expansion via an open-door policy and legal regulations that protect foreign investment. Opportunities exist to strengthen public and private financing for the SDGs to mobilize new forms of finance or unlock greater SDG impact from existing investments.

Shares of potential SDG finance from all sources (annual averages, 2008-2017)

Source: UNDP calculations, based on central bank, IMF, and World Bank data and forecasts; UNDP Regional Bureau for Europe and the CIS - Istanbul Regional Hub (2019)

Key sources of Armenia’s potential SDG financing is through FDI, stocks and bonds, bank loans, financial services, remittances, ODA and the state budget. Remittances account for the largest volume of potential SDG finance sources, followed by the state budget, although different resources have the potential for varying direct impact on SDG outcomes.

  1. Remittances

    The Armenian diaspora, estimated to be around 8 million people, plays an important role in the country’s economy through remittances and individual philanthropic activities. According to a report by UNDP, Armenia’s share of remittances, 39 percent, in total potential SDG financial flows during 2008–2017 was much higher that its state budget at 27 percent. Significant funds were channelled through private donations and transfers and the diaspora has been instrumental in lobbying and facilitating aid flows from multilateral and bilateral aid agencies. In 2015, Armenia received remittances that were four times the total of ODA inflows ($1.5 billion versus $409 million). However, as noted in the UN SDG financing report on Armenia, while remittances from diaspora and labour migrants working abroad play a key role in Armenia’s economy, high dependency on them can also inhibit economic growth and development – for example, by weakening recipients’ incentives to work or increasing the consumption of non-tradable goods, which ultimately raises prices. Very large remittances are also reflective of the fact that a lot of human capital has left the country – and, importantly, for financing, that a large proportion of remittances tend to be used for consumption purposes as opposed to investment in activities that can advance economic and sustainable development progress in the future.

    Following the political developments which took place in Armenia in 2018, large commercial inflows have been projected, which could help offset any declines in remittances.

  2. Diaspora bonds

    Former Deputy Minister of Diaspora, Babken DerGrigorian, presented the possibility of diaspora bonds as a means to fund SDG implementation. The government was expected to release a formal strategy by the end of 2018. However, recently the Ministry of Diaspora was disbanded and replaced by the Office of the High Commissioner for Diaspora Affairs. It is unclear to what extent these plans will be followed through.

  3. IFIs, DFIs and donor community

    Armenia has received substantial financial and technical support from international development finance institutions and the donor community to implement large-scale programmes and projects that contribute to the realization of sustainable development objectives, although not specifically tagged to the SDGs. Such financial assistance has been key in enhancing legal, institutional and physical frameworks and infrastructures in Armenia. However, it is expected that this form of monetary assistance will lessen in the future as Armenia has now graduated to become classified as an upper-middle income country.

  4. Tech Industry

    One of the main sources of innovative methods for financing the SDGs in Armenia is through the tech industry and venture capital linked to it. Reports indicate that the Armenian tech industry, sometimes referred to as the ‘Silicon Valley of the former Soviet Union’, has been growing at an annual rate of 20 percent. The fastest-growing sector of Armenia’s economy has been the domestic information technology (IT) industry. According to forecasts by the Ministry of Economy, the IT sector’s annual turnover is expected to exceed $1 billion in 2019.

Potential per-capita SDG finance (2008-2030)

Source: UNDP calculations, based on central bank, IMF, and WB data and forecasts; UNDP (2019)

A financial needs assessment or costing has not been conducted for the SDGs at the national or subnational levels. According to Armenia’s Voluntary National Review, sectors which do not have adequate funding for accelerating SDG implementation are education, health and environment, as public funding in these areas have remained very low. According to a report by UNDP, potential SDG finance in per-capita terms has dropped from around $1,800 in 2013 to below $1,300 in 2017. This has been largely attributed to the depreciation of the Armenian currency and declines in commercial financial inflows. Depreciation may lead to a reduction in flows such as FDI. Other international flows such as remittances would likely be unaffected in USD terms – but their spending power within the country in local currency terms could increase. Depending on how much state revenues are drawn from international trade taxes or businesses reliant on exporting, fiscal space may not be heavily affected.

The VNR refers to IMF projections for 2018 to 2023 which suggest that potential SDG finance is expected to rise to around $2,800 per capita by 2030. This is based on optimistic IMF forecasts for Armenia’s GDP growth (projected to be around 4.5 percent annually) and capital inflows (annual ratios of the current account deficit to GDP are projected to remain above 4 percent through 2023). According to the report, should the current trend continue through to 2030 where the share of GDP collected by the state budget is increasing from 21.2 percent in 2017 to 23.3 percent, it is expected to push the share of the state budget in total potential SDG finance towards 40 percent by 2030.

Consolidated budget expenditures by the main functions


Within the financing context and trends in Armenia, some of which are detailed above, a number of opportunities exist to strengthen public and private financing for the SDGs to mobilize new forms of finance or unlock greater SDG impact from existing investments.

Armenia’s VNR indicated that foreign direct investments in the country are low in both absolute and GDP terms. In 2016, Armenia’s FDI was $338 million, and the investment/GDP ratio was 3.2 percent. The political developments in 2018 have presented an opportunity to promote private sector investments that can make some of the needed improvements in Armenia’s business and investment climates to attract greater volumes of commercial investment, and help offset expected declines in remittances projected by the IMF after 2018.

Addressing and improving Armenia’s external debt is also necessary to be able to effectively finance the SDGs. The external debt of the GoA has been increasing and according to the Statistical Committee for the Republic of Armenia, it reached $4.84 billion at the end of 2017. According to the Ministry of Finance, the GoA’s debt in 2019 is expected to total around $6.913 billion or 49.8 percent of GDP.

Armenia has prioritized investment promotion in its policy agenda. The GoA has encouraged expansion via an open-door policy and legal regulations that protect foreign investment designed to encourage foreign business owners and investors. Foreign investors are protected by the law on foreign Investments which protects them against nationalization or expropriation of property. It includes a five-year clause to protect investors against changes in legislation on foreign investment and they are guaranteed the right to freely repatriate property, profits and assets from their investment following the payment of taxes. According to Armenia’s VNR, the law ensures national treatment and non-discrimination for foreign investors and there are no restrictions in place on the “participation of foreign investors in any economic activity in Armenia or on the percentage of ownership of a local business that foreign investors can acquire”.

Improving efficiency in key sectors, such as the energy sector, also presents entry points on the SDGs for Armenia to explore. In 2015, the GoA approved the “Strategic Program for the Long-Term Development of the Energy System of the Republic of Armenia” (up to 2036). As part of this, Armenia established the Renewable Resources and Energy Efficiency (R2E2) Fund to reduce energy consumption. This revolving fund for energy efficiency has helped to achieve 50 percent in energy saving in over 160 buildings and 9 urban lighting systems. Scaling up public sector energy-efficiency investments will lead to significant energy-efficient investments.

1. Impact investing
Armenia has been exploring the potential of impact investing in addressing the SDGs in which the government creates conditions for private capital to invest in companies and funds that generate positive social and environmental returns alongside financial gains. The Unlocking SDG Financing (2018) report identifies two major trends in Armenia in impact investment since 2015:

  • the emergence of social enterprises;
  • a shift from traditional philanthropic activities towards venture philanthropy and impact investments.

The Impact Hub Yerevan, for instance, supports social impact projects and enterprises in Armenia by providing its members with a social innovation space. The Hub supports engagement by being a platform for skills sharing, offering mentorship, and providing financial support and investments.

2. Tech4SDGs Fund
In 2019, UNDP Armenia was selected as an Impact Measurement and Management Hub to regionally promote the principles of the SDG-oriented Impact Management Project (IMP) global initiative. Comprehensive frameworks are developed and piloted by the Hub to measure the impact of acting ventures, impact funds and development.

As part of this initiative, UNDP in Armenia has signed an agreement with Granatus Ventures to establish and manage the Granatus Tech4SDG Fund. The Fund has a target size of $40 million and aims to maximize social and environmental impacts by leveraging fast-developing technologies and engineering talent. This presents an opportunity for UNDP and other development partners to source and identify relevant best practices from within the region and beyond.

3. SDG Impact’s Investment Opportunity Map
UNDP in Armenia is also leading research and the preparation of market intelligence for private sector investors to translate country-level SDG gaps and priorities into mapping private sector investment opportunities. The map will offer investors actionable intelligence and localized insight into sectors and market conditions that advance the SDGs. The approach will prioritize SDG targets and indicators that are most relevant to Armenia. The investor mapping methodology, developed together with the consultancy firm Dalberg, was piloted in Brazil earlier this year and the Armenia SDG Investor Map is expected to be finalised by the of 2019.

4. Innovative financing mechanisms
UNDP Armenia is also exploring innovative financing models to accelerate the implementation of the SDGs. For example, a Development Impact Bond (DIB) has been designed with funding from the EU to improve the quality of agricultural education in small milk farms. This dairy DIB is focused on the impoverished north-west of the country, the Shirak region, where the most vulnerable population are those subsisting on small-holder dairy farms. Using evidence from market-systems development approaches in the region, a detailed assessment indicated that the prerequisite conditions existed to develop a significant Social Impact Bond (SIB). Such an SIB would help reduce endemic poverty in the region including by increasing the income of women-headed households; bolstering food security and reducing undernourishment in a highly vulnerable region; fostering the dairy export trade; and improving the quality of dairy products domestically.