Armenia’s 2023 national budget, passed by the National Assembly in December 2022, increases overall public expenditure by 18 percent, to nearly 2.6 trillion drams ($6.5 billion). Even more notable is how much of the new budget will go toward defense spending: spending toward defense will increase in 2023 by around 46 percent from the previous year, with 506 billion drams ($1.28 billion) to be allocated. 

Two questions arise when considering this new information: where is this sharp increase in public funds coming from and why is there such an urgent new focus on building up defense? For the latter question, it is likely that Armenia is intends to build up its military prowess, especially following its military losses in the 2020 Karabakh War as well as in subsequent bouts of fighting in 2022, all resulting in significant loss by Armenia of contested territory to Azerbaijan, as well as a significant number of casualties on both sides.

With a sense of isolation in the region in terms of dependable allies, the increase in defense expenditure makes sense. Traditionally, Armenia has received military protection from Russia, through means such as the Collective Security Treaty Organization (CSTO). However, now Russia is too preoccupied with its war in Ukraine to adequately intervene on Armenia’s behalf should another round of fighting occur. In fact, on September 29, following deadly border clashes with Azerbaijan, Armenian Prime Minister Nikol Pashinyan hinted at disappointment with Russia, stating that “our allies” have not followed through on numerous contracts that promised to deliver weapons to Armenia.

Since the military losses in September, and with an increasingly unreliable partner in Russia, there has been a concerted effort by Armenia to build up its own military capacity; and when Pashinyan presented the 2023 budget to his Civil Contract party, he emphasized that his administration would be better equipped moving forward to further “defense reforms” as well as the foundation of a “professional army.” However, Pashinyan stressed that this increase in commitment of resources to building up the military does not mean his government does not remain committed to furthering the developing peace process with Azerbaijan. 

The losses on the Armenian side of the Armenian-Azerbaijani conflict in the past few years has led to increased disillusionment of many Armenians toward Pashinyan’s government; and toward the end of 2022, there were reports of Armenian officials lamenting the Armenian army’s dearth of modern weapons. So, Pashinyan’s dedication in 2023 to fortifying Armenia’s military capacity can also be attributed to his desire to assure Armenians that, even though he has been active in the current peace process with Azerbaijan, he is still committed to building a more military-savvy Armenia. 

With Russian citizens fleeing en masse throughout 2022 due to the mobilization efforts for the war in Ukraine, Russia’s neighboring countries have received large increases to their own populations. Armenia, since the start of the war, has seen an influx of tens of thousands of Russian nationals move to Armenia, both temporarily and permanently. With them has come their industries and businesses, which many Russians citizens have had to move due to the impact of global sanctions. While it has been difficult for neighboring governments to grapple with accommodating so quickly such a drastic new number of new residents, it has benefitted some economies, and in the case of Armenia, this has been especially evident.

Armenia’s former Minister of Finance and Economy and current Director of the Institute of Economy and Business at the Russian-Armenian University, Edvard Sandoyan, commented that the mass immigration of Russian nationals to Armenia and the boom in business arising from this influx can account for the unprecedented economic capacity of Armenia in 2023: “The net profit of the banks in 2022 turned out to be the highest in the history of independent Armenia - about 263.5 billion drams, which is three times more than the indicators of the previous year.”  Sandoyan explained, “In 2022, $5.2 billion was remitted to Armenia, which is 2.46 times more than in the previous year. Inflows from Russia quadrupled and reached $3.6 billion with net inflows from Russia increasing 16.8 times," and while he anticipated that this would change come January 2023, “it turned out that in January 2023, the net inflow of cash receipts increased more than 13 times - up to $170 million.” 

The influx of Russian citizens and their businesses has certainly contributed to the increase in Armenia’s newly expanded national budget. The 46 percent increase in military spending is significant. While it is understandable that Armenia has the desire to build up its military and defense capacity, hopefully the increase in dedication to the military will not hinder the ongoing peace efforts between Armenia and Azerbaijan.