…TURNS TO DUST FOLLOWING A SEVERE DROUGHT.

An acute lack of rain and high temperatures has devastated the harvest in Armenia, Georgia and Moldova this year. Armenian officials estimate that the drought has destroyed 70 percent of the grain, fodder, vegetable, fruit and potato harvests (Itar-Tass, August 9). Georgia’s harvest has also been decimated: The drought has destroyed 77 percent of the grain harvest and much of the grape harvest (Prime News, August 20). Following a sharp drop in 1999, Moldova’s grain harvest fell by 14.2 percent this year, while the Ministry of Agriculture and Manufacturing (MAM) reported that grape production was down sharply as well (Infotag, August 16). As a result of this year’s bad harvest, agricultural output is forecast to fall by 16.6 percent, 17.8 percent and 9.0 percent in Armenia, Georgia and Moldova, respectively.

The predominance of agriculture in Armenia, Georgia, and Moldova has magnified the drought’s impact: Agricultural value added accounts for roughly 30-40 percent of GDP in each of these economies. Moreover, food processing output, which accounts for large shares of industrial output in all three countries, is forecast to fall in the second half of the year, slowing growth in industry in Armenia and Georgia and leading to a 2.6 percent drop in Moldova. Rising shortages of domestically produced agricultural products will require food producers to import greater amounts of relatively expensive agricultural inputs. Few food-processing firms in these countries have sufficient working capital to finance substantial imports of agricultural inputs. In addition to affecting agricultural and industrial output, the drought is forecast to trigger 3-5 percent declines in personal consumption in 2000 as household incomes, which are supplemented to a large extent by the sale of fruits and vegetables grown on small family plots, fall in the second half of the year. As a result of these factors, GDP is forecast to fall sharply over the final six months of 2000, leading to full-year declines in GDP of 5.4 percent, 4.3 percent and 6.0 percent in Armenia, Georgia and Moldova, respectively.

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