Like other New Independent States of the former Soviet Union, Armenia's economy suffers from the legacy of a centrally planned economy and the breakdown of former Soviet trading patterns. Soviet investment in and support of Armenian industry has virtually disappeared, so that few major enterprises are still able to function. In addition, the effects of the 1988 earthquake, which killed more than 25,000 people and made 500,000 homeless, are still being felt. Although a cease-fire has held since 1994, the conflict with Azerbaijan over Nagorno-Karabakh has not been resolved. The consequent closure of both the Azerbaijani and Turkish borders has devastated the economy, because of Armenia's dependence on outside supplies of energy and most raw materials. Land routes through Azerbaijan and Turkey are closed; routes through Georgia and Iran are inadequate or unreliable. In 1992-93, GDP fell nearly 60% from its 1989 level. The national currency, the dram, suffered hyperinflation for the first few years after its introduction in 1993.

Nevertheless, the Government of Armenia, helped by the cease-fire that has been in effect in Nagorno-Karabakh since 1994, has been able to carry out wide-ranging economic reforms that paid off in dramatically lower inflation and steady growth. Armenia has registered strong economic growth since 1995, building on the turnaround that began the previous year, and inflation has been negligible for the past several years. New sectors, such as precious stone processing and jewelry making, information and communication technology, and even tourism are beginning to supplement more traditional sectors such as agriculture in the economy.

This steady economic progress has earned Armenia increasing support from international institutions. The International Monetary Fund (IMF), World Bank, European Bank for Reconstruction and Development (EBRD), as well as other international financial institutions (IFIs) and foreign countries are extending considerable grants and loans. Total loans extended to Armenia since 1993 exceed $1.1 billion. These loans are targeted at reducing the budget deficit, stabilizing the local currency; developing private businesses; energy; the agriculture, food processing, transportation, and health and education sectors; and ongoing rehabilitation work in the earthquake zone.

Continued progress will depend on the ability of the government to strengthen its macroeconomic management, including increasing revenue collection, improving the investment climate, and making strides against corruption. A liberal foreign investment law was approved in June 1994, and a Law on Privatization was adopted in 1997, as well as a program on state property privatization. The government joined the World Trade Organization on February 5, 2003.