Armenia's Debt Burden Approaches a Dangerous Limit. Experts
07.10.2016
11:00
Economists consider that the change in the composition of ministers of the economic block of the prime minister and the government in Armenia is not so much a change of economic development mode but an action derived from some political reasons before the elections.

Mikayel Melkumyan, the Deputy Chairman of the NA Standing Committee on Economic Affairs, thinks that in the pre-election stage when parliamentary elections are expected in Armenia in 7 months, it is natural that the authorities attempt to form a government, which will not be criticized strongly.  “There is a procedure, the new government still has to work for 100 days after which we can assess them," he said, adding that, first of all, this change is motivated by political expediency, on the other hand, however, even if the government is changed, the political majority remains the same.

On October 7, Media Center hosted Mikayel Melkumyan, Atom Margaryan, Dean of the Faculty of Regulation of Economy and International Economic Relations at the Armenian State Economic University, Economist Vahagn Khachatryan and Gagik Makaryan, Chairman of the Republican Union of Employers of Armenia, to participate in the discussion on “New Government: Changes Forced by Economic or Political Issues?”   

Due to the new faces in the government, there are certain economic expectations in public. However, experts have no great expectations but the government actions make them think that in order to get public resonance they attempt "to promote justice" by simple steps. 

“The budget expenditures have reduced by about 100 billion drams, they are talking about taxing the shadow. The real economic growth expectations are less. I think they would take action to create an environment of justice to provide little public resonance. But I cannot say anything about the real expectations because I do not know what agreement they have with the President,”  Melkumyan said. 

Although the government is newly formed, a digital image for future is clear after working for 20 days. This year the government expects a real growth of about 2.4%, instead of the previously forecasted 2.2%, and in 2017, the economic growth budget was forecasted to be 3.2%. It is planned that this year will be concluded with 1 trillion 65 billion AMD tax index, which is 80 billion less than expected. The expenditures will comprise 1 trillion 360 billion AMD. Next year the government plans to have 1 trillion 135 billion AMD tax revenues. The budget expenditures of 2017 were cut by 100 billion AMD by the government.

In 2017, the deficit-to-GDP ratio is planned to be 2.8 percent, instead of the expected 5.9 percent. It is about 150 billion AMD, funding sources of which are as follows: it is expected to cover 70 billion AMD deficit from internal sources, and the rest from outside.

Vahagn Khachatryan thinks that Armenia's economy is in a much more serious condition than what the macroeconomic indicators show. "But I see here non-serious attitude. A former government reported in August that Armenia's economy is in a good shape, there was an activity of more than 4 percent. A month later it becomes clear that the economy is in a very bad condition," he said, adding that the new government does not speak of SME development as well as the fight against corruption and monopolies.

According to Gagik Makaryan, the new government "is coaxing and gives hopes to the public and the business sector." "It is an attempt of pleasing. It is too early to use the word confidence. We cannot talk about confidence after a day," Markarian said, adding that the future government will have to go through the application of risk management model of economic development.

“This economic model has exhausted itself. A half of Armenia sustains due to the other half. They do not follow any models, they do not create anything, just sitting there waiting for orders to fulfill and spend money. This money can be spent for other sectors,” Makaryan said.  

According to the official data, Armenia's state debt will comprise about $5.9 billion by the end of this year, which is 54-55% of GDP. This is a dangerous limit, as Atom Margaryan noted. The government is planning to initiate debt consolidation to manage it in the future. "When debt is constantly growing, the maintenance costs increase, and if you skip to regulate it, a situation will occur where rate expenses will push out other types of expenses. This is a situation that occurred in Turkey in 2004, in Argentina in 2000-2002," Vardan Aramyan, the newly appointed Minister of Finance, said it at the National Assembly.

Taking into account the Prime Minister Karen Karapetyan’s statement about "the necessity of taxing the shadow" the experts assume that the future economic model will be built based on the growing the tax base by the reduction of the shadow economy, and not based on the economic growth.

Arshaluys Mghdesyan, editor/events coordinator at “Media Center”

To contact the author please send an email to arshaluismghdesyan@pjc.am.

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