Armenian CB: In 2016, the financing of the state budget deficit sharply intensified at the expense of domestic sources

ArmInfo. The main drivers of economic growth in 2016 were the service sector and the industrial sector, and in terms of gross demand, there was an increase in consumption and export volumes.

As the conclusion of the Central Bank of Armenia notes, on the implementation of the state budget for 2016, the current account deficit in 2016 was 2.7% of GDP, remaining at the level of the previous year. As a result of the expanded fiscal policy, the deficit of the state budget exceeded the forecasted level for 2016 by 54.4%, which increased the deficit-to-GDP ratio to 5.5%. Such growth in the deficit affected the national debt, which, in conditions of low, rather than predicted, GDP levels led to a significant increase in the level of public debt in GDP to 56.7%.

The growth of budget revenues in 2016 was provided by income from direct taxes, mainly income tax, profit tax, as well as excise, turnover tax and targeted social payments. At the same time, revenues from VAT, customs duties, environmental payments and payments for the use of natural resources decreased.  The share of budget taxes and duties in GDP reached 21.3% in 2016. The coefficient of elasticity of taxes growth in 2016 to 1.6% from 0.1% in 2015. Current expenditures of the state budget grew by 3.5% in 2016, and expenditures on non-financial assets - by 1.7%.

As a result, lower performance of the state budget revenue (92%) than the expenditure part (over 99%), a deficit of 278 bln AMD was formed, versus 180 bln AMD planned for 2016. The prevailing level of the difference was financed by placing state bonds and attracting loans from external sources in excess of the amount planned. This led to a significant change in the share of financing sources of the deficit in 2016:  domestic - 38.6% and external - 61.4%, against 4.7% and 95.3% respectively in 2015.

In the long term, based on the primacy of providing the foundations for stable economic growth, the CB attaches particular importance to the consistent and effective implementation of Armenian Government programs aimed at promoting investment and infrastructure reforms.

To recall,  World Bank (WB) predicts GDP growth in Armenia in 2017 by 2.7% with the acceleration of the rate in 2018 to 3.1%, in 2019 - up to 3.4%. State budget of Armenia for 2017 laid the GDP growth by 3.2%. According to the updated forecast of Central Bank of Armenia, GDP growth in Armenia in 2017 will be 3.2-4.4%, according to the IMF forecast - 2.9%, according to Fitch forecast - 2.1%, EDB - 2.9% and Asian Development Bank - 2 , 2%. According to the National Statistical Service of Armenia, the GDP of Armenia increased by 0.2% in 2016 to 5.068 trillion drams ($ 10.5 billion), against 3% growth in 2015, against which the foreign trade turnover grew by 7.4%, in particular exports - By 20%, and imports by 1.6%. The state debt of the Republic of Armenia increased by 16% (up to $ 5.9 bn) in 2016, and external - by 11% (up to $ 4.8 bn), and internal - by 49.3% (up to $ 1.14 bn).