Ministry of Finance of Armenia admits the possibility of lifting restrictions on increasing foreign debt

ArmInfo. The Armenian Ministry of Finance admits the possibility of lifting restrictions on increasing the external debt. Vardan Aramyan, the head of the department, responded to ArmInfo's question about this.

In accordance with Article 5 of the Law "On Public Debt," the state debt as of December 31 of this year should not exceed 60% of GDP for the previous year. If the state debt by the state on December 31 of this year exceeds 50% of GDP for the last year, then the deficit of the state budget for the next year should not exceed 3% of the average GDP for the last three years. The government's transactions that do not comply with this requirement will be null and void by law.

At the end of the year, the current government debt will reach 55.1% of GDP from last year's 51.8%. The authors of the draft budget for next year promise that the ratio of public debt to GDP in 2018 will be reduced by one percentage point - up to 54.1% of GDP. However, this prospect "shines" in conditions of ensuring again the promised 4.5% GDP growth, which in turn is due to growth expectations at the level of 4.3% by the end of this year. (2016 Armenia closed with a GDP growth of 0.2%, instead of budgeted 2.9%). In the opposite case, the figures will change only by increasing.  Meanwhile, at present, the Armenian Ministry of Finance does not exclude that at the time of economic upheavals or in the event of force majeure, a law may be revised that provides for restrictions on attracting new foreign loans. Vardan Aramyan admits that the possibility of revising the law can be considered already in the medium term, namely - after the third issue of Armenian Eurobonds. Earlier, the Ministry of Finance stated that Armenia will implement the third tranche of Eurobonds by the end of 2019. The volume of the issue will be similar to the amount that the government will allocate for servicing the state debt on Eurobonds - about $ 500 million.

At the same time, as Deputy Minister of Finance Armen Hayrapetyan assures, the legally permissible threshold of debt can be increased due to economic shocks, force majeure circumstances, in particular, during the period of military operations. After overcoming them, Armenia promises to return to the previously fixed maximum size of 60%. According to First Deputy Finance Minister Atom Janjugazyan, in case of severe shocks, the Ministry of Finance will appeal to parliamentarians, present a report on the crisis, which will confirm the need to attract a new debt, possibly exceeding 60% threshold. At the same time, the Ministry of Finance will justify the rationale for legislative changes.

On the question of what "economic shocks" means and whether it is given a well-known economic wording, the representatives of the financial department found it difficult to answer, but promised, in the revision of the law, to provide for the mechanisms for returning to the former - the acceptable threshold.

It is noteworthy that the law of the Republic of Armenia "On State Debt", adopted in 2008, was once revised. In the summer of 2015, the National Assembly of Armenia adopted amendments to the law "On State Debt". Realizing that there are no alternatives to external borrowing under such economic policy, that is, there is no other way to raise the legal threshold of public debt in relation to GDP, the notion of "public debt" was replaced by a government debt. The previous law limited the volume of external debt in relation to GDP at around 60%, that is, the law did not allow the debts taken by the government and the Central Bank together to exceed 60% of the country's GDP. Thus, as a result of mechanical changes, it was recorded that Armenia's external debt did not exceed the permissible threshold: the Government received a free play to attract new loan funds, and the Central Bank got additional opportunities for new loans.

Meanwhile, as of December 31, 2016, the state debt of Armenia was 2.875.6 billion drams or $ 5.942.1 million (56.6% of GDP compared to 48.7% in 2015). Over the past year, the republic has increased its debt portfolio by 419.3 billion drams or $ 864.4 million In January-September, 2017, the level of the country's national debt reached the level of 3 ? 017.8 billion drams or $ 6.308 billion, of which the government debt amounted to 2 725.3 billion drams or $ 5.696.6 billion and the Central Bank debt - 292, 5 million drams or $ 611.3 million ($ 1 = 478.41). By the end of 2017, Armenia's total debt will reach $ 6.7 billion. Following the results of 2018, the volume of state debt will continue to increase. According to forecasts, by the end of next year the aggregate state debt will be about 60% of GDP or over $ 7 billion. The service of state debt (interest rate) next year will require 140.5 billion drams (about $ 300 million), instead of 120.3 billion drams in 2017 and 98.3 billion drams in 2015. Armenia's state debt servicing in 2020 will already cost in the $ 921 million. The growing national debt and high migration in Armenia have already deepened the specific debt burden per capita to $ 2.1 thousand by July 1, 2017, of which $ 1.7 thousand comes from external debt.