Armenia sharply reduces foreign borrowing

ArmInfo. By the end of 2018, Armenia's public debt amounted to $ 6,922.9 million, an increase of $ 148.3 million over the year instead of the planned $ 372 million.   Meanwhile, from 2008 to 2013, Armenia steadily increased its public  debt by an average of about $ 500 million, and from 2015 to 2017 - by  780 million.

ArmInfo correspondent was told in the Department of Public Debt  Management of the Ministry of Finance what is the reason of such a  "modest" growth of public debt and for what reason the republic  didn't met the target figure. 

Corrections by Ministry of Finance

Thus, according to the law "On the State Budget of the Republic of  Armenia", Armenia planned to increase its overall debt from the total  for 2017 of $ 6,774.6 million to $ 7.168 million. The budget deficit  was to make 156.9 billion drams or 2.7% of GDP. Meanwhile, already in  October-November, the Ministry of Finance adjusted its forecasts for  state debt to approximately $ 7.053 billion, and in the line of  deficit - to 103.5 billion drams (1.7% / GDP). As Armenian Finance  Minister Atom Janjughazyan explained at the time, the revision of  expectations was also due to the failure to meet many of the planned  expenses.

According to the Head of the State Debt Management Department of the  Ministry Arshaluys Margaryan, the new budget rules, which were  approved by the legislator at the beginning of the year, were the  main deterrent for increasing the level of public debt in 2018. Based  on the recommendations of the International Monetary Fund (IMF), the  Ministry of Finance of Armenia proposed to provide three thresholds  for the level of public debt - 40%, 50% and 60% for the medium and  long term. According to the Ministry of Finance, this restriction has  played a role in "reducing the appetite" for attracting new foreign  borrowings. Financial authorities have become more critical to select  the programs for implementation.  Currency risks helped In addition,  the traditionally huge share of foreign debt in gross debt and its  multicurrency, make the physical size of the national debt of Armenia  dependent on the exchange rate. Thus, by the end of 2018 in the  structure of government debt ($ 6,372.9 million), foreign borrowing  in foreign currency was in absolute leadership - 80.9%. Of these,  43.6% of loans were in US dollars, 24.1% in SDR, 9.2% in EUR, 3.7% in  JPY, 0.4% in CNY, 0.1% in AED. As a result of the depreciation of the  SDR, EUR, CNY against the US currency, over the recent period, the  government debt in foreign currency also decreased. Another factor of  the "shortfall" in government debt was that financial authorities  placed state bonds in the amount of 38 billion drams to attract funds  from domestic sources, but revenues from this issue amounted to about  48 billion drams.

Everything is all right with deficit During 2018, Armenia did not  reach the previously planned "threshold " on the state budget deficit  as well. To finance it, the republic has attracted 45.7 billion drams  less (new borrowing minus repayments of the principal amount of debt)  than planned (179 billion drams). In particular, external borrowings  amounted to 85.3 billion ($ 178 million), and 48 billion drams were  attracted from domestic resources.  The reduction in the deficit  amount laid in the budget was caused by specific credit programs, the  implementation of which, although planned in the budget, did not take  place. Various offices for the implementation of the programs did not  fulfill their work, which is why the funds planned for this were not  claimed. These are programs for the development of road and water  management, as well as projects in the energy sector, in particular,  under the program for extending the service life of the Armenian NPP.  As a result, as the Ministry of Finance noted, for the current year,  not cconsidering the budget assistance programs financing was  attracted for the envisaged loan programs only at the level of 69%.  As of today, the financial department has not yet analyzed the  possible consequences for the country in the form of fines and  penalties for unclaimed loans, but acknowledged that such credit  agreements exist, in particular, with KFW and the World Bank.

Following the rules To recall, in 2017, Armenia began to change the  fiscal rules, as well as revise the budgetary rules. For example, if  the Government's debt threshold exceeds 40% of GDP, capital  expenditures should exceed the budget deficit. At excess of 50% of  the norm - the requirements are tightened, and in addition to the  previous requirement, restrictions on current expenses are  established. Thus, according to the Ministry of Finance, the "golden  rule" of debt will operate, which provides for the possibility of  financing through borrowing resources provided exclusively for  capital expenditures. Approaches are even more tightened after the  Government's debt exceeds 60% of GDP, in case of which current  expenses are tied to domestic revenues, especially tax revenues.

In addition, if the previously admissible Government debt threshold  of 60% was set relative to GDP over the previous year, then according  to new rules it is considered relative to GDP for the current year.  However, in the case of force majeure - a global natural disaster,  war, in a crisis economy, the government will be allowed to exceed  the 60% threshold. Then the law will oblige the government to submit  to the National Assembly a program in which there will be a  substantiation of how the Cabinet of Ministers plans to reduce the  level of the Government's debt. As Deputy Head of the State Debt  Management Department, Head of the accounting and Maintenance  Department of the Armenian Ministry of Finance Artak Marutyan, then  explained to ArmInfo, the new fiscal rules will tie the hands of  those figures who, within the framework of election programs, decide  to increase pensions and wages. "The essence of the new rules is that  current expenditures can be increased only by ensuring a  corresponding increase in GDP," the Finance Ministry spokesman said,  noting that Armenia already knows the situation when, for the expense  of external borrowing, they financed mostly current expenditures.  According to the expert, the law acts as a kind of restraining  mechanism and a yellow traffic light signal, "in order to have time  to slow down and not fly into a ditch."