Monday, April 8 2019 15:13
Naira Badalian

Vardan Aramyan: It will be unreasonable if the government goes to revise the allowable national debt ceiling in GDP

Vardan Aramyan: It will be unreasonable if the government goes to revise the allowable national debt ceiling in GDP

ArmInfo. The restrictions imposed in 2018 related to the legislative regulation of the ratio of public debt to GDP were not an end in themselves and the revision of these parameters is fraught with consequences. Former Minister of Finance of Armenia Vardan Aramyan expressed this opinion in an exclusive interview with ArmInfo.

Earlier, on March 19, at a large press conference, Armenian Prime Minister Nikol Pashinyan stated that in the coming days, the Armenian government together with the Central Bank and the expert community will discuss a possible revision of the acceptable threshold of state debt to GDP. The head of the Armenian government reminded that during his last visit to Brussels it became obvious that the European Union was ready to finance the implementation of development programs in Armenia. According to him, in order to take part in the implementation of the planned programs, Armenia should think about attracting additional resources from abroad. But here, as Pashinyan pointed out, there is a sensitive problem related to the legislative limitation of the ratio of public debt to GDP.

Meanwhile, according to Vardan Aramyan, proposed by the International Monetary Fund (IMF) in 2017 the Ministry of Finance of Armenia three threshold levels of public debt - 40%, 50% and 60% for the medium and long term (then Vardan Aramyan headed the Ministry of Finance of the Republic of Armenia, Ed. note) Was called upon to become guidelines for the entire debt policy of the Republic

As the expert explains, the establishment of permissible thresholds for public debt has two main objectives:  first, a very high threshold of public debt can lead to crowding out expenses from developing countries for which "debt costs more" and if they exceed 60% threshold, expenses start to grow faster than income. This was the case with Turkey when, after 2000, it began to experience crises precisely in connection with the problems of public debt. Therefore, in many developing countries, the upper permissible threshold of public debt to GDP is set at exactly 60%, and only in very few - at 70%. For Armenia, according to the recommendations of international experts, the "comfort zone" was limited to 60%.

In addition, it is necessary to remember that the state is going to increase the level of public debt in order to make capital expenditures in the long term. They should stimulate the growth of the economies of developing countries with less developed infrastructure.

Meanwhile, according to the data of the Ministry of Finance of the Republic of Armenia, in 2018 there was a relatively low rate of fulfillment of foreign credit programs - by 50-60%. 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. In the meantime, as international experience says, it is the economies of countries with developed infrastructure that have the potential to grow, and nothing else. "But if a country does not have its own funds for investments in infrastructure projects, it should attract them from outside. In this case, it's not the increase in debt that is dangerous, but for what purposes the raised funds will go," Aramyan stressed.

In order to stick to the idea and not let "go astray," the Armenian government in 2017 initiated a change in fiscal rules. Having consulted with international experts, and on the basis of concrete logic, Armenia determined the thresholds of public debt that are acceptable for themselves. So, in case of exceeding the 40% threshold of the state debt, capital expenditures should exceed the state budget deficit. At the same time, the republic undertakes to return to a decrease in the state debt. Having exceeded the 50% threshold of the norm, requirements are tightened and, in addition to the previous requirement, restrictions are imposed on current expenses and the golden rule of debt is in place, which provides for the possibility of financing through borrowing only capital expenditures. Approaches are even more tightened after the state debt exceeds 60% of GDP and current expenditures are tied to domestic revenues. At the same time, the state undertakes to return to reducing the level of public debt, in order to form a reliable "airbag".  "Otherwise, not only is the country's ability to resist external shocks, but the number of people willing to issue cheap loans is narrowing. In this context, I urge the authorities to be extremely careful in revising the allowable threshold of public debt," the ex-minister said.

Vardan Aramyan does not agree with the thesis that any debt can generate economic growth. And the mistake is that according to the expert, speaking of the state debt, financial authorities concentrate exclusively on state budget flows, not taking into account such a macroeconomic indicator as national wealth, which includes state-owned enterprises, natural resources and the cost of infrastructures.

For example, according to Aramyan, as an integral part of the national wealth of state savings, unused copper resources must also be registered and taken into account when planning the flow of state treasury. In addition, without macroeconomic stability, it is worth forgetting about investments and economic growth.  At the same time, the expert emphasizes, ensuring macroeconomic stability does not guarantee high economic growth, but it is still the main condition for economic growth.

In 2017, initiating the process of revising the country's fiscal and budgetary rules, reminds Aramyan, the government refrained from changing the upper threshold for the national debt, including understanding that this may adversely affect investor psychology. "It would be unwise if the government today goes to revise the upper threshold of the national debt," said the former head of the Ministry of Finance. It is more correct to adhere to the existing rules, and then, if the public debt threshold is exceeded by 60%, the power to appeal to the public and the investor will lead to objective reasons for exceeding the threshold, while setting out specific dates for returning to the previous level. The last condition, as pointed out by the former head of the Ministry of Finance, may not be so crucial for the population of the country, but is of fundamental importance for the investor in the framework of ensuring macroeconomic stability in the republic. <"The idea of the fix> is as follows - to manage the state debt in such a way as to always maintain the ability to withstand external shocks," concluded Vardan Aramyan.

To recall, in 2018, Armenia revised the country's fiscal rules, setting a permissible threshold for public debt in the amount of 40, 50 and 60% of GDP. At the same time, it established that in case of force majeure situations such as natural disasters, wars, the government will be allowed to exceed this threshold. As noted then in the Ministry of Finance, in the future, new fiscal rules will tie the hands of those leaders who, within the framework of election programs, decide to increase pensions and wages. It was noted that the law acts as a kind of restraining mechanism and a yellow traffic light signal, "in order to have time to slow down and will not appear in the abyss."


News
For 7 months of 2021, tax revenues of state budget of Armenia,  compared to same indicator for 2020, increased by 10.5%For 7 months of 2021, tax revenues of state budget of Armenia,  compared to same indicator for 2020, increased by 10.5%
Central Bank of Armenia: Maintaining uncertainty restrains rapid  economic recoveryCentral Bank of Armenia: Maintaining uncertainty restrains rapid  economic recovery
Forbes included Armenia in list of the most impressive travel  destinations Forbes included Armenia in list of the most impressive travel  destinations 
Central Bank of Armenia: Annual real inflation continues to grow at  an accelerated rateCentral Bank of Armenia: Annual real inflation continues to grow at  an accelerated rate
CBA: Net inflow of transfers from individuals increased by 98.6% per  annum in H1 2021CBA: Net inflow of transfers from individuals increased by 98.6% per  annum in H1 2021
Central Bank of Armenia raised refinancing rate from 6.5% to 7%Central Bank of Armenia raised refinancing rate from 6.5% to 7%
Education is the basis of a strong state: IDBank and Russian-Armenian University announced cooperationEducation is the basis of a strong state: IDBank and Russian-Armenian University announced cooperation
"Texas Production" knitting company received tax incentive from  Government within framework of investment program in amount of about  1 billion drams 
Armenian government satisfied application of Armenian government satisfied application of "GINAP" LLC for  exemption from import customs duties on imported technological  equipment
Governor: Sotk mine will be exploited again when safety issues are  resolved  Governor: Sotk mine will be exploited again when safety issues are  resolved  
 About $ 60 million will be invested in a new ski resort in the  Aragatsotn region of Armenia. About $ 60 million will be invested in a new ski resort in the  Aragatsotn region of Armenia.
Converse Bank has completed the placement of corporate bondsConverse Bank has completed the placement of corporate bonds
Armenian government to identify obstacles to launching Armoil  petrochemical plant in Kotayk regionArmenian government to identify obstacles to launching Armoil  petrochemical plant in Kotayk region
Fundraising for the start of construction of the airport UAV named  after Karen Vardanyan has been completedFundraising for the start of construction of the airport UAV named  after Karen Vardanyan has been completed
TOP-5 large taxpayers of Armenia reduced tax payments in the first  half of the yearTOP-5 large taxpayers of Armenia reduced tax payments in the first  half of the year
Managing Director of Japan Bank for International Cooperation is  ready to visit Armenia to get acquainted with cooperation  opportunitiesManaging Director of Japan Bank for International Cooperation is  ready to visit Armenia to get acquainted with cooperation  opportunities
In H1, 2021 Armenian banks transferred to the state treasury USD 60.6  million taxes with a 19.4% y-o-y growth In H1, 2021 Armenian banks transferred to the state treasury USD 60.6  million taxes with a 19.4% y-o-y growth 
Telecommunications operators of Armenia reduced tax payments to the  state budget by 12.8% in H1, 2021Telecommunications operators of Armenia reduced tax payments to the  state budget by 12.8% in H1, 2021
Delegation of Armenian Economy Ministry is in Georgia to discuss the  possibilities of expanding cooperation in the trade and economic  fieldsDelegation of Armenian Economy Ministry is in Georgia to discuss the  possibilities of expanding cooperation in the trade and economic  fields
ANIF Head: New Law on Public-Private Partnership has become an  important step towards stimulating investment in ArmeniaANIF Head: New Law on Public-Private Partnership has become an  important step towards stimulating investment in Armenia
French experts proposed mechanisms for identifying and analyzing  risks to improve the process of tax audits in ArmeniaFrench experts proposed mechanisms for identifying and analyzing  risks to improve the process of tax audits in Armenia
In H1 2021, ARMENAL plant produced 16.9 thousand tons of productsIn H1 2021, ARMENAL plant produced 16.9 thousand tons of products
 ACBA Bank: USD 5 million will be allocated to development of Green  Economy in Armenia ACBA Bank: USD 5 million will be allocated to development of Green  Economy in Armenia
Ameriabank is the leading taxpayer among Armenian banks in the first  half of 2021Ameriabank is the leading taxpayer among Armenian banks in the first  half of 2021
Armenia`s foreign trade deficit reduced in June 2021 by 20.2% per  annumArmenia`s foreign trade deficit reduced in June 2021 by 20.2% per  annum
Growth of economic activity accelerates in ArmeniaGrowth of economic activity accelerates in Armenia
Armenia intends to expand cooperation with leadership of Iran`s  Social Security Investment CompanyArmenia intends to expand cooperation with leadership of Iran`s  Social Security Investment Company
Clarification of State Revenue Committee about new advantages of  obtaining  certificate of  law-abiding taxpayerClarification of State Revenue Committee about new advantages of  obtaining  certificate of  law-abiding taxpayer
1000 large taxpayers of Armenia paid about $ 1.2 billion to the state  budget in H1, 2021: Defense Ministry apparatus is the third on the  list 1000 large taxpayers of Armenia paid about $ 1.2 billion to the state  budget in H1, 2021: Defense Ministry apparatus is the third on the  list 
US State Department Investment Review: The financial sector in  Armenia is not highly developedUS State Department Investment Review: The financial sector in  Armenia is not highly developed
Government of Armenia discussed agricultural programs implemented  with support of stateGovernment of Armenia discussed agricultural programs implemented  with support of state
Updated RA Law Updated RA Law "On Combating Money Laundering and Financing of  Terrorism" will enter into force on July 26
Armenian Regulator excludes cartel agreement in liquefied gas marketArmenian Regulator excludes cartel agreement in liquefied gas market
Tax revenues of the Armenian state treasury as of July 20 amounted to  865.2 billion AMD with an annual indicator of 1 trillion 510 billion  AMDTax revenues of the Armenian state treasury as of July 20 amounted to  865.2 billion AMD with an annual indicator of 1 trillion 510 billion  AMD
Armenian Ambassador to the Czech Republic held talks with the  leadership of Armenian Ambassador to the Czech Republic held talks with the  leadership of "CzechInvest"
Agricultural land sales remain high in the regions of ArmeniaAgricultural land sales remain high in the regions of Armenia
Deputy Minister of Economy and Russia`s Ambassador discussed  development of the Armenian-Russian strategic, trade and investment  cooperation Deputy Minister of Economy and Russia`s Ambassador discussed  development of the Armenian-Russian strategic, trade and investment  cooperation 
Resident of FEZ Resident of FEZ "Alliance" LLC "Arides" intends to expand activities  in the field of electronics and precision engineering
The trend of monthly growth in apartment prices in Yerevan continuesThe trend of monthly growth in apartment prices in Yerevan continues
It was a joke: Armenian Minister of Economy on his call to It was a joke: Armenian Minister of Economy on his call to "detain"  labor migrants
Armenian government allocated about $ 17.8 million for overhaul of  roads with length of 50.7 kmArmenian government allocated about $ 17.8 million for overhaul of  roads with length of 50.7 km
Armenian authorities will fight against tax Armenian authorities will fight against tax "parasites"
Issues of implementation of a number of investment programs discussed  in the Armenian governmentIssues of implementation of a number of investment programs discussed  in the Armenian government
Best specialists of nuclear industry started annealing reactor vessel  metal of Armenian NPPBest specialists of nuclear industry started annealing reactor vessel  metal of Armenian NPP
Armenia will explore space with Russian partnersArmenia will explore space with Russian partners
Vahan Kerobyan: Armenia`s labor market has set a new recordVahan Kerobyan: Armenia`s labor market has set a new record
Papikyan announces investments in Gyumri in amount of about $ 8.5  millionPapikyan announces investments in Gyumri in amount of about $ 8.5  million
As part of 2025 strategy, EAEU will develop a concept for  implementation of principles of green economyAs part of 2025 strategy, EAEU will develop a concept for  implementation of principles of green economy
EEC supported  draft roadmap for formation of common market for  organic agricultural productsEEC supported  draft roadmap for formation of common market for  organic agricultural products
For 5 months of 2021, the mutual trade of the EAEU member states  increased by 33%For 5 months of 2021, the mutual trade of the EAEU member states  increased by 33%
SRC of Armenia reports on the next record in the number of jobsSRC of Armenia reports on the next record in the number of jobs
Electronic system of Electronic system of "single window" in the field of foreign trade  will be launched by the end of 2021
Deputy Minister of Economy of Armenia sent on an official trip to  Russia to discuss issues of bilateral trade and economic cooperationDeputy Minister of Economy of Armenia sent on an official trip to  Russia to discuss issues of bilateral trade and economic cooperation
Revazyan: After the formation of a national air carrier, Armenia will  appeal to Europe with a request, as an exception, to allow access to  the Revazyan: After the formation of a national air carrier, Armenia will  appeal to Europe with a request, as an exception, to allow access to  the "European sky"
Life on loan: In six months, Armenia`s public debt grew by $ 901  million - up to $ 8 billion 869 millionLife on loan: In six months, Armenia`s public debt grew by $ 901  million - up to $ 8 billion 869 million
Armenia considers possibility of canceling excise tax for winemakersArmenia considers possibility of canceling excise tax for winemakers
Armenian customs officers with Iranian colleagues discussed  modernization of Meghri checkpointArmenian customs officers with Iranian colleagues discussed  modernization of Meghri checkpoint
Government together with KfW, EIB and EU will allocate 81 million  euros to ensure water supply in several regions of ArmeniaGovernment together with KfW, EIB and EU will allocate 81 million  euros to ensure water supply in several regions of Armenia
Nikol Pashinyan visited Nikol Pashinyan visited "Saranist" glass production company and got  acquainted with activities of new brandy factory
The next vector of ANIF activities is to provide support to water and  waste management systemsThe next vector of ANIF activities is to provide support to water and  waste management systems
Read more


Exchange rates
04.08.2021
RUB6.760.02
USD492.301.37
EUR583.770.45
GBP686.022.94
CAD392.800.50
JPY45.090.12
CNY76.140.16
CHF544.221.10