ArmInfo. In 2020, Armenia will begin implementing a program of tax reforms that are aimed at improving the competitiveness of the economy by easing the tax burden. This was announced on November 13 from the rostrum of the National Assembly of the RA Minister of Finance Atom Janjughazyan, who introduced the draft law "On the State Budget of the RA 2020".
According to the minister, another feature of the country's main financial document will be a significant increase in capital construction costs. So, if in 2019 the volume of capital expenditures amounted to 2.8% of the country's GDP, then in 2020 it is planned to bring this figure to 5%. Also, 2020 will be characterized by significant government investment in the development of human capital - education, science, culture, sports, social services, and healthcare. And if we make comparisons with the volumes of financing of these areas in 2019, it is easy to notice that the volumes of financing the healthcare sector will increase by 22%, education - by 11%, and the same amount by the social sector. It is also planned to reduce public debt, which by the end of 2020 will be less than 50% of the country's GDP.
For the first time in 2020, loans for budget assistance will not be attracted, financial credit resources will be allocated for the implementation of targeted programs. The risks associated with the refinancing of public debt will also be reduced, which was the result of the placement of Eurobonds in September this year.
This, as Janjughazyan noted, will provide an opportunity to reduce the burden of servicing the public debt in the next fiscal year. Measures will also be taken to increase pensions and wages, improve the demographic situation in the country. Appropriations are also planned to solve housing problems of socially disadvantaged sections of the population and military personnel.
Earlier, during a hearing in parliamentary commissions, the minister said that when developing the draft state budget of Armenia in 2020, many factors were taken into account, including external challenges that could affect the growth of the country's economy.
According to him, in particular, it is forecasted that in 2019 the growth of the world economy will amount to 3.2%, and in 2020 - 3.5%. At the same time, the processes taking place in China will continue to have a significant impact on the global economy, including the Armenian one. This year, it is forecasted that China's GDP will be 6.2%, and next year - 6%. Situation in partner countries will continue to play not least in the development of the country's economy. In particular, in 2019, Russia's GDP growth is projected at 1.2%, and next year - 1.9%. In the European Union, it is expected that in 2019 the growth rate of the EU economy will increase by 1.3%, and next year - by 1.6%.
These indicators, according to the head of the Ministry of Finance, are also recorded in the medium-term spending program for 2020-2022. At the same time, the indicators of the program for 2020 were reflected in the draft state budget of 2020, which is preliminary. The Minister recalled that the high growth rates in 2019 were achieved, mainly due to the growth in industry and services. In this context, Atom Janjughazyan pointed out the importance of changing sectoral structures, which will lead to an increase in the export potential based on high technologies. "We need profound changes in the structure of the economy," the minister said, recalling the projected GDP growth of the country in 2019 to 6.3%. In this context, he emphasized the need to "stabilize growth within the existing potential", so that economic growth is accompanied by increased state capacity, sustainable development and maintaining macroeconomic stability.
It is envisaged that in 2020 the nominal GDP of Armenia will grow by approximately 529 billion drams - from 6.566.5 billion drams expected by the end of 2019 to 7.095.1 billion drams included in the document. At the same time, the real GDP index will reach 104.9%, against the forecasted by the end of the current year of 106.3% and actual for 2018 105.2%. The GDP deflator will be 103%, against 102.9% for 2019 and the actual 102.5% for 2018. According to the project, the state budget revenue item will be 1,697,618,538.8 thousand drams (1.69 trillion drams or $ 3,566 billion), the expenditure one - 1,880,186,389.8 thousand drams (1,88 trillion drams or about $ 3.95 billion), the state budget deficit will be about 153 billion drams. State-owned tax revenues (tax revenues and state duty) are projected at 1.602.129.712.8 thousand drams (1.60 trillion drams or 94.4% of the projected budget revenues) instead of the planned budget for 2019 1,401,875,600.6 thousand drams, and official grants are expected to be 33.8 billion drams (against 39.5 billion drams for 2019), other incomes - 61.7 billion drams (against 55.1 billion drams approved for the current year).
At the same time, in 2020, the share of tax revenues by the state treasury will increase by 0.3 percentage points compared to 2019 - up to 22.6%. State treasury revenues are planned at the level of 44.6 billion drams, against 39.4 billion drams approved for 2019 and actual 37.7 billion drams for 2018. In 2020, according to the draft budget, Armenia expects to receive from foreign states and international organizations official grants in the amount of 33.8 billion drams, instead of 31 billion drams provided for by the Medium-Term Expenditure Program (MTEP). This, according to the authors of the document, is due to both adjustments to the size and volume of the proposed amounts, and changes in calculations due to fluctuations in the euro and the US dollar, which were the basis for the calculation. In particular, the basis for the calculations of the MTEP was the indicator of 486.42 and 546.54 drams per dollar and euro, respectively, and the project already made calculations based on the following rates - 476.17 and 522.03 drams.
In 2020, Armenia expects to receive 7.6 billion drams or 14.5 million euros within the framework of the European Neighborhood Program for budget assistance programs provided for by the Armenia-EU Action Program. 55.1 million US dollars or 26.2 billion drams are expected under the targeted grant programs. Of these, $ 10.7 million or 5.1 billion drams will be received from Russia, from the EU grants in the amount of $ 13.1 million or 6.2 billion drams, $ 7.1 million or 3.3 billion is expected to be received from KFW under grant programs drams, $ 2.4 million or 1.2 billion drams will be received from the Global Fund, $ 8.1 million or 3.8 billion drams are expected from the European Bank for Reconstruction and Development, $ 1.9 million or 0.9 billion drams from the European Investment Bank for implementing the North-South Road program (tranche- 3), the World Bank will provide grants in the amount of $ 2.8 million or 1.3 billion drams and another $ 9 million or 4.4 billion drams expected from other donors.
Armenia plans to receive 61.7 billion drams from other incomes in 2020, 30.6 billion drams from them through extrabudgetary programs, against 55.1 billion drams for the current year and 72.4 billion drams for 2018.
Repayment and servicing of the government debt of Armenia in 2020 will cost the state treasury $ 1.355 billion. At the same time, as expected, the nominal GDP in the conditions of 4.9% of economic growth will increase by approximately 529 billion drams - from 6.566.5 billion drams expected by the end of 2019 to 7.095.1 billion drams or about $ 14.9 billion (the calculated exchange rate of the Armenian dram to the dollar is 476.17 drams) laid down in the draft law "On the State Budget of the Republic of Armenia for 2020". Thus, according to forecasts laid down in the basis of the document, the state debt of Armenia by December 31, 2019 will amount to 3.538 trillion drams ($ 7.430 billion) or 53.9% of GDP. By the end of 2020, the indicator will reach 3.705 trillion drams ($ 7.780 billion), or 52.2% of GDP. At the same time, by December 31, 2020, government debt will amount to 3.490 trillion drams ($ 7.330 billion) or 49.2% of GDP, thus decreasing by 1.1 percentage points from the expected by the end of 2019 3.305 trillion drams ($ 6.940 billion) or 50, 3% of GDP. According to the results of 2020, the debt of the Central Bank will amount to 214 billion drams ($ 450 million) or 3% of GDP, against the expected by the end of this year 233 billion drams ($ 490 million) or 3.5 GDP. At the same time, the Armenian financial authorities plan to increase domestic debt from 780 billion drams or $ 1,639mln (11.9% of GDP) in 2019 to 12.9% of GDP or 916 billion drams, $ 1,923mln (against the actual for 2018 672 billion or $ 1,390 million, 11.2% of GDP).
And, if from 2009 to 2016 on average 4.2% of state treasury expenses were directed to pay interest payments, already in 2017 the indicator increased to 8.1%. In 2018, interest was paid to pay interest payments 139 billion drams (instead of the actual ones for 2017, 122.1 billion drams), namely 75 billion drams for external debt and 64 billion drams for internal debt. In 2019, according to the indicators laid down in the approved budget, Armenia will direct about 356.9 billion drams ($ 733 million), or 9.6% of the state treasury expenses, to repay and service the government debt. In particular, out of 356.9 billion drams, 198.9 billion drams were planned to be allocated for paying off the main amount of the debt (85.2 billion drams for external debt and 113.7 billion drams for domestic debt), and 158 billion drams for paying interest payments.
As a result, according to the document, the repayment and servicing of the government debt of Armenia in the next year will require 453.9 billion drams (about 953.5 million). In particular, 284.7 billion drams (about $ 598 million) of them will be allocated to pay off the principal amount of the debt (123.4 billion drams will be used to pay off the domestic debt, and 161.3 billion drams - on the external debt). About 9% of state treasury expenses or 2.4% of GDP in the amount of 169.2 billion drams ($ 355.48 million) will be allocated for the payment of interest payments (85.6 billion drams will be used to pay interest payments on the domestic debt and 83.6 billion drams - external). As a comparison, we note that in 2020 the budget allocations for education and science will amount to about 160 billion drams, healthcare will receive 110 billion drams.
Armenia should also send about $ 402 million to repay the first tranche of Eurobonds, which was scheduled for September 30, 2020. The financial authorities have already decided the issue by issuing the third tranche of Armenian sovereign securities. On September 19, Armenia announced the issue of 10-year Eurobonds in the amount of $ 500 million, the organizer of the issue opened a order book for $ 500 million with an initial yield of 4.625% per annum. But a significant prevalence of demand over supply - by more than 5 fold - led to a decrease in the yield rate to 4.2% per annum, and the coupon rate was 3.95%. The main underwriters were J.P. Morgan Securities plc. and City bank. The RA financial authorities have already bought out Armenian liabilities on the first tranche of $ 402 with these funds, and sent $ 98 million to the Stabilization Deposit Fund. According to the results of 2020, according to the source, the World Bank (WB) represented by the International Development Association (IDA) continues to remain the largest external creditors of Armenia, which accounts for 39.4% of external loans and another member of the WB group - the International Bank for Reconstruction and development (IBRD). The list of large creditors also includes the Asian Development Bank (ADB) with 19%, the Eurasian Development Bank (EDB) - 7.3% and the European Investment Bank with 3.5%. Among the countries of creditors Russia is the leader - 10.5%, Japan - 4.8%, Germany - 5.8% and France - 2.9%, followed by China and the USA - in the amount of 0.5% and 0.3% respectively.