Monday, December 23 2019 14:19

ArmInfo. In January-October 2019, the underfulfillment of capital expenditures laid down in Armenia's budget amounted to approximately 75%. And there were quite  objective reasons for that, the Deputy Finance Minister of Armenia  Armen Hayrapetyan explained to ArmInfo correspondent. Although  current underfulfillment is likely to have a positive effect on the  country's economy in the long run, the expert believes.

According to the Deputy Minister, today the Armenian authorities pay  great attention to the quality of ongoing projects, and therefore, it  becomes a vital necessity to seriously analyze them, aimed at  improving efficiency and returns for the entire economy. Therefore,  it is necessary to abandon the unreasonable rush in their  implementation.

In addition, a low level of capital expenditures was recorded due to  serious adjustments to program management systems. So, today, the  shortage of capital investments is observed in the framework of  credit programs implemented with the assistance of international  financial organizations. And, if earlier work with international  lenders was carried out by the so-called Program Implementation  Bureau, then, at present, this function has been delegated to the  ministries. As a result, problems were identified due to the  professional capabilities of personnel, decision-making mechanisms.  "Any change in the management system requires a time lag to adapt to  new conditions," the representative of the Ministry of Finance  explains.

Moreover, the Deputy Minister himself admits that the  underfulfillment of capital expenditures is not a new problem. From  year to year, Armenia faces this. But the outgoing year was a record  in this regard.

In the past years, capital expenditure was 78%; in the current year,  things are even worse.

Thus, the expenditures of the state budget of Armenia for 2018  amounted to 1 trillion 447 billion 100 million drams, or 94.7% of the  adjusted annual plan in the amount of 1 trillion 527 billion 300  million drams. In the structure of the state budget expenditures,  97.1% accounted for current expenditures - salaries of state  employees, purchases, social benefits and pensions - 1 trillion 299  billion drams compared to the specified 1 trillion 337 billion 400  million drams. At the same time, the indicator of transactions with  non- financial assets of the budget (capital expenditures - budget  and credit,  mostly directed to infrastructure projects, such as road  construction, irrigation and reservoir systems, energy) last year  amounted to only 78% or 148.1 billion drams (instead of 189.8 billion  drams, according to the adjusted annual plan).

Already this year, according to the Ministry of Finance, the actual  fulfillment of the state budget expenditures for 10 months amounted  to 1 trillion 213 billion 800 million drams, or 69.8% of the adjusted  annual plan in the amount of 1 trillion 739 billion 300 million  drams. The Financial authorities hope to reach a feasibility level of  92.4% by the end of the year. Current expenses for the reporting  period amounted to 1 trillion 124 billion 800 million drams or 75.6%  of the revised annual plan in the amount of 1 trillion 488 billion  drams. Meanwhile, capital expenditures in comparison with the revised  plan in the amount of 251.8 billion (222 billion were budgeted) were  implemented only by 35.3%-that is, in fact, only 89 billion drams  were allocated for capital expenditures over 10 months, while 162.8  billion drams are waiting in line somewhere in the corner. By  December 31, as expected by the country's financial authorities,  Armenia will provide a 70.2% performance indicator for capital  expenditures. For 2020, the Ministry of Finance set the indicator at  the level of 287.7 billion drams for capital expenditures.

Is there criticism voiced? There is!

At the same time, opponents of the current authorities' policy  regarding an extremely cautious attitude say that the strictly  conservative approach of the government in the implementation of  capital expenditures is, at first glance, a positive phenomenon,  since it formally leads to the preservation or reduction of the  amount of the public debt, but in the long term it jeopardizes growth  potential.

Thus, according to the calculations of the economic team of the Luys  Foundation, non-fulfillment of capital investments of 1.1% "fines"  the potential for GDP growth by 0.3 percentage points. That is,  according to experts' calculations, if in 2019 the non-fulfillment of  capital investments reaches about 65 billion drams (or in the amount  of 1.1% of GDP), then next year the economic growth will be 1.1  percentage points below the planned level. In subsequent years,  regardless of the level of investments made, annual GDP growth rates  will be lower by an average of 0.3 percentage points.

Armen Hayrapetyan agrees with criticism, but only partially.  According to him, it is obvious that the sooner the country's economy  receives these financial injections, the sooner it will be possible  to see a positive effect. "But only in the short term, since it is  not clear whether the effect will remain in the long term," the  Deputy Minister said. For example, having set ourselves the task of  building the road today, we cannot be sure how long it will last. And  by increasing the requirements for the quality of construction and  installation works, you can be sure of the durability of the project.  Based on this, according to the Deputy Minister, perhaps even the  so-called threats to the country's economic growth in the short term  and in the long term can bring big dividends.

Blurring the threat: What does past experience teach?

According to the Ministry of Finance, as of October 30, 2019, the  unclaimed balance of Armenia's external loans amounted to $ 1.43  billion. Thus, under the concluded international agreements, loan  programs worth $ 466 million in the field of road construction are  awaiting their turn, the energy sector received $ 422 mln less  funding, agriculture and irrigation - $ 153 million, education - $ 73  million, public sector reforms - $ 66 million, water supply - $ 10  million. In other areas, programs worth $ 173 million are on standby.  As expected, by the end of 2020 the outstanding balance of external  loans of Armenia will amount to $ 940 million.

Trained by bitter experience, the financial authorities of the  country, despite the fact that they increased the budget for capital  expenditures for 2020, took a more restrained approach when planning  capital expenditures. So, while working on a draft budget for next  year, the Ministry of Finance, while budgeting, first collected all  the budget requests received. Then, taking into account the  experience of the past years, it decided to divide the state treasury  expenses into two parts - the first part included those programs that  would receive financing right away, the second - if necessary. That  is, if the implementation of capital expenditures goes smoothly and  additional opportunities are provided, the financial authorities will  proceed with the implementation of the rest.