Friday, October 8 2021 19:07
Naira Badalian

Draft state budget: In 2022, Armenia will increase its national debt  by another $ 1.053 billion - to about $ 10.2 billion

Draft state budget: In 2022, Armenia will increase its national debt  by another $ 1.053 billion - to about $ 10.2 billion

ArmInfo. By December 31, 2021, Armenia's public debt will amount to 4.509 billion drams (about $ 9.135 billion) or 64.1% of GDP, and by the end of 2022 the figure  will reach 5.029 billion drams (about $ 10.188 billion) or 63.9% of  GDP.

According to the forecasts laid down in the state budget, by December  31, 2022, the government debt, compared with the same indicator for  2021 (4.274 billion drams or about $ 8.656 billion), will decrease by  0.1 percentage points and will amount to 4.779 billion drams (about $  9.682 billion) or 60.7% of GDP - the increase will be about $ 1.026  billion (the estimated exchange rate of the Armenian dram to the  dollar is 493.6 drams).

In 2021-2022, it is planned to increase the share of government  treasury bonds in drams in the structure of government debt, which,  according to forecasts, will be 2.9% and 2.6%, respectively. At the  end of 2022, the share of domestic debt will increase by 2.4% to  30.7%.

Previous developments:

According to the Ministry of Finance of Armenia, by the end of 2020,  the national debt increased by $ 647 million - up to $ 7.968 billion,  of which $ 7.509 billion was government debt (external debt - $ 5.593  billion, and domestic debt - $ 1.915 billion). For 8 months of this  year the national debt of the Republic of Armenia increased by about  $ 990 million and reached $ 8 billion 953 million, and the government  debt - up to $ 8 billion 485 million - by about $ 976 million, or  6.71%. Meanwhile, according to the forecasts laid down in the basis  of the state budget for the current year, as of December 31, 2021,  the government debt was planned at around 4.522 billion drams or $  8.551 billion - 66% of GDP. Meanwhile, over its almost 28- year  history (since Armenia gained independence), the Republic of Armenia  has attracted borrowings in the amount of about $ 6.8 billion, and  over the past three years "managed" to increase the national debt by  almost $ 2 billion 100 million.

The reasons for such a sharp jump, as stated by the Armenian  authorities, are quite objective. So, in 2020, as a result of an  increase in military spending and costs of anti-corruption measures,  the deficit of the state treasury, compared to 2019, increased by 4.4  percentage points - to 334 billion drams or 5.4% of GDP.  "The  decline in GDP (-7.4% -ed. note), an increase in the state budget  deficit, as well as the devaluation of the dram against the US dollar  led to an increase in the debt burden of the Armenian government,  which amounted to 63.5% of GDP, having increased by 13.4 percent  points from the previous year, exceeding the permissible threshold of  60%. The increase in the ratio of public debt to GDP was largely due  to the economic recession and the devaluation of the exchange rate,  by 3.9 percentage points each. The share of the primary balance was  2.7 percentage points, positive real interest rates - 1.7 pp ", -  says the budget message.

Despite this, the debt of the RA Government continues to be assessed  as stable and manageable. At the same time, as the financial  authorities admit, the risks associated with the current level of  debt burden are quite tangible. "In particular, although debt  according to the IMF WB methodology is considered low-risk (but at  the same time very close to the average risk threshold), in the event  of shocks in the economy and with the exchange rate, the debt / GDP  ratio remains above the 60% threshold established by the fiscal rules  of the Republic of Armenia. In addition, the debt portfolio of the  Government of the Republic of Armenia remains vulnerable due to the  high share of foreign currency debt (70.1% by the end of 2022) and  debt to non-residents, "the authors of the project noted.  What will  happen:

The financial authorities assure that in 2022 there will be a return  to the logic of the "golden rule" of public finance, established by  fiscal rules, which will create a solid foundation for long-term high  economic growth, ensure a stable decline in the debt-to-GDP ratio and  improve the spending structure. In particular, it is planned to  increase the share of capital expenditures in total expenditures, as  a result of which the volume of capex (about 350 billion drams) will  exceed the size of the state budget deficit (242.2 billion drams).  Armenia's fiscal policy for 2021-2026, focused on stimulating  economic growth (at least 7%, and in the presence of favorable  external conditions - all 9%), by improving tax administration, will  also lead to an increase in the ratio of taxes to GDP by 0,9% pp. As  a result of fiscal consolidation, the authorities promise to come to  an indicator below 60% of GDP by 2026.

Debt good turn deserves another

In 2022, to service and repay government debt, 518.2 billion drams  (about $ 1.050 billion) will be required, of which 303.6 billion  drams (about $ 615 million) will be debt repayments, and 214.6  billion drams - interest payments (about $ 434.7 million or 2.1% of  GDP against 185.5 billion drams this year). It is planned to pay  170.3 billion drams ($ 345.1 million) to repay and service external  loans. In 2022, the weighted average interest rate on government debt  will be 5%, up from 4.6% in 2021. The cost of servicing government  debt (interest payments) will amount to 2.7% of GDP.

By the end of 2022, the World Bank (International Development  Association and the International Bank for Reconstruction and  Development) will account for 35.3% of the external debt of the  Republic of Armenia, the Asian Development Bank - 17.3%, the Eurasian  Development Bank - 7.6%, the IMF - 7 , 1%,  the share of the European  Investment Bank will be 3.7%. Among the countries, the largest  creditor to Armenia will be the Russian Federation - 6.9%, Germany -  6.9%, Japan - 3.4%.

According to the government debt repayment schedule until 2054, the  peak will be 2025 - more than 600 billion drams will have to be paid,  in 2029 - about 550 billion drams, in 2031 - almost 700 billion  drams.


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