EDB Analyst: Armenia`s public debt level will remain above  pre-pandemic level until 2026

ArmInfo. The level of Armenia's public debt will remain above the pre-epidemic level until 2026. Chief economist of the  Eurasian Development Bank (EDB) and  Eurasian Fund for Stabilization and Development (EFSD) Evgeny  Vinokurov expressed this opinion in discussion with journalists on  the sidelines of the second Eurasian Congress in Moscow.

According to him, according to EFSD estimates, Armenia has  significantly increased the level of public debt in order to combat  the coronavirus pandemic.

"If I'm not mistaken, it has reached 67% of GDP. Our models show that  the level of public debt in relation to GDP will decline from year to  year until 2026. It will decrease, first of all, due to the growth of  the gross product. The debt sustainability of Armenia does not cause  serious concerns, but, nevertheless, even in these forecasts, the  level of the public debt of Armenia until 2026 will remain above the  pre-pandemic level. That is, it will not reach the pre-pandemic level  of 56%, "the economic analyst noted. According to Vinokurov, the  public debt of the Republic of Armenia will decrease to about 60%.

The economist also drew attention to the fact that last year Armenia  took out a loan in the international capital market at 3.8% -3.9% of  GDP. "We regard this loan as an extremely successful way out, a very  successful way out. Applause to the financial authorities. Plus,  Armenia took money from the IMF, and in general, the mix of resources  on favorable economic terms from Armenia is acceptable. Nevertheless,  the further increase in the national debt is a big question",  Vinokurov summed up.  It should be noted that according to the data  of the Ministry of Finance of Armenia, by the end of 2020, the  country's public 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 state debt of the Republic of Armenia increased by  about $ 990 million and reached the level of $ 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 loans in the amount of about $ 6.8  billion, and over the past three years it has "managed" to increase  the national debt by almost $ 2 billion 100 million.

The reasons for such a sharp increase, as stated by the Armenian  authorities, are quite objective. Thus, 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 ", - the  budget report reads.  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.