MP: Armenian authorities directed expensive borrowed funds to curb  devaluation of dram 

ArmInfo. The Armenian authorities raised a very expensive external debt at the beginning of the year to curb inflation and devaluation of the Armenian dram  instead of investing in the economy. On December 6, MP from the  opposition "Hayastan" faction Artur Khachatryan stated this in the  National Assembly, referring to the main macroeconomic indicators  laid down in the draft state budget of the republic for 2022.

The MP recalled that the state budget approved for 2020 envisaged  raising additional debt from internal resources, but at the beginning  of the year, the Republic of Armenia placed on the international  capital market the 4th tranche of 10-year debt securities (bonds) in  the amount of $ 750 million. According to the revised state budget of  the Republic of Armenia for 2021, net financing of the state budget  deficit through government bonds in foreign currency was envisaged in  an amount equivalent to USD 500 million (AMD 241.9 billion).

At the same time, as stated in the draft state budget, the issuance  of additional bonds in foreign currency in the amount of USD 250  million was the result of a favorable situation on the international  capital market, high demand for bonds and low bond yields, and the  excess amount received from the placement of foreign currency bonds  in the amount of 136.8 billion drams, was directed to replenish the  deposit stabilization account.

"That is, we borrowed money, and it's expensive and they convert it  right away. And if you have a question about how it happens that the  Armenian dram is relatively stable, then look for the answer here -  we attracted external debt in order to curb the devaluation of the  dram. If it were not for this, then the inflation rate that has been  recorded today (the industrial product price index increased in  January-October 2021, against the same period in 2020 by 9.9%, ed.  note), would have been much higher, "Arthur Khachatryan explained.  The rest of the funds, as the MP pointed out, instead of investing in  the economy in the form of drams, were left inactive in the deposit  account, or sent to stabilize the national currency.

To recall, over 10 months of 2021, Armenia's public debt increased by  about $ 1.241 billion, reaching $ 9 billion 209.2 million. In 2025,  Armenia will have to allocate almost $ 1.4 billion to pay off and  service the government debt (excluding the debt of the Central Bank  of Armenia), formed at the end of October 2021.  Thus, according to  the data of the Ministry of Finance of Armenia, the state debt of the  Republic of Armenia is from $ 7 billion 968, 5 million, formed by  December 31, 2020, by October 31 of this year increased by 15.6% or $  1bn. 240.7 million. At the same time, over its 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 and a half years, it "managed" to increase the national debt by  $ 2 billion 342 million.

In January-October 2021, the government debt increased from $ 7  billion 508.5 million (by the end of 2020) to $ 8 billion 734.9  million - by about $ 1 billion 226.4 million, or 16.3%. External debt  (debt obligations of Armenia to international organizations and  foreign states, funds received from the emission of Eurobonds)  increased from $ 5 billion 599.5 million to $ 6 billion 232.5 million  by 11.3% or by $ 663 million. In particular, on January 26 of this  year, Armenia placed among international investors, the 4th issue of  10-year debt securities in the amount of $ 750 million. The  established annual yield of the bonds of the 4th issue was lower than  the yield on the 3rd issue in the amount of $ 500 million - 3.875%  (coupon rate was 3.6%) against 4.2% in 2019, 7.5% in 2015 for the  amount of $ 500 million and 6.25% in 2013 (in the amount of $ 700  million with a maturity of 7 years. (The securities were repaid by  September 30, 2020).  According to the Bloomberg information system,  investor demand for Armenian debt securities in 2021 exceeded $ 2.5  billion. The initial target for the yield of Eurobonds to maturity in  February 2031 was 4.375-4.5% per annum. The main underwriters of the  4th tranche securities were: City Bank, J.P. Morgan Securities plc.  and HSBC Bank Plc.

As ArmInfo previously reported, with reference to the Strategic  Program for Government Debt Management for 2022-2024, it is until the  moment of payments on the state debt in 2025 that Armenia plans to  carry out the next and fifth tranche of Eurobonds in the  international market in 2024. The funds received from the emission of  Eurobonds will be used to buy back bonds of 2025 maturity. Meanwhile,  as evidenced by the data of the RA Ministry of Finance on the  schedule of repayment and servicing of government debt until 2053,  the state budget of Armenia will have to be "tested for strength"  both in 2025 and in 2029 and 2031. Then the financial system of the  republic will have to "lay out" about $ 1.3 billion.

According to the draft state budget for 2022, 2021 Armenia, in the  conditions of ensuring 6.5% GDP growth (the state budget provides for  an economic growth of 3.2%), will close with government debt at the  level of 60.8% of GDP, and the future the year the indicator will  decrease by another 0.6 percentage points. (if GDP grows by 7%).  Armenia's public debt will increase by 482 billion drams and reach 4  trillion 991 billion drams (63.4% of GDP), from 4 trillion 509  billion drams or 64.1% of GDP expected by the end of 2021. By  December 31, 2022, the government debt will be reduced by 0.6 pp and  will amount to 4.740 billion drams and 60.2% of GDP (about $ 9.603  billion). By the end of the current year, the financial authorities  expect an increase in the indicator to 4.274 billion drams (about ($  8.656 billion) and 60.8% of GDP. Thus, the increase will be about $  947 million (the estimated exchange rate of the Armenian dram to the  dollar is 493.6 drams).

As a result, next year Armenia will direct about 10% of all state  budget expenditures or 2.7% of GDP only for servicing the government  debt. In 2022, 517.2 billion drams (about $ 1.048 billion) will be  required to service and repay the government debt, of which 302.8  billion drams (about $ 613 million) will be debt repayments, and  214.4 billion drams - interest payments (about $ 434 million against  185.5 billion drams this year). In 2022, the weighted average  interest rate on government debt will be 5%, up from 4.6% in 2021.