Armenia assumes most of financial obligations of Artsakh authorities and citizens; Armenia`s government debt to increase by 2.4% up to 49.4% of GDP

ArmInfo. After the Armenian government assumes most of the financial obligations of the government and citizens of Nagorno-Karabakh, the public debt to GDP will increase by 2.4 percentage points to 49.4%. This was stated by RA Minister of Finance Vahe Hovhannisyan on December 22, presenting the draft decision in parliament.

Yesterday, ArmInfo reported that in exchange for the concession of monetary claims (property rights) of commercial banks, credit and insurance organizations (financial organizations) of the Republic of Armenia to the government of Nagorno-Karabakh and the funds established by the latter, individual legal entities and individuals, treasury bonds will be issued in favor of these financial organizations with a maximum nominal value of up to 225 billion drams - in the amount of 70% of the amount of monetary claims (property rights) assigned to the Government of the Republic of Armenia through these organizations.

As of December 29, 2023, the obligations (bonds and loans) of the government of Nagorno-Karabakh and the funds established by it, legal entities and individuals of Nagorno-Karabakh subject to reconstruction amount to about 315 billion drams, servicing most of which, became impossible due to the situation around Nagorno-Karabakh. "The abovementioned causes a number of negative risks, namely, significant losses of capital of the financial and banking system of the Republic of Armenia and a violation of financial stability, a significant deterioration in financial indicators and ratings of banks, as well as a significant deterioration in the creditworthiness of certain groups of the population of Nagorno-Karabakh in the current difficult social conditions," the document reads.

These obligations are subject to final adjustment considering the results of inventories carried out in financial institutions according to certain criteria, as well as accrued but not yet paid interest on assets subject to restructuring at the time of restructuring. The final amount of these obligations between the RA government and financial institutions is planned to be restructured in the proportion of 70% and 30%, respectively. At the same time, the RA government will issue government treasury bonds for 70% of the obligations assumed by the RA government, acquiring the right to claim the entire amount of obligations subject to restructuring.

The final and complete list of criteria will be determined by the decision of the RA government. In this case, the participation of the RA government will amount to a maximum of 225 billion drams according to the previously discussed and abovementioned criteria. The remaining 30% will be written off by banks.  At the same time, it is proposed to establish rules, the application of which in the mentioned transaction will not cause tax consequences (increase and decrease of income and profit) for the financial system of the Republic of Armenia.

"As a result, a significant mitigation of the risks arising in the financial system of the Republic of Armenia and the risks arising from them for the economy is expected, which will allow maintaining financial stability, which is important for the sustainable development of the economy. In addition, it is expected to restore the creditworthiness of certain groups of the population of Nagorno-Karabakh and to enable them not to encounter obstacles with the financial system while developing their activities in the future," the document notes.

According to the approved RA Law "On the State Budget for 2024", next year the public debt of Armenia will reach 5 trillion 314 billion drams (50.5% of GDP), instead of 4 trillion 659 billion drams expected by the end of 2023 (49 .3% of GDP), and 4 trillion 659 billion drams, actual for 2022 (49.2% of GDP). The government's debt will amount to 5 trillion 082.9 billion drams (48.3% of GDP) or $11 billion, 892 million, against 4 trillion 446.1 billion (47% of GDP) or $10 billion 910 million, expected at the end of 2023 and 3 trillion 969.7 billion drams or $10 billion 086 million - for 2022 (46.7% of GDP). To repay and service the government's debt, 805.2 billion drams will be required, of which 483.0 billion drams will be debt repayment, and 322.2 billion drams will be interest payments.