Thanos Arvanitis: The time has come for Armenia to accelerate reforms

ArmInfo.Recently, an International Monetary Fund delegation led by IMF Deputy Director for the Middle East  and Central Asia Department Mr. Thanos Arvanitis visited Armenia and held a number of important meetings with government officials. In addition, a special event was organized in Yerevan, during which the IMF presented the "Regional Economic Development Prospects" report. On the sidelines of this meeting, an ArmInfo correspondent spoke with Mr. Arvanitis about the priorities and possible risks of the Armenian economy.

- Mr. Arvanitis, as you know the Armenian market is small,  and to  stimulate the economy, it is necessary to develop one's own  production And the statistics themselves indicate stagnation in the  production sectors, in particular in industry and agriculture. At the  same time, the country's monetary policy further contributes to the  rise in export prices. In your opinion, how can Armenia find a middle  ground in this case in order to be able to develop both production  and exports and at the same time maintain a macroeconomic balance?

- In general, Armenia's economy has performed well over the past few  years, showing quite strong growth.  In particular, the economy grew  by 12.6 percent in 2022, by 8.7 percent in 2023. And, for 2024, we  forecast 6% GDP growth, and maybe even higher. But what is undeniable  is that growth is uneven when viewed in the context of sectors.  Domestic production in some segments is not growing that much.

That is why we are focusing on structural reforms. As a result, it  will be possible to increase the dynamism of the real sector, its  competitiveness, with an emphasis on policies that will contribute to  the rise of industry and at the same time other sectors, which will  ensure balanced growth.

How to find the golden mean? Only through reforms can we reduce  bureaucratic delays, create a favorable environment for  entrepreneurship, and facilitate access to financing, especially for  SMEs. These sectors must be able to attract investment for their  growth, both for domestic production and at the same time for export.

The golden mean is precisely based on a reform strategy that will  support growth in the medium term.

- How positively do you assess the progress of reforms? Does our  government have a similar approach and opinion?

- There is a general understanding. Moreover, there is also mutual  understanding between different sectors on the importance of reforms.  Armenia now provides the environment that facilitates their  implementation.  That is, I believe that the Armenian government is  moving in this direction. And now is the time to accelerate this  process.

- You said that we registered good growth. But we all understand that  this was mainly due to external factors, and not fundamental ones.  And the IMF recently improved its growth forecast, so I wonder what  you attribute such positive assessments to?

- There are sectors of the economy that have shown strong growth. In  particular, the service sector, tourism, IT. And we see that in  2022-2023, the export was not bad either. That is, several sectors of  the economy showed strong growth at once. But as I already said, it  is necessary to ensure that growth is balanced and does not depend on  a certain number of sectors.

- Don't you think that this unstable economic growth contains certain  risks, including in the context of public debt? Today, Armenia's  national debt is close to $12 billion. The authorities say that it is  at a manageable level. But if the situation changes tomorrow, this  figure could rise, for example, to 70%. Don't you think there are  serious risks here?

- I think we need to consider public debt in the context of the  overall volume of the economy. That is, the ratio of debt to GDP.  This figure is about 48%, and this is even less than 50%, which is a  completely manageable level. The state debt has been fluctuating  between 45%-50% for several years, despite the many shocks that the  Armenian economy has faced.

And the budget deficit last year was about 2%, which was no different  from 2022. That is, Armenia's fiscal stance is quite firmly stands on  its feet and debt vulnerability does not pose a threat.

There are certainly risks. That is, the government needs to look  ahead and continue to maintain a moderate debt burden, not allowing  it to continue to increase. We discussed these issues in the  government - what is the path of fiscal policy that will consider  spending priorities, for example, the integration of refugees, the  infrastructure needs of the country, while at the same time keeping  the public debt at an acceptable level.  We recently reviewed our  program with the government of Armenia for the third time. In  mid-June we will publish a report in which we will outline what  agreements we were able to reach and what prospects we see for  further cooperation.

- Since you touched on the issue of government spending, I am  interested in your opinion on why Armenia has been underfulfilling  its budgeted capital expenditures in recent years. - Since you  touched on the issue of state spending, I am interested in your  opinion on why Armenia has underperformed the budgeted capital  spending in recent years.  Are there no production facilities, or  maybe there are no specialists or scientific base to implement these  projects?

The expenditure budget consists of 2 parts: internal projects  financed from internal resources, and capital projects of external  influence. The shortfall concerns mainly external financing. This is  in some way due to the high degree of complexity of certain projects.  But there are also some procedural difficulties in their  implementation.

The government is making efforts to improve the progress of projects  to achieve expenditure targets. From this point of view, we have  provided technical assistance in matters of public expenditure  management, which will help them speed up the implementation of  projects.