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.
