ArmInfo.For the first time, based on the results of May 2024, the share of internal debt in the structure of Armenia's public debt exceeded 50%. This has its positive and negative sides, and primarily to ensure the 7% GDP growth promised by the authorities. A similar assessment was made by Associate Professor of the Armenian State University of Economics, economist Agasi Tavadyan.
As the economist points out, in recent years, the policy of increasing domestic debt in the structure of public debt has been implemented by financial authorities in order to contain currency risks. Thus, by the end of May 2024, the government's debt amounted to $11 billion 577 million or 4 trillion 496 billion drams, 50.2% of which came from internal sources, and 49.8% from external sources. The expert recalls that in 2017 (before the victory of the Velvet Revolution and the coming to power of Nikol Pashinyan's government - ed.), the government's internal debt amounted to 20.4% of the total debt, and external debt - 79.6%.
In particular, as of 2017, the debt of the Armenian government amounted to $6 billion 173 million or 2 trillion 988 billion drams. During this period, public debt increased by 50.5% in drams, and in dollars almost doubled - by 87.5%, which is mainly due to the revaluation of the dram from 480 drams to 387 from the beginning of 2017, which made servicing the dollar debt, notes Tavadyan.
The economist recalls that the ratio of public debt to GDP crossed the 50% mark for the first time in 2016, amounting to 51.9%. This was mainly due to the currency crisis in Russia, which resulted in the devaluation of all currencies in the region, including the Armenian dram, sharply increasing the burden of servicing external public debt. On an annual basis, the public debt/GDP ratio reached its maximum in 2020, when it surpassed 63.5%, and on a quarterly basis, reaching 69.8% in the first quarter of 2021. However, GDP growth in 2020 was negative, amounting to -7.2%, which is mainly due to anti-epidemic measures and the 44-day war, which also contributed to an increase in public debt.
In 2022, the government debt/GDP ratio was able to decrease mainly due to the strengthening of the dram, which was due to the fact that in 2022, due to sanctions against Russia, a sufficiently large amount of foreign currency entered Armenia, which led to the devaluation of the national currency and, as a consequence, , reducing the burden of servicing public debt.
"This situation shows that external factors can have a significant impact on the dynamics of the economy and public debt of Armenia. However, it should be noted that such situations cannot be considered as a stable trend, and in the long term it is necessary to pay attention to the development of more sustainable mechanisms for managing public debt," notes Agasi Tavadyan.
Having analyzed developments along the chain "public debt-national currency-GDP-world situation>, the expert notes that the Armenian economy is sensitive to global shocks, and public debt management requires a cautious approach, taking into account the potential impact of external factors.
"In general, it is welcome and encouraging that the weight of domestic debt in the structure of public debt has crossed the 50% threshold for the first time, as well as the fact that the predominant currency of public debt is the Armenian dram. However, starting from 2022, the dram is the most devalued among convertible currencies, which has a negative impact on real exports, as well as tourism and exports of IT products. This, in turn, could have a negative impact on the 7 percent economic growth prospect envisaged in the 2024 Budget Law.
Currently, there are key problems in the economy. It should be noted that both a further devaluation of the Armenian dram and a drop in GDP could have a negative impact on servicing the public debt, in which case the ratio of public debt to GDP could exceed the 50 percent limit," he points out.
The expert is convinced that the policy of managing the public debt of Armenia has undergone significant changes in recent years. The increase in the weight of domestic debt and the predominance of debt in drams are positive trends that help reduce currency risks. However, at the same time, there are a number of issues that need to be taken into account: the possible impact of currency devaluation on the ratio of public debt to GDP; vulnerability of the Armenian economy to global economic shocks; negative impact of the strengthening of the dram on exports, tourism and the IT sector.
"In this situation, it is necessary to continue a balanced and balanced policy of managing public debt, while paying attention to the development of the real sector of the economy and maintaining external competitiveness," summarizes Agasi Tavadyan.
According to the Ministry of Finance, in 2023 Armenia increased its public debt by 11.4% or $1 billion 207.6 million - up to $11 billion.
845.3 million. During the reporting period, government debt in American currency increased by $1 billion 208.3 million or by 12% - from $10 billion 086.4 million by the end of 2022 to $11 billion 294.6 million, and in drams - by 602.3 billion drams or 15.2% - up to 4 trillion 571.9 billion drams.
According to the law "On the State Budget of the Republic of Armenia for 2024", the public debt by the end of this year. 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% 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). In 2024, the government will need 805.2 billion drams to repay and service the debt, of which 483.0 billion drams will be debt repayment, and 322.2 billion drams will be interest payments.
