ArmInfo. Reducing budget expenditures on the economic development of Armenia will further lead to a reduction in budgetary capacity with all possible negative consequences. This is the conclusion reached by experts from the Luys Foundation, who analyzed the advantages and disadvantages of the country's draft state budget for 2025.
As noted in the foundation's report, the state budget of Armenia for next year differs positively from the budgets of previous years. In particular, the budget message presents macroeconomic forecasts for the next 3 years, which makes it possible to get an idea of the government's expectations regarding economic development. In addition, the budget is based on projected economic growth, and not on target growth, which increases the realism of its implementation.
The foundation's experts believe that, as in previous years, the budget is based on a significant improvement in the ratio of taxes to GDP (by about 0.7 percentage points), the implementation of which will cause significant difficulties given the risks of shortfalls in tax revenues by 0.3 percentage points. Curiously, the tax-to-GDP ratio has not improved at all in the first nine months of 2024. In these circumstances, planning to increase tax revenues by 0.7 percentage points is at least risky.
The factors that ensured high rates of economic growth in the past are gradually neutralizing, which will lead to a slowdown in growth. According to government forecasts, economic growth is expected to be 5.8% in 2024 and 5.1% in 2025, which means that both the current and next year will see a slowdown in GDP growth. At the same time, economic growth this year is mainly supported by external and temporary factors, such as re-export, high rates of construction growth based on the income tax refund program for mortgage loans, etc. These factors will no longer ensure growth next year, and the export sector of the economy has suffered significantly in recent years. All this creates risks of a more rapid slowdown in economic growth, which will lead to a reduction in the already limited influence of the government.
The government has planned to significantly increase the budget deficit in 2025, which will also lead to an increase in the public debt. The budget deficit will reach 5.5% of GDP, and then decrease to 3.0% in the medium term. Given such a significant deficit, the government debt will increase significantly - from the expected 49.8% at the end of 2025, reaching 54.3% in 2026 and 55.6% in 2027. At the same time, the increase in the deficit will occur mainly due to an increase in current expenditures, including interest payments on the public debt, which threatens the formation of economic opportunities necessary to service the debt in the coming years.
According to the state budget, both revenues and expenditures will increase in 2025. Revenues are projected to grow by about 9.4%, while expenditures are projected to grow by 11.9%. At the same time, the growth rate of capital expenditures is projected to be higher - 14.9%, which is mainly due to the increase in capital expenditures in the defense sector, while the growth in expenditures on economic infrastructure is insignificant. The defense and internal security sectors will become a priority in terms of spending public resources in 2025. If the increase in defense spending can be explained by current external challenges, then a significant increase in spending on public order and security needs to be justified. Compared to the planned amount, they will increase by about 24.1 billion drams, of which 20.6 billion drams are only expenses on the police and national security. If the economic growth rate slows down and continues in the coming years, the expenditures aimed at economic development will be reduced by approximately 36 billion drams or 13.5%. At the same time, the expenditures include an amount of 5.7 billion drams intended for the environmental patrol service. Such a strange approach to the expenditure policy is naturally problematic, since the reduction of expenditures aimed at economic development will further lead to a reduction in budgetary capacity with all possible negative consequences.
The day before, the National Assembly of Armenia approved the final version of the draft state budget of the country for 2025. According to the law, the revenue part of the state budget of Armenia next year will be 2.837 trillion drams, the expenditure part - 3.441 trillion drams, the deficit will be equal to 604 billion drams. At the same time, the GDP growth rate is projected at 5.1%. It should be noted that according to the preliminary version of the draft state budget for 2025, under the conditions of ensuring GDP growth in the amount of 5.6%, 3.5% GDP deflator and average inflation of 3.6%, the revenues of the state budget of Armenia in 2025 were planned to increase by 279.5 billion drams - to 2 trillion 873.1 billion drams (about $ 7.4 billion), which is 11% higher than the expected figure for the current year. State treasury expenditures were planned at the level of 3 trillion 482.4 billion ($7.8 billion) or 31.5% of GDP. The indicator is 13% higher than expectations for 2024 (30.4%), and 37% higher than actual expenditures in 2023 (27.5%). Of the planned expenditures for next year, 2 trillion 749.2 billion drams were planned to be allocated for current expenditures (24.9% of GDP), 733.2 billion drams ($1.88 billion) or 6.6% of GDP - for expenses on non-financial operations (capital investments), which is higher than the planned figure for 2024 of 695 billion drams ($1.79 billion), and expected by this project - 639.3 billion ($1.65 billion) - 6.3% of GDP.
