Armenia's growing public debt resulting from populism and incorrect calculations, economist says

05.04.2021 18:29
Armenia's growing public debt resulting from populism and incorrect calculations, economist says

YEREVAN, April 5. /ARKA/. Armenia's public debt has grown substantially in recent years due to the government's populism and incorrect calculations, economist and political scientist Hrant Mikaelyan said in an interview with Novosti-Armenia news agency.

“We were told that the budget would triple or grow at least by 30%, but the result that we have now is  a large gap. One might think that this is due to the economic crisis, but this is not the case, since there were errors in the calculations. For example, the expectation that the shadow sector would  shrink to result in a strong inflow of funds was initially incorrect. The authorities could have asked experts, and we would have told them that they shouldn't have had such hopes,” Mikaelyan said.

He noted that the years of 2018 and 2019 were taken as the baseline for planning for 2020-2022, but the mistake, according to the expert, was that in 2018-2019 there was a large import of cars to Armenia, which ensured additionally about $200 million in budget revenue and including this indicator into baseline calculation was initially incorrect.

According to him, if the situation persists and a large debt is attracted, literally in a few years Armenia will face  debt servicing problem and will have to earmark  20% of its budget for that purpose.

In addition, as the economist notes, given that there was a fairly serious economic downturn in 2020 and strong growth is not expected for 2021, some government expenditures should be revised.

“In such a situation, it is necessary to sequester the budget, recalculate and get rid of all senseless expenses,” Mikaelyan said.

Although Armenia's public debt grew by 13.9% in 2020 to 67.3% of GDP, it remains within manageable limits, according to Alexey Kuznetsov, the head of the Country Analysis Center at the Eurasian Development Bank (EDB).

According to him, at the end of 2019 the public debt /GDP ratio stood at 53.5%. On average, the public debt growth rate of the Eurasian Development Bank's member states in 2020 was 8.5 percentage points.

“The debt burden in 2020 increased in almost all countries during the pandemic, but the situation remains manageable,” Kuznetsov said.

In 2020, Armenia attracted $340 million in fresh loans, the bulk ($300 million) from IMF. At the beginning of 2021, almost 75% of the government debt was in foreign currency. When the level of government debt exceeds 60% of GDP, the possibilities of increasing the current midterm expenditures are limited by fiscal rules.

In early 2021 the government sold Eurobonds in the amount of $ 750 million with a maturity of 10 years and 3.8% yield. Investor demand exceeded $ 2.5 billion. Moody’s has assigned a Ba3 credit rating to the Eurobonds with a “stable” outlook.

According to the National Statistical Committee, the total public debt of Armenia as of January 31, 2021 amounted to $8.024.878 billion, an increase of $56.391 million compared to December 31, 2020. -0-

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Tags: , , Новости Армении АМИ Новости-Армения

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