Armenia’s 2013 state budget: cautious optimism amid outer shocks

YEREVAN, December 6. /ARKA/. Armenia’s government approved Wednesday the principal financial document, the 2013 state budget, which implies no revolutionary changes for the next year. It is mainly targeted at ensuring macroeconomic stability amid global economy challenges.

Even though the authorities intend to report quite ambitious GDP growth at 7% this year, the 2013 budget refers to more modest figure, that of 6.2%. The rate of the twelve-month inflation is projected the same as in 2012 at 4±1.5%. 

The document content clearly proves the chosen course of the government to minimize the outer negative impact. For the first time, the budget document contains the article calculating the possible impact of the risks on the budget implementation. 

The article covers the sources and events for neutralizing the risks. Among the events, it highlights additional financial aid in case of GDP growth slowdown amid currency exchange fluctuation changes and failure to receive the planned credit means. These risks may negatively impact the budget at 25 and 51 billion drams respectively.

According to the document, the government should seek to cut social expenditures amid economic slowdown. Budget full implementation within this scenario will require additional funds at 0.55% from the projected GDP. 

Prime Minister Tigran Sargsyan, presenting the budget to the Armenian deputies, said Armenia can expect $100 million in financial aid from the World Bank if its economy is negatively impacted by global economy slowdown. 

According to PM, the International Monetary Fund and the World Bank downgraded their forecasts on global economy growth in 2013. The concerning thing here is that not only advanced economies but also the emerging ones appeared in the risk group, he implied. 

Gagik Minasyan, a chairman of the commission for financial, credit and budget affairs, a member of the ruling Republican party of Armenia, said many countries register a high inflation rate, investments tumble in Europe, and 0.1-0.2% GDP rate is already considered to be optimistic for the Europeans.

As to the post-Soviet states, according to the deputy, in 2013 GDP may post 4% growth , even though many of these states are energy exporters. 

Minasyan underlined Armenia intends to post quite high economic growth rates bearing in mind the forecasts on GDP growth at 3.3% as of 2012’s out, and 3.6% in 2013.

 

The Armenian opposition has constantly signaled on “catastrophic” amount of Armenia’s foreign debt. The accuses were thrown at the government officials during the budget talks. The oppositionists expressed concerns over the debt service possible troubles in 2013. Particularly, they referred to the $500-million stabilization loan from Russia, the four-year grace period of which is expiring. 

However, the government officials assured there are no risks for the debt service in 2013.

Vache Gabrielyan, Finance Minister of Armenia, said Armenia will repay about $418-420 million in 2013, of them nearly $220 will be served by the government.

“There is no scenario under which we won’t be able to serve the debt. We have all these funds in the reserves, we have considered all these expenses in our budget without raising the budget expenditures,” he assured.

In contrast to the 2012 budget, the new document does not imply significant hike in revenues through tax administration and cut of shadow economy. This year the main arguments arose around the decision to ensure 101 billion drams in additional taxes. Some oppositionists cast doubts that these funds would be collected due to cutting shadow economy and improving the tax administration. Some others stated much more funds can be collected in case the shadow economy is liquidated. 

Budget revenues from taxes in 2013 are projected at 993.08 billion drams, which is 118.7 billion higher from the projected figure in 2012. However, it is important to note that out of 118.7 billion, 31 billion drams in taxes are supposed to be collected after the necessary legislative changes, and only 27.7 billion- through the administrative mechanisms.

Furthermore, tax revenues were calculated on the basis of the possible effects from the new law “On income tax,” which will be rolled out on January 1, 2013. Some 934.3 billion drams are to be collected taking into account the last year’s level of tax collecting and macroeconomic processes. 

Tax revenues in the 2013 budget stand at 21.88% of GDP (from 20.79% in 2012). 

Armenia also expects to receive 16.6 billion drams in grants from foreign states and international organizations. Of them nearly 80% of grants are expected to come from the European Union.

Hrant Bagratyan, the former prime minister of Armenia, oppositional deputy, said during the budget talks in the parliament, the revenues were hastily discussed after the detailed evaluation of the expenditures. “In order to know how to divide a cake, one should know its size,” he noted. The government accepted the following remark. The incumbent PM pledged next year the revenues will be discussed in more details. 

 

At the budget talks, executive and legislative authorities clashed over social course of the budget. On the one hand, social expenditures will have a major share in the total expenditures (41.7%), but on the other hand- social expenditures will slip by 4.1 billion drams from 2012.

The deputies claimed it is inappropriate to say the 2013 budget is socially oriented when it has social cuts. Vache Gabrielyan, Finance Minister of Armenia, clarified social cuts occur due to the completion of housing construction in the earthquake zone and a 1.1 billion cut in the amount set aside as retirement pensions.

Deputy Finance Minister Pavel Safaryan, in respond to where the budget revenues are allocated if there is no increase in salaries or pensions, said the revenues in 2012 climbed by 116 billion drams, however of them nearly 51 billion drams were distributed to the deficit reduction, which stands at 2.6% at present.

“It means the budget gains 64 billion 188 million drams as additional funds. The rest of the funds, 8.2 billion drams, were allocated to defense, 3.4 billion- subsidies to regions, which, according to the legislative regulations, should stand at no less than 4% of the total revenues. Some 364 million drams more will be allocated to Metro, education expenditures will rise by 2.6 billion drams,” he resumed. -0-