Former Armenian minister warns of dangers of overheated growth
YEREVAN, November 11. /ARKA/. In an interview with Civilnet.am, former Armenian Finance Minister Vardan Aramyan predicts a 12-13% GDP growth for 2022, but warns also of dangers of overheated growth.
One of these dangers is the rising cost of assets, for instance, of real estate. It also brings about outstripping growth of the non-export segment, which "draws" resources from the export sector.
Aramyan says a similar situation with overheating growth was observed in Armenia in 2002-2008, when the economic potential was lower than the real growth. However, the subsequent governments failed to learn lessons from it.
Aramyan explains that now the potential of economic growth is estimated at 4-4.5%, while the real economic growth in the first half amounted to 11%.
"I expect that by the end of the year we will have 12-13% growth. The government estimates it at 11%, but I believe it will be higher," he said.
According to Aramyan, the tools at the government's disposal are not sufficient to cool the economy, "but it has to be done’.
‘During shocks, the government must help the Central Bank to contain external inflation risks, while the Central Bank must realize that the economic potential must not suffer much from the use of its tools in the long run,’ he says.
In response to the question what should be done, the former minister says it is necessary to impose rather aggressive taxes on those areas that are experiencing a boom, such as services and construction, to reduce their profitability, and this should have been done earlier.
For example, according to Aramyan, the catering sector is not subject to basic taxation, paying only turnover tax. He believes that the current rapid growth is not proportional to the taxes that should be paid.
"Taxes in these sectors are collected inadequately and disproportionately - much less than in other sectors," he says.
In this regard, Aramyan reminded that the government plans to increase the tax/GDP ratio this year to 22.3% and collect 1.92 trillion drams in revenues. According to him, an increase of 0.5 p.p. should be secured by higher export duties imposed on the mining sector.
"It should be taken into account that mining sector is an important sector for the country, and when extra taxes are imposed on it, which it should have invested in extending the life of the mine or on environmental protection, that creates problems for the future," he said.
While positively evaluating the increase of defense spending in the draft budget of 2023, Aramyan added that it should have been done in 2020-21.
The Armenian government’s growth projection for 2022 is 7%; the inflation rate is 4% (±1.5%). Armenia's economic activity in the first 9 months grew by 14.1% compared to the same period in 2021.
According to the latest forecast of the Central Bank, the country's economy will grow by 12.9% and inflation will be about 10% by the end of the year. -0-
