By Susanna Petrosyan, Yerevan. Exclusively for Vestnik Kavkaza
An Armenian delegation headed by Prime Minister Ovik Abramyan has attended the annual meeting with the World Bank and the International Monetary Fund in the US. Armenia will be granted a loan of $711 million for realization of 13 programs, bringing the external debt of the country to $5 billion.
According to the National Statistical Service, the external debt amounted to $4.493 billion in late August 2014. The volume of external debt worried Minister for Economy Karen Chshmarityan: “The external debt of Armenia exceeds $4 billion at the moment, it is being paid off simultaneously. We have already passed the peak of the process of paying off. The main goal today is to rationalize the debt management. The government has never taken a bigger debt burden than it can service, according to the expectations of GDP growth,” the minister said. Government officials are confident that the external debt volume for the country is not dangerous, as it does not exceed 50% of GDP. Moreover, servicing the debt will not hinder realization of any budget program.
During discussions of two credit agreements worth $30 million in September, the parliamentary opposition spoke out against any rise of the external debt. Members of the Prosperous Armenia and the Armenian National Congress factions warned the government against increasing the debt to $5 billion.
Indeed, the peak of debt payments was in 2013, when the government was forced to spend over $400 million on debt servicing, three times as much as in 2012. The problem of servicing the external debt is one of the most acute in the Armenian economy. Armenia owes about 80% of its debt to international financial organizations, mainly the IMF and the World Bank.
ANC member Vaagn Khachatryan, an economic expert, believes that the problem is in the way Armenia plans to pay the debt, not its size: “If the GDP were formed by our production, there would have been no dangers, in other words, you need to produce in order to pay debts.”
Vardan Oskanyan, a member of the Prosperous Armenia Party, assumes that management of the debt is one thing, while use of loans is a completely different issue: “Loans were not used in economic sectors that would encourage economic growth on the one hand, and fill the budget and ease the burden of servicing external debt on the other.”
So far, loans have not been spent on launching new industries, creating jobs or increase of income from production. Income from production should be taxed to cover the external debt. Instead, the government keeps taking out new loans, putting extra pressure on the budget and economic development.
The old Cabinet of Tigran Sargsyan (2008 – March 2014) was declaring the need for developing industry, creating jobs, expanding production. No steps for the development of industry and small or medium-sized business were made then. On the contrary, the economic, financial and fiscal policies have brought destruction on small and medium-sized business, consequently increasing unemployment and poverty in the country. As a result of Sargsyan’s policy, monopolies got stronger, investments in the economy dropped about 3-fold and the external debt almost doubled. According to official data, the external debt amounted to $1.7 billion in 1998-2008, it exceeded $4 billion in 2008. The prime minister was solving the debt problem by finding new foreign loans.
Some experts believe that the economic growth of Armenia will amount to 2.5% in 2014, almost nothing. The new government of Ovik Abramyan has become a prisoner of Sargsyan’s policy. On the other hand, the government made no real steps to develop the economy in 1.5 years. The new government plans to continue the policy of its forerunner: take loans to solve social problems and maintain the economy. The latter is basically a living organism that needs development, expansion, creation of competitive industries, increase of investments, growth of production and exports. Instead of creating proper conditions for survival of the organism, the government continues to take loans that it cannot efficiently use due to the high corruption level.
