By Susanna Petrosyan, Yerevan. Exclusively for Vestnik Kavkaza
The complex situation around the governmental debt of Armenia has been furthermore complicated. The government has released a package of bonds worth $500 million for 10 years at a rate of 7.5%. In other words, Armenia has received another loan. At the start of the year, the government declared that the bonds would be released to cover the budget deficit and support the stability of the economy. Economists are not in doubt as to whether the government made a wise step, they point out that the number of bonds exceeds the budget deficit, the deficit will be co-financed by national sources, because the bonds are released using foreign funds. It is a debt needed to put out the fire in the economy. But what will happen after the fire?
Economist Vilen Khachatryan speaks against increasing the debt, supposing that the burden lies on the shoulders of the future generations. Taking emigration into account, the debt per capita keeps growing. But the problem is that the total sum of the external debt of Armenia has hit $4.9 billion, or 52% of GDP.
In 2012, the Aidit Chamber warned in its budget report that management of the debt will become risky in 2013 because the debt service reached $300-400 million a year. Wall Street Journal experts say that Armenia has become one of the most unreliable debtors. Its rating made a dramatic fall in Moody's Investor Service rating in January 2015.
The factors forcing the international financial rating of Armenia down are fluctations of the dram rate, reduction of the currency mass on the market due to the reduction of transfers from Russia, the policy of the Central Bank in the reduction of currency reserves and uncertainty of export development.
According to the Central Bank, the volume of transfers from Russia to Armenia, which is the main share of foreign currency flow to the country, dropped by 56.01% in January 2015 compared with the same month in 2014.
Concerning the dram exchange rate, despite its relative stability, experts cannot rule out a new wave of dram devaluation. Economist Narek Karapetyan calls the dram overrated, staying afloat thanks to the efforts of the Central Bank, at quite a dear price for the country. "The dollar costs 475-480 drams today. The government is artificially keeping the dram at that level to avoid mass destitution of the population and bankruptcy of large companies with debts in dollars," says the expert.
In this context, it is worth reminding that, according to official data of the Central Bank, the foreign reserves of the country amounted to $1.26 billion in February, dropping by $91 million compared with January. According to the Armenian Times newspaper, the foreign reserves lost $229 million in just two months this year, or over 15%, and $853 million throughout 2014, or over 40%.
Some economists believe that most of the lost currency reserves were spent on artificially maintaining the dram rate.
The trade disbalance in favour of imports remains one of the gravest economic factors. According to the National Statistical Service, the red ink in the foreign trade balance in February 2015 amounted to more than 145 million.
The economic policy of the Armenian authorities is characterized by support for a monopolistic economic system, support for monopolistic importers, and pressure on small and medium-sized business.
Consequently, the country lacks real competition, resulting in growing prices and further destitution of the population. A logical repercussion of the tendency is instability and fluctuations in the dram rate. The negative developments are not corrected by the government, not to mention any radical measures.
Economists do not rule out that continuation of the economic policy with the aforementioned characteristics means that the day when the external debt reaches 60% of GDP is not far away. Taking new loans after that point would be impossible. Armenian law does not allow the external debt to exceed GDP by 60%.
Despite assurances by the government that the debt is controllable, the world has many states where the economic situation was marked by much severer changes. Data of the last years demonstrates a gradual rise of external debt and its approaching the red line. In 2014, the external debt exceeded the benchmark of 50% of GDP, considering that it was only 16% of GDP in 2008. The loans received so far have not had any visible positive effect on the Armenian economy.
Obviously, the new sum of $500 million will only make life for the population tougher.
