Where will Kardashyan's $700 million be spent?

David Stepanyan, Yerevan. Exclusively to Vestnik Kavkaza

The Armenian government has adopted the state budget for 2014. “According to our forecasts, 2014 can be a very tense year due to various independent reasons. First of all, it is confirmed by predictions of a reduction of the GDP in Russia, which will definitely influence our economy. Certain risks are connected with Armenia’s joining the Customs Union; and the shift should be made softly. However, the government shouldn’t artificially increase taxes so as not to cause a negative influence on the business environment. Considering all these risks, we correct the indices of tax revenues by 11 billion drams and maintain the index of taxes-GDP the same,” Premier Tigran Sarkisyan said. The expenditures of the state budget will grow, after the increase of pensions by 15% and salaries by 40% on January 1st and July 4th.

It is interesting that in the context of constantly growing external debt, 87.2% of financing the state budget deficit accrue to internal sources of financing. The state budget of 2013 requires that only 46.1% of deficit financing accrue to internal sources. However, recently Armenia published first Eurobonds ($700 million) for a seven-year period with 6% rate. Considering the fact that foreign sources will cover only 12.8% of deficit required by the state budget in 2014, it is unclear where money attracted from placing Eurobonds called “Kardashyan” will be spent.

The question is especially acute in the context of forecasts, according to which the Armenian budget will come to the end of 2013 with the deficit of no less than 2%, instead of expected 2.6%. According to expectations of the head of the IMF Armenian mission, Mark Horton, targets connected with revenues of the budget will be completely fulfilled, while expenditures will be less than it has been planned. In May the prime minister stated that by placing the bonds Armenia intends to pay the Russian half-million credit; however, when Eurobonds were successfully places, the Ministry of Finances and Premier personally forgotten the idea. It is notable that the international rating agency Moody’s lowered Armenia’s rating after placing the bonds.

Thus, if the Armenian state debt to Russia is not paid, the citizens of the republic will face new debt burden in $700 million which they will have to pay during 7 years. Additional $700 million of debt is a great level of debt for problem economy of Armenia. The foreign state debt has been growing since 2006; and in 2012 the share of the foreign debt in comparison with GDP reached 37.6% or $4 billion. It is reaching 40%.

According to the Strategic Program of the State Debt Management, in 2014 Armenia’s debt will be $4.2 billion, in 2015 – $4.5 billion, or almost equal to 50% of GDP.

At the same time, the state debt’s growth or the growth of GDP do not influence incomes of the population. The government announces increase of salaries which will take place in 10 months, while prices are changing everyday. The gap between the growth of salaries and the growth of prices is extending quickly.

It seems the authorities today are concerned not about living standards of their citizens, but about the question how to send Kardashayn $700 million. Life shows that this problem the government will solve effectively and in short terms.