Economist: Current government keeps Armenia in debt While capital outflows

Economist Tadevos Avetisyan, a member of the Armenian parliamentary faction, writes in his article that the "bubbles" of Armenia's high economic growth rates are caused by external, random factors.

"Due to the Russia-Ukraine conflict and external factors, the period of Armenia's high economic growth in the past two years is already coming to an end, bringing with it new future risks and challenges. Moreover, the recorded high economic growth was never capitalised, did not lead to an improvement of Armenia's economic structure and did not turn into a theoretical long-term sustainable growth potential. In addition, the threats to economic security are increasing," the author says, according to Caliber.Az.

"Thus, the growth indicator of economic activity in 2022 was 14.2 per cent, which is a steady decline since the second quarter of 2023 ending the year at 9.4 per cent.

During 2023, about 2.23 trillion drams ($5.49 billion) came into our country from abroad through Armenian banks on behalf of individuals, only 2 per cent higher than in 2022. In 2023, already some 483 billion drams ($1.19 billion) or 44 per cent more than the 2022 indicator, 1.6 trillion drams ($3.94 billion) were similarly transferred abroad.

In fact, in 2023, compared to the previous year, the growth rate of money outflow from Armenia in percentage terms is 22 times higher than the growth rate of money inflow to our country.

As a result, in 2023 the positive difference between the inflow and outflow of money from abroad (net inflow) will amount to 649 billion drams ($1.6 billion), which is about 441 billion drams ($1.09 billion) or 41 per cent less than in 2022.

In classical terms, this is the outpouring of 'volatile' money.

It is also worth noting that after a 47 per cent increase in 2022, financial services recorded a double-digit decline in 2023. This is due to the growth rate of foreign trade turnover as well as foreign capital outflow.

In other words, the bubbles of high economic growth rates are caused by external, random factors. And the economic managers have questioned the impact of the soaring net foreign inflows on the high economic growth recorded.

In addition, in the context of double-digit GDP growth, the public debt has been increasing continuously and gradually over the past two years. Specifically, as of January 1, 2024, Armenia's public debt stood at $11.85 billion, an increase of 11.5 per cent compared to January 1, 2023 and 28.5 per cent compared to January 1, 2022.

Since May 2018, public debt has increased by about $5.1 billion, or 75.4 per cent, over the past five and a half years under this government. However, under this government, the average annual GDP growth rate was 5.5 per cent, while the annual increase in the country's public debt was about 2.5 times that rate - 14 per cent. In other words, this government increased the public debt by about $1,800 for each Armenian citizen.

Interest payments on public debt also show very worrying growth trends and increasingly reduce the real possibilities of increasing social spending. In 2023, interest payments on the public debt will account for about 11 per cent of the tax revenues of the state budget of that year, about 10 per cent of the total expenditures and 36 per cent of the total expenditures on social payments and pensions.

In fact, as we have justified and predicted many times, these authorities are keeping Armenia in debt, wasting future resources for the long-term development of our country and leaving the burden of rapidly growing debt on the shoulders of generations.

At the same time, the negative trends in the real sector of our country's economy are deepening, and the risks of securing planned tax revenues are increasing. For this reason, the government has initiated a broad-based increase in the tax burden on small and medium-sized enterprises and the abolition of tax incentives for this sector," the article says.