Armenia’s state debt has crossed the threshold of 10 billion dollars. It does not violate the fiscal rules, but the debt service is becoming more and more burdensome, the billions of drams from the budget are directed to interest rates.
The strengthening of the dram against the dollar was in favor of the national debt. As of the end of December 2022, the state debt of Armenia amounted to 10 billion 638 million dollars. In one year it increased by 15.3% or 1 billion 412 million dollars. We learn about this from the data provided by the Ministry of Finance. Public debt increased at the expense of domestic debt. At the end of the year, the domestic public debt amounted to about 4 billion 189 million dollars, increasing by about 1 billion 610 million dollars or 62.5% during the year.
Domestic debt was created mainly at the expense of government treasury bonds purchased by residents. Foreign debt amounted to 6 billion 451 million dollars. Unlike the domestic debt, the external debt decreased during the year due to repayments made. Compared to the beginning of the year, it decreased by 197.6 million dollars or by 3%. Most of the external debt is the loans and borrowings taken from other states and organizations. In the last ten years, the national debt of Armenia has increased 2.4 times. The debt burden will not exceed the “red line” threshold Without debt, the state budget of Armenia cannot meet its expenses, because the expenses are always more than the revenues. However, sometimes the debt burden crosses the “red line”. Of course, this is not a default, but it is a dangerous threshold. How dangerous the level of public debt is for a country is measured mainly by the ratio of gross domestic product (GDP).
GDP for 2022 has not yet been released. However, there are already predictions that although the state debt has increased, the Government debt/GDP ratio will decrease. The national debt of Armenia is the sum of the debt of the Government and the Central Bank. However, the debt of the Central Bank actually has a small share. In particular, at the end of 2022, 10 billion 86 million dollars of Armenia’s public debt of 10 billion 638 million dollars is the debt of the Government, and the remaining 551 million dollars belongs to the Central Bank. According to the fiscal rules (RA Law on State Debt) as of December 31 of each year, the threshold for the ratio of the Government’s debt to the gross domestic product is set at 60 percent. This is the so-called dangerous threshold of debt, which, if crossed, obligates the executive to limit current expenditures, as well as to present a plan to reduce the level of the Government’s debt to GDP. In 2020, the national debt crossed that threshold, making 63.5%. In the following year, it declined to close to 60%. On November 16, 2022, Tigran Khachatryan, the already former Minister of Finance, announced that according to forecasts, according to the year-end data of 2022, the Government’s debt/GDP ratio will return to the level below 60%, making 51%.
Both the economic growth and the 20% devaluation of the dram against the dollar contributed to this. calculations are done in drams, while external debt is in dollars. Back in June 2022, Tigran Khachatryan announced that if the dollar exchange rate is lower at the end of the year compared to the beginning of this year, then the state debt will be smaller in dram terms. Therefore, the Government debt/GDP ratio is predicted to be low. In other words, although the volumes of public debt are increasing, they will not cross the dangerous threshold of the fiscal rules. The government’s public debt has never crossed the 60% of GDP threshold until 2020. Until the global economic crisis of 2008, that figure gradually decreased.
During the crisis, the state significantly increased its debt, but even in that case, the ratio to GDP was not so high. Later it also gradually increased and made a sharp jump in 2020. Debt interest payments are becoming a heavier burden for the budget every year Although the public debt will not violate the fiscal rules, its growth, one way or another, has a negative impact on the state budget. Therefore, the budget is created at the expense of the taxpayers, whose taxes are also generated. Every year, the Government allocates billions of drams to pay off the interest payments on the state debt. Along with the growth of the physical volumes of the debt, the interest payments as well as the principal amounts grow. In recent years, about 10% of the budget expenses are allocated to the interest payments of the Government’s debt, and repayments of the principal amount are mainly made at the expense of newly taken international loans. As we are informed by the Ministry of Finance, in 2022 the interest payments of the state debt amounted to 198.3 billion drams, of which 125.9 billion drams are the interest payments of the internal debt, 72.4 billion drams are external. Moreover, these amounts would have been larger if the dollar had not depreciated against the dram. Debt interest is paid in dollars, and the cheaper it is, the less drams are allocated from the budget for their payment. In all cases, compared to 2021, debt interest payments increased by 17.5 billion
Source: https://hetq.am/hy/article/152298