The resource of borrowing money
Armenia’s state debt as of February 2017 comprised AMD 2 trillion 901.3 billion or USD 5 billion 961.2 million. Compared with the beginning of the year Armenia’s state debt has grown by USD 25.7 billion, from which: government’s external debt in USD expression almost hasn’t changed, it remained within USD 4.3 billion.
However, due to variation of exchange rate it has increased by AMD 12.2 billion. And internal debt has grown by AMD 12.2 billion, thus comprising AMD 1 trillion 148.3 billion. In short, state debt of the Republic of Armenia (including debt of CBA) remained on the threshold of USD 6 billion. Besides the absolute number, to assess heaviness of the debt mostly debt/GDP ratio is used (regarding how many percent of GDP the state debt comprises).
Let’s calculate that index. According to the National Statistical Service of Armenia in 2016 GDP comprised AMD 5 trillion 67.9 billion. As of late February state debt, as already mentioned comprises AMD 2 trillion 901.3 billion. Thus, state debt/GDP ratio as of late February already exceeds 5%, i.e. Armenia is approaching 60% threshold of debt/GDP ratio. Of course, this is a serious debt burden, however, the government has ground to insist that there is nothing serious. Firstly, 60% threshold enshrined by RA Law on State Debt refers not to the government’s state debt only. Part of state debt—AMD 248.8 billion or USD 511.2 million is the debt of the Central Bank of Armenia (CBA).
Thus, government debt/GDP ratio comprises 52.3%. Secondly, despite debt/GDP ratio there are other indices of assessing debt burden (debt/export, debt percentage/export and etc.) and by all this Armenia is classified among the countries with lower state burden.
Thirdly, Armenia’s economy showed normal growth temps in the first two months of ongoing year—6.2%. Collection of taxes in January-February, compared with the same period of the previous, year has grown by 9-10%, i.e. the budget seems not to have the issue of budget service. This means the state yet has a resource to borrow money. Will it borrow? Yes.
Vardan Aramyan, Minister of Finance of Armenia, recently told reporters, that the government will involve new debts, however, it’ll be more cautious. “Debt management and stability is a priority to us,” he said. And how much additional debt can the government involve? It’s difficult to answer this question, as already mentioned there is maximal threshold enshrined by law—60% of previous year’s GDP.
60% of previous year’s GDP comprises AMD 40.7 billion, i.e. by the end of the year, government’s state debt can’t be more than AMD 3.04 trillion or USD 6 billion 270 million.
For the time being government’s state debt, as already stated comprises AMD 2 trillion 652.5 billion, i.e. the government can involve AMD 394.7 billion or USD 810 million by the end of the year. It should also be stated that regarding state debt (in particular, external debt) exchange rate plays a crucial role as well. If dram is depreciated, our external debt in Armenian dram expression is becoming heavier. Thus, our external debt comprised USD 4.3 billion. Weakening of dram by one percentage point increases value of Armenia’s external debt by AMD 4.3 billion, e.g. USD 4.3 billion by current exchange rate comprises AMD 2 trillion 93.6 billion.
For instance, if exchange rate for 1 USD reaches AMD 500, the very AMD 4.3 billion will become already AMD 2 trillion 150.8 billion. As a result, debt/GDP ratio will increase and possibilities for taking new debts will decrease. On the other hand, service of state debt will become more expensive, dram will be more necessary to buy US dollar for external debt service payment. On account of all this, it may be supposed that the government and the Central Bank in near future won’t allow that dram considerably depreciated, i.e. talks that after elections dram will sharply depreciate, will hardly become a reality.
By Babken Tunyan
