During the crisis in 2009 the government took borrowings and credits amounting 3 billion dollars from different sources. They say it was done for the sake of the economy of Armenia. High rank officials assured us that the state debt had not exceeded the allowed limits, thus there would not be any problems with serving that debt.
Economists, especially those from the opposition, criticized the government for this suspicious allocation of financial resources and announced that this load would become heavier through the time. According to the budget, in 2008 the budget will provide 78.8 million dollars to cover foreign debt, 54 million out of which is the interest rate payment. Next year we will pay 88.2 million, in 2012 – 133.5, and in 2013 – 248.4 million (debt coverage and interest rates included). Economists say the most difficult year for covering the state debt will be 2013. However the government assured that there was no reason to worry about. “We are not close to the limit of 50 per cent, which is the risk limit. The foreign debt is in the permittable limits,” said the finance minister Tigran Davtyan on October 28, 2009. But during the same interview Tigran Davtyan said another thing, which seems to be very interesting now. “Certainly the state debt has grown much but it is still controllable and manageable. Next year there will be no need to take extra borrowings,” said the minister.
Let’s try to understand it. The state borrows money from external sources and invests that money in the economy, which is coping with the crisis. The slump was lower in the end of 2009, and officials said there would be 1-1.5% growth next year. This inspires optimism, based on which the finance minister said next year we would not need extra borrowings. It means that the economy has entered the phase of recovering and may recover without external borrowings. What is next? The GDP growth rate was 2% in January 2010, in January – February it was 3.1%, and the rate of the first three months even exceeds the predicted rate – 5.5%. Logically if the growth exceeds the predicted rate, there will be no need for extra borrowings. Tigran Davtyan has told this to ARKA news agency and informed that this year as much financial resources will be attracted as much the budget plans. These are mainly the financial resources received from the World Bank and International Monetary Fund to cover the deficit of the budget. The minister has not spoken about the need of other borrowings. Now let’s speak of the most important thing. In two days after this interview, during the government’s session on April 22 prime minister Tigran Sargsyan spoke of the 5.5% growth and macroeconomic stability and said, “I also want to inform you that most of the anti-corruption actions and projects have been not on the account of foreign debt but the borrowing provided by Russia, which was allocated in private companies; this was done also through private banks. It means that a part of the foreign debt will be covered by the private sector. According to the ministry of finance, this sum amounts to 800 million dollars at present. Even though this is the responsibility of the state, the budget will not cover this debt but the private sector will. The foreign debt capacity will stay in the limits established by the law, and we will continue negotiations on attracting new borrowings. We will take borrowings, which will encourage the economic growth, and which we will be able to cover on the account of the profits of companies, like the example of opening of the power block, which was opened in participation with the president as well.” What does this mean? For example, if someone gets 200.000 dram salary a month and wants to take borrowing from a bank. This person knows that he spends 100.000 out of this sum on first need items for the family. Plus, he saves 30-40 thousand drams for bad days. This means that this guy can take a borrowing, the monthly coverage of which does not exceed 60.000 drams. This is the allowed limit of the borrowing this family can afford. What does this guy do? He takes a bigger borrowing with a monthly coverage of 120.000 drams. He gives a part of this borrowing to his neighbor with a higher interest rate. He pays a part of this money, and his neighbor pays the other part, and he even makes some money from the interest rate the neighbor gives, which makes him think that everything is normal and he has not crossed the normal limits. This is what our government does when it says that the load of the foreign borrowings will be born not by the government, but the private sector. First, we wander why the state acts like a banker or intermediate and gives a higher interest rate to its citizens. There is a big problem here. What will happen to this guy if his neighbor meets bankruptcy and can’t pay the debts anymore? He may sell his car or gold savings. The problem is that why should this guy take more borrowings loads on his shoulders if he claims that his business is getting better now. When they borrow money during recession, they say the economy is falling and that is why they should do it, and during the growth time they do the same, and say that they can cover this debt on the account of the economic growth. They can always find reasons why to borrow money. They claim it is for encouraging the crediting system. Banks say they don’t have problems with giving borrowings; the problem is to find normal people or companies to take borrowings and cover them in the future.
The negative side of the coin is that as a result of many borrowings the state has to pay more money, which means that the tax incomes should grow as well. It means that the tax inspection bodies will have to apply more pressure on the private sector. They may claim that they will not do it as this money will be paid by the private sector, but the experience shows that usually the government takes more than it gives to the private sector. For example, after taking the 500 million dollars borrowing from Russia the government has provided only 60 billion to the private business sector, and they don’t say where the other money is. This part of the money is being paid and returned on the account of the taxpayers. By the way, the government will increase the tax load soon because at a recent session of the government the prime minister spoke about that. They even don’t want to wait for the economy to recover a little bit and then press it down again. It turns out that the economic growth in this country is not going to make us happy because the tax load will be growing as well. Things are different in this country.