It turns out that the government’s message for the budget 2012 is a very honest document, which reflects all vulnerable sides of the economy and the relative risks.
The document shows that behind the optimistic announcements the government has reservations connected with possible risks of fall in the economy. In terms of several separate indicators there are realistic (or pessimistic) forecasts. In addition, the justifications for optimistic estimations are very sincere.
Even though the budget draft for 2012 forecasts 4.2 GDP growth, the forecast in the ‘gross supply’ section of the document is different: “The positive developments and forecasts concerning the world economy in the first seven months have been a base for forecasting the 4.6% development rate in 2011. It is expected that the international prices for metals reduced till September 2011 will be stabilized in 2012, but the average level of prices will be lower than in 2011. It is also expected that the foreign money transfers to the country will be increased as a result of positive changes in the Russian economy, despite the observed drawback in the Russian economy during the recent period. As a result, in 2012 the real GDP development forecast is a little bit lower compared to 2011 (4.2%), which will be mostly stipulated by growth in production and production sectors.”
These estimations show that the government conditions the economic growth by two factors, which are the international prices for metals and the money transfers from Russia. By the way, the more private money transfers there would be, the higher the economic development rate would be. This statement is not surprising, the surprising thing is that the government assures that the economy is diversified and hardly may they be 14% slump again.
As for the pessimistic estimations, those can be observed without comments in chart included in the budget messages.
Together with 4.2% economic growth estimations the government is pessimistic in terms of investments. Thus, there will not be growth in it, and also investments/GDP relation is forecast at 30% in 2012 (in 2011 it was expected to be 31.3%, and in 2010 the actual rate was 33.4%). This is surprising too because the business environment improvement (that the government focuses on all the time) turns out not to have positive influence on investments.
In the consumption sector the government predicts slump too. The consumption/GDP relation will go down from the level of 91.2% in this year to 89.3% next year.
The assumptions and risks in the budget messages are very interesting too. For example, the assumptions section writes the following: “In Russia, which is a very important partner for the country both in terms of export and money transfers, the economic slump will result in reduction of private money transfers to the country.” In the tax policy section it is written with open text that the tax load will be increased too in all aspects: “The budget policy will be targeted at increasing both the tax load and money inflow through increasing the tax load (due to administrative and tax policy), and in terms of expenses the privilege will be given to keeping the level of social expenses.”
The external risks and threats in the document show what it feels like to have a vulnerable economy which depends on external factors, and what the results can be for Armenia. “If the prices of gas and oil go down as a result of bad expectations on part of investors, the economy of Russia may suffer, as a result of which money transfers and investments in Armenia’s economy will be cut down, due to which the GDP growth level will be lower.” The dependence of our economy from Russia is reflected in this document very sincerely. “If the prices for metals are lower in 2012 (as a result of lower demand on part of Asian countries, America and Europe), it will result in less export of metals, thus lower GDP growth level.”
The most interesting part is the forecast on domestic risks. “The government should continuously make economic reforms, especially for the purpose of improving the business environment and tax policies, but if the expectations of companies are lower concerning the improvement of the business environment, the level of economic growth will be lower than the planned level.” This means that it does not matter how many reforms the government makes, they will be useless if the society does not believe in them. In fact, the government officials understand that the most important thing is the expectations of the society (including companies), and expectations are mostly conditioned by trust to the government. If they understand this, maybe everything is not lost yet.