Armenia could be new 'Greece'
By Sara Rajabova
The economic situation in Armenia is considered to be worse than expected. The Armenian government in recent years has accumulated external and internal debt in large volumes, which could lead to a default.
The country’s media reports that the national debt of Armenia, whose economic crisis is reaching dangerous level, is actually much more the official data.
“Armenian government’s official data shows that its state debt at the end of 2015 will reach $4.9 billion. By this the state debt will amount to about 45 percent of country’s gross domestic product,” Armenia’s "Haykakan Zhamanak" newspaper reported, adding that in reality, however, the picture is much different.
Even if the debt figure stands at 45 percent, the impact is felt much more in Armenia than would normally considering its economy indicators are worsening by the day.
The newspaper said as GDP growth was doubtful, it is expected that in practice Armenia’s sovereign national debt will amount to 55-57 percent of GDP by the end of the year.
Experts claim that it is risky to take on a debt burden exceeding 50 percent of GDP. If the forecasts confirmed, then Armenia’s situation is worse than previously assumed, especially when no economic growth is predicted in the country in near future.
Recently, the International Monetary Fund predicted zero economic growth in Armenia. It also does not foresee any significant improvement in the economy for 2016.
If economic growth was to slow down, then the government will not be able to pay off the debt.
Furthermore, the newspaper claimed that state debt amounting to 55-57 percent of GDP does not reflect reality, stressing the problem is that the state debt does not include funds that logically should have been included.
In 2008, Armenia’s state debt was 2.13 billion dollars, of which the share of foreign debt accounted for only 1.82 billion dollars. The economists say that Armenia’s state debt has increased by in 2.5 times, while the external debt grew by 300 percent since 2008.
The newspaper also stressed that in the meantime, the companies’ loans under government guarantees are not taken into account in the index of state debt. It showed for example, Yerevan Thermal Power Station’s loan of $ 50 million, which it redirected to pay off wage arrears to workers at the ‘Nairit’ plant.
This amount is not recorded anywhere, and there is no information from which sources the government intends to repay it. Hence, it turns out that the amount of debt is much higher than recorded in official statistics.
The newspaper also didn’t rule out that the actual state debt might exceed 60 percent of GDP, which, according to the Armenian legislation, is maximum admissible level for state debt. It recommended that the government closely monitor what is happening these days in Greece, warning that a few years later the same thing could happen again in Armenia.
The economists consider that it is also important to take into account other circumstances, such as the sources from which these debts will be repaid.
Economist Bagrat Asatryan told Armenian media that one of the most serious, major problems of the country is a foreign trade deficit: imports are about three times greater than exports.
He said it is very difficult to service external debt in such circumstances, regardless of the fact that the debt does not exceed 50 percent limit.
Asatryan said the country relies on labor migrants abroad, meanwhile noting that they are an unreliable source for any economy.
The recent deterioration of the Armenian economy as a result of the Russian recession is a good example. Money transfers from Russia to Armenia decreased by 40 percent. In addition, a decline in the volumes of the exports from Russia was also observed.
These factors are pressing the Armenian government to take decisive measures to prevent bankruptcy in future. The corrupt regime in Yerevan, however, seeks to maintain its power rather than pull the country out of the economic crisis.
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Sara Rajabova is AzerNews’ staff journalist, follow her on
Twitter: @SaraRajabova
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