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ARMENIA'S EXTERNAL DEBT REACHES CRITICAL POINT
Vestnik Kavkaza, Russia
March 24 2015
24 March 2015 - 7:24pm
By Susanna Petrosyan, Yerevan. Exclusively for Vestnik Kavkaza
The complex situation around the governmental debt of Armenia has
been furthermore complicated. The government has released a package
of bonds worth $500 million for 10 years at a rate of 7.5%. In other
words, Armenia has received another loan. At the start of the year,
the government declared that the bonds would be released to cover the
budget deficit and support the stability of the economy. Economists
are not in doubt as to whether the government made a wise step, they
point out that the number of bonds exceeds the budget deficit, the
deficit will be co-financed by national sources, because the bonds
are released using foreign funds. It is a debt needed to put out the
fire in the economy. But what will happen after the fire?
Economist Vilen Khachatryan speaks against increasing the debt,
supposing that the burden lies on the shoulders of the future
generations. Taking emigration into account, the debt per capita keeps
growing. But the problem is that the total sum of the external debt
of Armenia has hit $4.9 billion, or 52% of GDP.
In 2012, the Aidit Chamber warned in its budget report that management
of the debt will become risky in 2013 because the debt service reached
$300-400 million a year. Wall Street Journal experts say that Armenia
has become one of the most unreliable debtors. Its rating made a
dramatic fall in Moody's Investor Service rating in January 2015.
The factors forcing the international financial rating of Armenia
down are fluctations of the dram rate, reduction of the currency
mass on the market due to the reduction of transfers from Russia,
the policy of the Central Bank in the reduction of currency reserves
and uncertainty of export development.
According to the Central Bank, the volume of transfers from Russia
to Armenia, which is the main share of foreign currency flow to the
country, dropped by 56.01% in January 2015 compared with the same
month in 2014.
Concerning the dram exchange rate, despite its relative stability,
experts cannot rule out a new wave of dram devaluation. Economist
Narek Karapetyan calls the dram overrated, staying afloat thanks
to the efforts of the Central Bank, at quite a dear price for the
country. "The dollar costs 475-480 drams today. The government is
artificially keeping the dram at that level to avoid mass destitution
of the population and bankruptcy of large companies with debts in
dollars," says the expert.
In this context, it is worth reminding that, according to official
data of the Central Bank, the foreign reserves of the country
amounted to $1.26 billion in February, dropping by $91 million
compared with January. According to the Armenian Times newspaper,
the foreign reserves lost $229 million in just two months this year,
or over 15%, and $853 million throughout 2014, or over 40%.
Some economists believe that most of the lost currency reserves were
spent on artificially maintaining the dram rate.
The trade disbalance in favour of imports remains one of the gravest
economic factors. According to the National Statistical Service,
the red ink in the foreign trade balance in February 2015 amounted
to more than 145 million.
The economic policy of the Armenian authorities is characterized by
support for a monopolistic economic system, support for monopolistic
importers, and pressure on small and medium-sized business.
Consequently, the country lacks real competition, resulting in
growing prices and further destitution of the population. A logical
repercussion of the tendency is instability and fluctuations in
the dram rate. The negative developments are not corrected by the
government, not to mention any radical measures.
Economists do not rule out that continuation of the economic policy
with the aforementioned characteristics means that the day when the
external debt reaches 60% of GDP is not far away. Taking new loans
after that point would be impossible. Armenian law does not allow
the external debt to exceed GDP by 60%.
Despite assurances by the government that the debt is controllable,
the world has many states where the economic situation was marked by
much severer changes. Data of the last years demonstrates a gradual
rise of external debt and its approaching the red line. In 2014,
the external debt exceeded the benchmark of 50% of GDP, considering
that it was only 16% of GDP in 2008. The loans received so far have
not had any visible positive effect on the Armenian economy.
Obviously, the new sum of $500 million will only make life for the
population tougher.
http://vestnikkavkaza.net/analysis/economy/68394.html
From: Baghdasarian
Vestnik Kavkaza, Russia
March 24 2015
24 March 2015 - 7:24pm
By Susanna Petrosyan, Yerevan. Exclusively for Vestnik Kavkaza
The complex situation around the governmental debt of Armenia has
been furthermore complicated. The government has released a package
of bonds worth $500 million for 10 years at a rate of 7.5%. In other
words, Armenia has received another loan. At the start of the year,
the government declared that the bonds would be released to cover the
budget deficit and support the stability of the economy. Economists
are not in doubt as to whether the government made a wise step, they
point out that the number of bonds exceeds the budget deficit, the
deficit will be co-financed by national sources, because the bonds
are released using foreign funds. It is a debt needed to put out the
fire in the economy. But what will happen after the fire?
Economist Vilen Khachatryan speaks against increasing the debt,
supposing that the burden lies on the shoulders of the future
generations. Taking emigration into account, the debt per capita keeps
growing. But the problem is that the total sum of the external debt
of Armenia has hit $4.9 billion, or 52% of GDP.
In 2012, the Aidit Chamber warned in its budget report that management
of the debt will become risky in 2013 because the debt service reached
$300-400 million a year. Wall Street Journal experts say that Armenia
has become one of the most unreliable debtors. Its rating made a
dramatic fall in Moody's Investor Service rating in January 2015.
The factors forcing the international financial rating of Armenia
down are fluctations of the dram rate, reduction of the currency
mass on the market due to the reduction of transfers from Russia,
the policy of the Central Bank in the reduction of currency reserves
and uncertainty of export development.
According to the Central Bank, the volume of transfers from Russia
to Armenia, which is the main share of foreign currency flow to the
country, dropped by 56.01% in January 2015 compared with the same
month in 2014.
Concerning the dram exchange rate, despite its relative stability,
experts cannot rule out a new wave of dram devaluation. Economist
Narek Karapetyan calls the dram overrated, staying afloat thanks
to the efforts of the Central Bank, at quite a dear price for the
country. "The dollar costs 475-480 drams today. The government is
artificially keeping the dram at that level to avoid mass destitution
of the population and bankruptcy of large companies with debts in
dollars," says the expert.
In this context, it is worth reminding that, according to official
data of the Central Bank, the foreign reserves of the country
amounted to $1.26 billion in February, dropping by $91 million
compared with January. According to the Armenian Times newspaper,
the foreign reserves lost $229 million in just two months this year,
or over 15%, and $853 million throughout 2014, or over 40%.
Some economists believe that most of the lost currency reserves were
spent on artificially maintaining the dram rate.
The trade disbalance in favour of imports remains one of the gravest
economic factors. According to the National Statistical Service,
the red ink in the foreign trade balance in February 2015 amounted
to more than 145 million.
The economic policy of the Armenian authorities is characterized by
support for a monopolistic economic system, support for monopolistic
importers, and pressure on small and medium-sized business.
Consequently, the country lacks real competition, resulting in
growing prices and further destitution of the population. A logical
repercussion of the tendency is instability and fluctuations in
the dram rate. The negative developments are not corrected by the
government, not to mention any radical measures.
Economists do not rule out that continuation of the economic policy
with the aforementioned characteristics means that the day when the
external debt reaches 60% of GDP is not far away. Taking new loans
after that point would be impossible. Armenian law does not allow
the external debt to exceed GDP by 60%.
Despite assurances by the government that the debt is controllable,
the world has many states where the economic situation was marked by
much severer changes. Data of the last years demonstrates a gradual
rise of external debt and its approaching the red line. In 2014,
the external debt exceeded the benchmark of 50% of GDP, considering
that it was only 16% of GDP in 2008. The loans received so far have
not had any visible positive effect on the Armenian economy.
Obviously, the new sum of $500 million will only make life for the
population tougher.
http://vestnikkavkaza.net/analysis/economy/68394.html
From: Baghdasarian