ARMENIAN GOVERNMENT APPROVES 2008 BUDGET WITH WIDENING DEFICIT
by Venla Sipila
Global Insight
October 4, 2007
The Armenian government has approved the draft of the 2008 state budget
and submitted it to parliament. According to ARMINFO, the Armenian
Ministry of Finance and Economy has put forward a fiscal plan with a
deficit of 76.1 billion dram (US$229 million), which corresponds to
2.1% of the projected annual GDP. Specifically, revenue is targeted at
744.7 billion dram, or 21.2% of GDP, while expenditure of 820.8 billion
dram, or 23.3% GDP, is planned. The budget is based on an expectation
of annual GDP growth of 10%, while inflation is forecast at 4% with
a band of 1.5% on either side, and the average dram exchange rate is
put at 336.48 against the U.S. dollar. It was also reported that the
budget posted a surplus of just over 2 billion dram, or 0.1% of GDP,
over the January-August period.
Earlier, it was announced that the state budget for the first half
of the year had come in at 1.7% of GDP (seeArmenia: 1 August 2007: ).
Significance:The plans, as well as the very recent data, imply
some deterioration compared with the better-than-expected results
in 2006 and in early 2007. Increasing fiscal expenditure implies
increased a risk of accelerating inflation. Armenia’s tax collection
and administration has recently seen some improvement, and the
officials have proven relatively responsible in their policymaking
and competent in overall macro-economic policy co-ordination. However,
the government still has a long way to go in building a strong fiscal
administration system, while the task of reducing the size of the
black economy continues to pose a challenge. At the same time,
pressure on expenditure will remain high because of the level of
poverty and social inequality in the country, as well as the need to
improve infrastructure. Strengthening government financing through
further tax administration reforms remains a recurrent recommendation
by international financial institutions.