RA PRIME MINISTER TIGRAN SARGSYAN’S ADDRESS TO JOINT SESSION OF RA NATIONAL ASSEMBLY STANDING COMMISSIONS ON FY2009 STATE BUDGET BILL

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Fri day, 24th of October, 2008

Honorable President of the National Assembly,

Dear Members of Parliament,

In accordance with Article 90 of the Constitution of the Republic of
Armenia, the Government of the Republic of Armenia is hereby submitting
to the National Assembly the FY2009 State budget bill. This bill is
based on the government program as approved earlier this year by the
National Assembly, which was developed based on the key provisions
of the RA national security strategy and poverty reduction strategic
paper, as well as on the electoral programs of the RA President and the
coalition parties and the basic provisions of the political agreement.

Through consistent implementation of the provisions and actions
specified in the aforesaid documents, it will be possible to provide
for high rates of economic development and improved living standards
in the country, as well as to meet the threats coming from outside
the country. The Republic of Armenia is on the path of comprehensive
reform. The reforms tend to higher level of democracy, public sector
efficiency, independent and unbiased judiciary, developed system of
local self-government and strengthened fight against corruption.

For 5 years now, State budget laws in Armenia have been designed on
the basis of medium-term public expenditure programs of strategic
relevance. The FY2009 State budget bill was developed based on
Republic of Armenia’s medium-term public spending program for the
period 2009-2011, which is a comprehensive document covering all the
sectors of Armenia’s economy.

Therefore, the 2009 State budget bill reflects the following strategic
directions of development:

Firstly, the 2001-2007 growth rates in Armenia (13% on average)
made it possible to double the per capita GDP in the Republic. The
government has set the task of ensuring an annual real GDP growth
of 8-10% in 2008-2012, and we expect to maintain the past few years’
high rates of economic growth, with the real GDP due to increase by
9.2% next year. Macroeconomic stability is highly prioritized from
the perspective of ensuring sustained growth rates in the country,
and the government will continue with its fiscal policies aimed at
maintaining the level of macroeconomic stability and economic growth.

Secondly, the planned macroeconomic policy implies low inflation
and budget deficit, a reasonable that is economically safe level of
public debt, floating exchange rates. In particular, the 12-month
inflation target is estimated at 4.0% /-1.5%, with a 1% ratio of
budget deficit/GDP ratio. The gap will mainly be covered through
borrowed funds consisting of both domestic resources and foreign
loans contracted on preferential terms. Under these conditions, the
overall level of Armenia’s public debt will rise to USD2210.3mn as
of late 2009, which makes 16.1% of the GDP (against 17.6% expected
for late 2008). The share of foreign indebtedness will be 81.5%
or 13.1% of the GDP (against 14.9% expected in late 2008). Here,
it should be noted that as a whole the foreign indebtedness-related
qualitative indicators will not be higher than the ones characteristic
to countries with low or medium debt burden.

Thirdly, the State will continue building up its financial
capacity. The projected increase in the level of revenue collection in
2008-2012 is among the fiscal priorities of the government program. An
average annual increase of 0.3-0.4% in tax revenue/GDP ratio will be
achieved without having to raise the tax rates. Therefore, as in the
previous years, a progressive pace of revenue collection against the
GDP rise will be achieved in 2009 (revenue collection will be up 21.4%
in 2009 against the stated level of 2008 as compared to the planned
18.4% growth of the nominal GDP). The FY2009 budget resource package,
projected in accordance with the previous years’ methodology, will
be funded chiefly through enhanced revenue collection.

Taxes and duties will be collected to the amount of AMD726.0bn next
year, which exceeds the actual receipts of 2008 and 2007 by AMD128.9bn
and AMD225.3bn respectively. A 17.4% projected tax revenue-State
duties/GDP ratio will be achieved in 2009 against the projected 17.0%
in 2008 and the actual 15.9% of 2007. The stated increase in revenue
collection will be brought about by corresponding macroeconomic
developments and the government’s administrative arrangements in the
fiscal sector.

Fourthly, State budget expenditure policies will keep on focusing on
the rise in the share of welfare spending, development of economic
infrastructures, enhanced national security and public governance
efficiency, higher funding for local self-government, as well as will
help build up an image of a reliable borrower for Armenia.

The minimum wage will continue upwards in the Republic of Armenia. It
will be up 20% to AMD30.000 in 2009, as compared to this year’s level.

Spending in the following sectors will prevail on the expenditure
side of the FY2009 State budget with an aggregate share of 74.3%,
which is broken down as follows: social sector (education, health
care, public welfare) – 47.2%; defense, law enforcement and national
security – 22.4%; official grants to community budgets – 3%; public
debt service – 1.7%.

Under the strategic programs aimed at curbing poverty, improving the
population’s living standards, achieving social equity, eliminating
social polarization, modernizing the system of schooling and research,
ensuring broader access to education, the Government intends to make
sizeable investments (up to 10.7% of the GDP) in the social sector
inclusive of education – 3.0%; social security – 6.1%; health care
– 1.6%.

These branches will be funded (less the administrative costs) to the
amount of AMD441.0bn, or 68.9 billion drams (18.5%) more than this
year’s level. In FY 2009:

a) State budget allocations to education (less the administrative
costs) will rise to AMD 126.4bn, or 23.0 billion drams (22.2%) up
this year’s level. This will allow us to increase average monthly
wages in the sphere of general education for the teaching, managing,
maintenance and service staffs. As a result, teachers’ average
monthly wages (for the full rate inclusive of extra remuneration)
will be 116.3 thousand drams (against today’s 89.6 thousand drams),
managing staff’s average monthly wages will be 176.1 thousand drams
(currently 136.0 thousand drams).

b) State budget funding for the health care sector (without the
administrative costs) are projected at the level of AMD64.9bn, or
11.5 billion drams (21.1%) more than in 2008.

Outpatient services remain a chief priority in the health care
sector. Free outpatient services will be administered to the whole
population without age and social status restrictions, safe the dental
care-related services which will be free only for the vulnerable
groups, children below 8, the elderly over 65, as well as for all
12-year-old children.

Under this bill, average monthly wages for the medical staff of
outpatient clinics will be 92.4 thousand drams against today’s
AMD77.000, wages at the intermediate level will reach the mark of
59.2 thousand drams (49.3 thousand drams as of 2008).

Medical staff at in-patient establishments will get a monthly average
of 66.4 thousand drams in estimated wages against 51.1 thousand drams
this year. Wages at the intermediate level will rise to 52.0 thousand
drams (40.0 thousand drams in of 2008).

c) State budget funding for the social sector (without the
administrative costs) will stand at AMD249.7bn, or 34.4 billion drams
(16.0%) above the target of 2008.

Average monthly benefits for those households registered with the
family allowance system will be 23.6 thousand drams against today’s
21.1 thousand drams which is an increase of 12.0%.

The lump-sum benefits as granted on the birth of a third or more
children will reach 430.000 drams instead of 300.000 drams in 2008
(up 43.3%).

Starting from 2009, these sums will be administered to all eligible
beneficiaries, while only those households registered with the system
of family allowance have been entitled so far.

AMD181.8bn worth of funding will go to the pensions system next year
or 14.8% more than this year. The average monthly rate of retirement
pension will be 25.5 thousand drams in 2009 against 21.8 thousand in
2008 (a 17.0% rise).

Average monthly pensions payable to retired army officers and their
families will total 47.0 thousand drams in 2009, or 10.5% above the
2008 target.

Non-commissioned staff and their families will be entitled to 20.000
drams of average monthly pension, or 13.2% above this year’s level.

In compliance with Article 10, paragraph 9 of the RA law "On FY
2006 Republic of Armenia State Budget," those citizens registered as
depositaries of VTB-Armenia Bank CJSC will continue to be refunded
next year against such savings as were made with the former SU Savings
Bank before June 10, 1993. In 2009, AMD1.6bn will be earmarked to
this end against 1.3 billion drams as planned for 2008.

Allocations will likewise be made to:

-provide housing or improve housing conditions for 350 homeless
families of killed (dead) or first, second and third group invalid
servicemen to the amount of AMD3.0bn;

-offer housing certificates, purchase new housing or fund the
construction of homes for homeless families in the earthquake zone
to the amount of AMD4.4bn

52.2 billion drams will be spent to cover the public administration
maintenance costs, or 7.5 billion drams (16.9%) up the amounts
allocated under the finalized FY2008 State budget. Additional 2.2
billion drams will be allocated for the repair of administrative
buildings and the purchase of embassy premises.

Adequate funding is envisaged for the maintenance of defense, law
enforcement, national security, penitentiary establishments and
rescue services.

To achieve enhanced level of safety in the energy sector, sustained
development of transport systems, food security, wildlife reproduction
and management in the Republic of Armenia, the government will continue
to design and implement programs aimed at maintaining and expanding
infrastructures in the power engineering, transport, agriculture,
water management sectors along with a wide array of projects in the
fields of nature protection, SME development etc.

To strengthen the financial base of local self-government, next
year communities will get 30.5% more funding in budget allocations
as a result of subsidies provided on a financial leveling basis
in accordance with the adopted laws, as compensation for revenue
losses. Such allocations will rise to AMD27.8bn in 2009.

To safeguard the country’s image as a reliable borrower, adequate
sums will be earmarked for both domestic and foreign debt service.

As a guarantor for the security of the NKR population, the RA
Government is committed to extending economic assistance to the
Nagorno-Karabakh Republic.

Here, I would like to note that the amount of the interstate loan to
the NKR will be up 15.7% next year.

Esteemed President of the National Assembly,

Dear Members of Parliament,

One cannot overestimate the State budget’s instrumentality in ensuring
sustained development for the whole nation. Therefore, in conclusion
of my message, I would like to tell you that we look forward to your
commitment and constructive approach in the forthcoming debates so
as to pave the way for fruitful joint efforts towards finding the
best possible budgetary solutions.