ARMENIAN FINANCE MINISTER PLEDGES FISCAL STRENGTHENING FOR 2010

World Markets Research Centre
Global Insight
September 2, 2009

Armenia’s Minister of Finance Tigran Daytyan has outlined plans
for fiscal consolidation after the initial budget deterioration
necessitated by the current economic weakness. According to ARKA
News, Daytyan has pledged that the state budget for 2010 would prove
"realistic and relatively modest". Without mentioning spending and
revenue estimates, he projected that, in an annual moderation of at
least 1 percentage point, the state budget deficit as a percentage
of the estimated GDP will moderate to 5-5.5% by the end of next
year. The budget will be based on an expectation of economic growth
at 1-1.5% in 2010. Armenia’s aim in the medium term is to push the
budget deficit to under 3% of GDP, but the current dramatic economic
contraction has necessitated fiscal support measures at the same
time as revenue inflows have markedly suffered. Consequently, in
a decision approved by the parliament in June, the upper limit for
the state budget deficit to GDP ratio has temporarily been lifted
from 5% to 7.5%, to be covered mainly by lending from international
financial institutions (seeArmenia: 7 July 2009:andArmenia: 24 June
2009:). However, the Finance Ministry expects government external
debt as a ratio of GDP not to exceed the agreed limit of 50%. Next
year’s budget is currently considered by the Finance Ministry, to be
subsequently presented to the rest of the minister cabinet and later
to be put forward to the National Assembly.

Significance:The global downturn has led to a marked deterioration in
investment and remittance inflows to Armenia, on which the country
remains critically dependent, and this has contributed to a severe
contraction of the economy. Consequently, the budget position is also
sharply deteriorating. Budget support in concessionary lending terms
is thus critically important for Armenia. It helps in protecting the
most vulnerable groups from the adverse impact of the current economic
crisis by securing maintenance of essential social services. In order
to secure fiscal sustainability going forward, it would be important
to further strengthen tax administration, while seeking to widen the
tax base.