Friday, 29 May 2009
The 2008 State budget was executed amidst a complicated environment. This was firstly conditioned by last year’s presidential elections as post-electoral expectations largely affected economic entities’ behavior. Secondly, as you may remember, military operations broke out in neighboring Georgia, with two thirds of Armenian imports and exports transiting via this country. The third and most important factor was the global financial and economic crisis. In spite of Armenia’s relatively low level of integration with the global markets, the crisis had a tangible effect on Armenia’s macroeconomic environment, reducing first of all the volume of foreign remittances, bringing down mineral raw materials’ prices on the global markets, curbing exports and foreign direct investments. While we managed to offset the impact of the first two factors, nevertheless as early as by end-of-year the global crisis made itself felt in the non-financial sector leading to only 6.8% actual growth against the recent years’ double-digit growth rates which fell short of both the set targets and previous year’s actual performance by 3.2 and 7.0 percentage points respectively. It should be noted that plunging prices enabled us to meet the 4% target set for inflation allowing a 1.5% corridor and providing a framework for the conduct of a more expansionary fiscal policy. The actual level of inflation was 5.2% at the end of the period under review. Note that even against such an unfavorable background, the government managed to keep the key budget performance indicators within the planned limits. Thanks to improved revenue management, we met the 17% target set for the revenue/GDP ratio. As a result, the treasury was complemented with 621 billion drams. Note that this figure is 24 billion drams above the target set by the National Assembly. In addition to planned expenditures, the actual level of budget receipts allowed us to finance new programs and expand the scope of those in process. The 2008 State budget deficit rose to 25 billion drams. The previous year’s 0.7% deficit/GDP ratio was left unchanged against the planned 2.2%.
Additional 23.4 billion drams were accumulated as a spare balance, while the updated budget plan for 2008 provided for the use of AMD 7.6 billion contingency funds. This was mainly due to the fact that 50 billion drams were economized in expenditure items. As a result, overall spare balance rose to AMD 77 billion allowing for additional flexibility in the fulfillment of the 2009 State budget. Please note once again that the 2008 State budget was executed against a relatively complicated economic background marked by 3 unfavorable external factors. Secondly, the budget receipts grew by 16.7% in absolute level. With practically the same tax rate schedule as in 2007, a 0.3 % rise in the taxes/GDP ratio was achieved. That is a surplus of 112 billion drams was contributed to the treasury compared with 2007, of which 95 billion in the form of taxes and duties. Thirdly, the 2008 State budget was executed without accumulating extra debt in expenditure items. The State agencies honored all those commitments assumed under envisaged allocations. The bulk of the programs specified in the State budget were realized in full, with a deficit kept below the allowable level. Now, let me take up a number of problems of concern to MPs and the society.
Our anti-crisis action plan along with the full set of its tools was submitted to the National Assembly last November. The program of actions provided for the creation of a Prime Minister-headed operative headquarters, supposed to contribute to the development of the real sector of economy by means of lending and banking guarantees, as well as through equity participation. Over two tens of domestic enterprises have already benefited from these tools. The list of program beneficiaries and assistance modalities may be found on the government’s official website and the program will be under public control. The government has embarked upon an ambitious housing program in the disaster zone. About AMD 9 billion worth of building activities have been carried over the past seven months, generating several new jobs and fostering economic growth. We are also mindful of supporting our system-building pivotal entities. As you may be aware, the Zangezur copper and molybdenum plant has already repaid the USD10 million loan which it was given to cope with the current problems. The north-south highway, Armenia-Iran railroad, new NPP projects are under consideration now. Concerning the latter, I would like to advise you that Worley Parsons has been chosen as the manager of the Building Project.
About USD 100 million worth of lending resources will be available to support small and medium-size enterprises in Armenia. Besides, negotiations with the RF Government, the World Bank, the IMF and the Asian Development and Reconstruction Bank resulted in more than AMD 300 billion worth of borrowed funds, not foreseen in the 2009 State budget law. In this connection, the Government is going to turn to the National Assembly with a proposal on amending the cap imposed on the level of State budget deficit. In the first place, the National Assembly will be submitted a proposal on RF Government’s USD 500 worth of stabilization loan, which will be used to finance rehabilitation activities in the disaster zone. System-building enterprises will get lending to deal with temporary difficulties, with the balance having to be deposited on the account of the government with the Central Bank to constitute a stabilization fund with an anti-crisis bias. Part of these funds will be used to finance budget expenditures in 2010. The details of this program will be discussed at the National Assembly.
The next issue in process of consideration by the National Assembly is the package of tax regulations. Note that this question has given rise to much controversy either among the members of our economic team. Many of those suggestions and recommendations voiced by MPs seem to be acceptable to the government. The package will improve it considerably after finalization.
And thirdly, I wish to advise you that we are taking an unprecedented decision today in compliance with a presidential instruction aimed at promoting SME development in the country. Under a governmental decree, small and medium size enterprises will be exempted from all types of inspection in 2009-2010. We are convinced that amidst crisis the waiver of checkups carried out by about 22 inspection entities is due to create a more business-friendly environment for small and medium-size enterprise in Armenia. Our anti-crisis action shall be continued as we are well aware that the foregoing measures are not enough to meet the whole range of challenges at hand. We keep in touch with MPs and the heads of the two parliamentary commissions on economic affairs who forward the proposals formulated by the MPs. A round table was organized on the initiative of the President of the Republic of Armenia involving representatives from all political parties at which the logical basis of our anti-crisis action was introduced and corresponding suggestions were received from the stakeholders. The dialog will be continued in this format and the scope of the anti-crisis efforts will be expanded in an operative regime enabling us to cope with the mentioned problems.
