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Speeches, Statements

Friday, 13 May 2011

Prime Minister Tigran Sargsyan’s Statement at Republic of Armenia National Assembly While Introducing 2010 Annual Report on State Budget Execution

Esteemed National Assembly Chairman,
Honorable Chairperson,
Dear Colleagues,

Introducing the State budget report, the prime ministers traditionally state the general characteristics and the overall background of budget exercise. Before going to my point, I would like to evoke the Audit Chamber’s report which was made public yesterday.

Unfortunately, we were unable to come up with a second report. Those guilty will be punished because we very much appreciate the Audit Chamber’s efforts. Therefore, I will follow up the matter today as well to fill the gap stated by the Speaker and the members of the National Assembly.

To our mind, the most tangible outcome of those programs implemented in 2010 is that the steps taken in 2009-2010 began yielding positive results. 2010 may be described as a year of sustained recovery as we continued working according to the logic of our anti-crisis program.

Infrastructures were improved considerably thanks to sizeable investment made by the State. The business environment was bettered, especially for small and medium-size enterprises. This was coupled with serious economic diversification-targeted measures.

Here, I would like to refer to the macroeconomic indicators recorded in 2010.

Hence, the GDP growth was 2.1% instead of the planned 1.2 %. The structure of GDP is very important, especially to industry where we stated 10.5% growth, 13.6% in manufacturing industry and 19.1% in mining industry.

The second large sphere which provided growth was the sphere of services which boasted 4.5% growth. It is obvious that the macroeconomic parameters would have been even better, with the twofold of the recorded level of GDP, if we had not had last year’s unprecedented fall of 15.7 % in agriculture last, which along with other circumstances was caused by adverse natural-climatic conditions.

At the same time, from a macroeconomic standpoint we can see that export has improved considerably, coupled with a better balance of trade – 1.3 % because the pace of export exceeded that of import. The current account, too, has improved narrowing to 13.9 % from the gap of 15.8 % which is a crucial factor. The current account too has improved coming to 14.7 % from the gap of 16.8 %.

These are positive tendencies which we will have to maintain over the next 3 years so that the deficit goes down to the planned target. From this point of view, it should be stated that the deficit has declined from 7.7 % in 2010 to 5 % this year. According to more accurate data available from the National Statistics Service, the deficit’s share in the GDP made 7.6 % in 2009, with 5% stated in 2010. This means that we are better poised from the point of view of service of external debt and maintenance of macroeconomic parameters.

Revenue rose to AMD 780 billion in 2010, 13% above the index of 2009. The expenditure side exceeded the same index of 2009 by approximately 3 %. It is quite an important achievement for us: as you may remember, in 2009 we made unprecedented borrowings from external sources to finance budget spending not to cut down budget expenditures. In 2010, revenue was the main source of budget spending. Notwithstanding the decrease in deficit, we managed to bolster expenditures by approximately 3 %.

Inflation made 9.4 % at the end of 2010, caused by two major factors: increase of international prices for food staples and raw materials, as well as high prices of agricultural products due to the unprecedented fall in supply. 5% of the mentioned index of inflation was caused by the rise in commodity prices and 2.4 % due to the rise in the prices on imported goods.

In 2010, we continued developing the infrastructures and improving the business environment. In particular:

• Road rehabilitation works were carried out to a total length of about 350 km, of which 224 km - with the help of borrowed funds and 126 km - using State budget resources.

• Full overhaul of 8 bridges was implemented: reserve fund resources were used to repair 44 road sections as damaged by natural and manmade emergencies. 9 road sections and 5 bridges were upgraded to a total amount of AMD 5.6 billion.

• 90km-long pipelines were constructed and repaired, of which 697 km for potable water, 23 km for sewerages (in 5 different towns) and 181 km of irrigation mains and canals

• Drainage cleanup and deepening activities were carried out to a total length of 346 km.

• With the proceeds of the loan available from the Japanese Government, we managed to commission the Yerevan TPP.

• Under the contract signed between the Government of Armenia and the Japanese Agency of International Cooperation, regenerative works were completed on 17 substations of kW.

• 3G stations were commissioned providing full coverage of the country. For the first time 4G communication technologies were introduced in Armenia.

• Average retail tariffs for high-speed Internet decreased twice. Wholesale Internet tariffs fell more than twice to make AMD 71 thousand. This tendency will be upheld throughout the running year. The total number of users (including through cellular phones) rose to 1.5 million and the number of subscribers of broadband Internet increased over 2.5 times to make 173 thousand.

• The Internet has become accessible in 300 schools. As a whole, today we have 944 web-networked schools in Armenia.

• Under the credit program of the World Bank, modernization, full overhaul and equipping projects were implemented for 8 regional medical centers. Full overhaul of the buildings of 5 medical centers were completed. Such activities are nearing completion in Aparan. In process is the overhaul of the building of Gavar’s maternity home and the construction of a new medical center in Gyumri.

• 10 new outpatient clinics and 20 ambulance stations were engineered in different communities along with corresponding equipment supplies.
As a whole, USD 17mn worth investments were made in the system of marz hospitals in 2009-2010, of which 4.4 million dollars in investments on state-of-the-art medical equipment and furniture.

• To house earthquake-hit families in the disaster zone, 22 multi-storied buildings consisting of 1056 apartments were completed in Gyumri under the housing development program. 220 residential buildings were commissioned in Spitak, with 303 others completed in the rural settlements of Lori marz. At the same time, underway is the construction of 38 apartment houses consisting of 1756 apartments in Gyumri town, as well as that of 375 residential buildings in the rural settlements Lori marz

• With the help State budget-funneled funds, AMD 5.3 billion worth of building and overhaul activities will be carried out for some 154 facilities.

Business environment improvement:

• Business registration procedures were simplified by which the needed deadlines were reduced to 5 days instead of 20. While formerly people had to turn to 6 different agencies for business registration purposes, now they are only asked to visit the website to register a legal person (the self-employed shall do so register a physical person), all for 15 minutes.

• To ease the burden of business activities, the Government extended the time of expiry of the government decree passed in 2009 which banned inspection checks with those economic entities having less than AMD 70 million annual turnover.

As a result, those 15663 checks carried out by corresponding agencies in the last two quarters of 2008 were reduced to only 331 checks conducted in the same period of 2010. It is obvious that the corruption risks harmful especially for small and medium-size enterprises were reduced considerably.

• Steps were similarly taken to simplify the foreign trade-related procedures. A number of legislative amendments were implemented. As a result, simplified was the delivery of expert references for exported dual-purpose goods with the prescribed timings reduced to 10 days from 1 month. The amount charged for such services was reduced to AMD 60.000 from the previous 180.000.

• As a result of reduction, specification and more accurate definition of a number of business activities subject to licensing, the inventory of eligible activities which consisted of some 169 items now contains only 96 such activities. The delivery of licenses is now performed online which will considerably simplify the process of producing the needed documents.

• As a result of legislative reforms, the profit tax payments were reduced by 8, mandatory social insurance payment statements were also reduced. Instead of producing accounting balances, profit tax and financial performance statements due formerly, the legal persons are currently required to submit only the profit tax report.

• the privilege of duty exemption available at border checkpoints for those physical persons conveying goods through international postal and messenger services is now applied to such goods the customs value of which cost is below the sum of AMD150 thousand instead of former 50 thousands.

• Uniform deadlines are applied to tax reports. The fixed taxpayers are no longer required to submit accounting balances and financial statements to tax authorities. The law has been amended according to which operation on an investment of property in the authorized or share capital of legal persons the physical persons who are not being individual businessmen is accepted, are exempted from VAT.

• A system of online submission of tax reports has been introduced applicable to 27 types of reports. All this minimizes the number of direct contacts between taxpayers and tax inspectors reducing corruption risks.

• The process of founding consumer cooperative societies has been simplified and eased. A new order is applicable for the use pastures and hay fields and the farmers are exempted from 4 types of payments to a total amount of AMD 250 thousand.

• Thanks to the reforms carried out in the sphere of construction, only 53 days are currently needed to get the developer’s license instead of those 200 days prescribed formerly. In the meantime, the mandatory payments of various types were reduced 4-fold.

In real sector of economy:

14 companies are now benefiting from the privilege of 3-year-long VAT payment deferment. Six entities were granted the privilege in 2010, with AMD 15bn worth investments carried out under this program alone. As of now, the total amount of investments makes 58 billion drams generating some 1400 jobs.

• After an interval of 7 years, under Armenia’s 2010-2014 wheat seed-breeding development program 1010 tons of elite seeds were procured from the Russian Federation and 117 tons from domestic farmers. The purchased seeds are provided to seed-breeding entities and will be returned in the ratio of 1:2. The reproduced quantities, too, will be used for seed-breeding purposes.

• Under the cattle-breeding development program, 262 heads of thoroughbred milk and meat-and-milk breeds of cows were imported from abroad. Some of the imported animals have already exceeded the mark of 8-9 thousand liters milked per year, 4-5 times above the yield of local cows.

1222 heads of thoroughbred young females have already been imported into the country under the same program enabling the operations of 14 new breeding facilities where we have 1100 heads of newborn young.

• About 135 thousand heads of sheep were exported in 2010, the customs value of which exceeded the index of 2009 by approximately 56 % amounting to USD 14 million.

• In 2010 export of fresh and frozen fish to the Russian Federation was doubled making some 400 tons. The programs carried out in this sphere will result in the doubling of this index in 2011-2012 since large-scale investments are being carried out and new sales outlets are available in this field.

• To develop organic agriculture at home, the manufacture of Azotovit-1 and Azoceovit-1 bio-fertilizers has been launched in the Republic of Armenia. The Government has approved the national program of manufacture of bio-fertilizers assuming that we shall be able to proceed stage by stage from saltpeter to the use of fertilizers of domestic manufacture. Budget funds are being earmarked to this end.

• The interest rate of loans provided under the Affordable Housing for Young Households program makes 8.5-9 % in Yerevan and 6.5-7 % in marzes which is largely below the interest rates applicable by trade banks. In 2010, either the sum of advance payment was lowered for the population of marzes making 10 % as of now.

Dear colleagues,

Summing up the budgetary part, I think it necessary to emphasize the significant role of the National Assembly in realization of the above-stated activities since without your legislative assistance and active initiative it would have been impossible to meet the stated targets.

And now I would like to touch on yesterday’s report of the Audit Chamber which concerns the Government’s program of action for 2010. The peculiarity of Audit Chamber’s work consists in that the Government has been keeping by the key provisions of the President’s electoral program, namely that we should reveal the problems ourselves as the pledge of successful fight against negative phenomena.

In particular, I want to touch on the situation in the social sphere and introduce to you the reasons behind our willingness of dealing with these problems. As the chairman of Audit Chamber noted in his statement, we started fulfilling these functions on the basis of the assignment of the President of the Republic of Armenia, and in 2010 we made a political decision to dissolve the public service of social security which triggered a long chain of corruption phenomena.

In the wake of the latest findings, the President of the Republic ordered the Audit Chamber and Government to launch a large-scale study of the situation in this sphere.

The studies led to the exposure of those adverse phenomena which the chairman of the Audit Chamber dwelt on in his yesterday’s report. As stated by the chairman of the Audit Chamber, these activities are being continued by the audit group of the Ministry of Finance, the results regarding Yerevan city have been are summed up and submitted to the Office of Prosecutor General.

At the same time, we have 3 months to come to a final conclusion over the situation in Yerevan. I mean first of all the settlement of pensions, then that of welfare benefits.

Owing to the efforts of the Ministry of Labor and Social Affairs, the target group identification performance has been simplified leading to considerable reduction in the number of beneficiary households to 95 thousand from 105 thousand.

Unnecessary papers used to be required formerly. In the meantime, simpler ones might help reveal those eligible families in real need of assistance. Work is underway, and the Government adopted corresponding decisions yesterday, supposed to considerably simplify the process.

As a whole, we can describe as positive our cooperation with the Audit Chamber: any report is examined and the proposals submitted by the Chamber become a point of issue in the Government.

In particular, at yesterday’s cabinet sitting the Government decided to reconsider its policy in respect of work done with the World Bank. We will henceforth rule out the practice of getting various types of technical assistance in the form of consultancy.

Secondly, the tender commissions established in the Republic of Armenia will be responsible not only for the follow-up of current functions, but also for the monitoring of contents which is important, too. We are intent on introducing a requirement for mandatory audits to be carried out after implementation of post-credit programs so that the implementing entities understand that any program will have to be discussed in public.

Anyway, we can hereby state that those decisions passed based on the findings of the Audit Chamber will help curb the bulk of corruption risks in the country. At the same time, it should be pointed out that there are many controversial items in the report of the Audit Chamber, and we will continue the ongoing debate with the latter because, we seem to be still short of such remedies as may help find mutually acceptable solutions in terms of functions streamlining.

The Chief Treasurer of the Republic of Armenia will present you in detail the 2010 budget performance and our colleagues from the government will answer any question of interest to you.

Thank you.