The annual rate of economic growth in Armenia has dropped to record levels.

As of November, it stood at 3.1%. Naturally, objective factors come into play like the rise in natural gas and electricity prices. The government says that these increases alone result in a 1% negative impact on economic growth.

But there can also be subjective factors like a restraining loan and tax budget policy.

The government’s budgetary policy has become extremely restrictive in the past year. For example, a 77 billion AMD deficit had been estimated for the nine month period, but instead, we wound up with a 46 billion surplus – a 76% execution of expenditures.

Second, overpayments reached 120 billion. These are taxes that are supposed to be returned to business operators – firstly to exporters who are freed from paying VAT. In other words, overpayments constitute the government’s debt to business. This debt increased by around 21 billion this year.

Third, Central Bank accounts show that the government’s unexpended amounts continue to increase. As of October, they reached 130 billion. These facts show that the government enacted a restrictive tax-budgetary policy for the year. But a well-known maxim of the market tells us that you must spend in order to develop. This refers to us all –from households to governments.

The person who hoards cash in his mattress doesn’t contribute to economic growth. These monies are ‘lost’. The same holds true for the government.

Amassing large amounts of resources and parking them in the Central Bank, doesn’t make much sense. This is especially true when rates of economic activity are falling well behind the projections.

The government’s restrictive policy is, at minimum, having a 2-3% negative impact on economic activity. If to this we add the Central Bank’s constant tendency towards adopting a restraining loan policy, then we begin to understand why economic growth in Armenia remains at unsatisfactory levels.