In a July 2015 report published by the Jubilee Debt Campaign (JDC), Armenia is listed as one of 22 countries already in a government external debt crisis.

The report, undertaken with the assistance of the European Union, looks at countries’ total net debt (public and private sectors) future projected government debt payments, and the ongoing income deficit (or surplus) countries have with the rest of the world, and categorizes them as either in, or at risk of, new debt crises.

(The JDC report was abridged in an article entitled “Beyond Greece, the World is Filled with Debt Crises” published in The Guardian)

Armenia, and the 21 other countries listed as “already in debt crisis”, show a significant net debt (more than 30% of GDP), and high current government external debt payments (more than 15% of government revenue).

Over the past few years, Armenia’s national debt has drastically risen.

In 2004, Armenia’s national debt stood at US$957 million. Ten years later, according to Armenia’s National Statistical Service (NSS), the amount was $4.4 billion, of which $3.7 billion was external debt. Given Armenia’s stated GDP of $10.9 billion (Dec. 31, 2014), the country’s national debt comprised 40.4% of GDP, well above the 30% threshold delineated by the JDC.

More importantly, the question must be asked if these loans been effectively used and what, if any, economic sectors have benefited.

In this series of articles, Hetq will attempt to present the amounts owed by Armenia to various international lenders and how they were utilized.

Armenia started to receive international loans right after the country gained its independence in the early 1990s. The first lenders included the World Bank, European Union, the European Bank for Reconstruction and Development (ERBD), and Russia. Loans started to pile up after 1996.

By 1999, the ratio of national debt to GDP in Armenia stood at 50%. By 2008, it had dropped to 16% due to high levels of economic growth. By 2010, in the wake of the world financial crisis, it had risen to 40.4%. Armenia’s government claimed the rise was due to budgetary deficits and the devaluation of the AMD designed to protect the country’s economy.

As stated, Armenia closed out 2014 with a debt to GDP ratio of 40.4%. The latest figures (May 2015) published by the NSS peg the national debt (excluding domestic debt) at $3.924 billion, of which $3.493 was government debt and $430 million Central Bank debt.

64% of government debt has in the form of multilateral loan projects, 12.2% in bilateral loans, .4% commercial bank loans, and 23.4% in securities purchased by non-residents.

World Bank is largest lender to Armenia

The World Banks has provided Armenia the largest amount in terms of multilateral loan projects from monies derived from the International Bank for Reconstruction and Development (IBRD) and the International Development Association.

As of March 2015, Armenia’s debt to the World Bank amounts to $1.555 billion (39.6% of Armenia’s overall external debt).

According to a statement released this March 16 by the World Bank’s office in Armenia, starting in 1992 to date, the World Bank has lent Armenia a total of $2.06 billion for a variety of projects – infrastructure development, road construction, poverty reduction, improved governance, agriculture, education, health, etc. Last year, World Bank officials in Armenia said they plan to increase financial assistance in 2015. (Armenia joined the World Bank in 1992)

A number of lending projects have already been announced. There’s a $30 million loan to improve the quality of communal infrastructure and its accessibility to socially vulnerable groups. A grant of $8.5 million will go to project that will study whether geo-thermal power can be used to produce electricity. There’s also a $52 million loan to improve and update the country’s electricity distribution network.

The first loan agreement that Armenia signed with the World Bank was on April 7, 1993 as part of the Institutional Systems project. The loan totaled $12 million. The principal was finally paid off in March 2013.

(To be continued)