Public Debt of Armenia: Quadrupled in the Last Decade
Armenia's total public debt (internal and external) totaled 1.7 billion US dollars at the end of 2007.
By the end of 2017, according to the data published by the Armenian Ministry of Finance and the National Statistical Service, it was already $6.8 billion (around 3.3 trillion drams), having almost quadrupled in ten years.
A sharp increase in public debt was recorded in 2009, when the global economic crisis hit Armenia.
2014-2016 was another phase of debt accumulation, due to Armenia’s main partner Russia's economic deterioration (mainly due to West's sanctions and oil deflation) and the price drop of non-ferrous metals - copper and molybdenum - in the international market, since mining is one of the top priorities in Armenia's industry and exports.
The Armenian dram also devalued at the end of 2014, resulting in the raise of external debt in foreign currency.
To save the situation, Armenian government increased the external debt burden.
Out of the $ 6.8 billion debt as of December 2017, the external debt is around $ 5.5 billion, of which more than $ 600 million is the debt of the RA Central Bank, the rest - of the government. Total external debt has increased by around 690 million dollars or 14.3% within last year.
The internal debt is around 1.3 billion dollars (619 billion drams), having grown over $140 million or 12.6% within last year. Internal debt is mainly accumulated by selling government bonds to citizens and comprises 18.9% of Armenia’s total debt.
Since the exchange rate is a big risk in case of the external debt, which is in foreign currency, the government intends to increase the internal debt to mitigate that risk in the coming years.
Debt thresholds and "flexibility" of the law
Armenia's public debt will continue to grow in the near future. The state budget revenues are not able to completely cover the expenditures envisaged by the same budget. According to forecasts, public debt will total some $7.2 billion by the end of this year.
The debt-to-GDP ratio of Armenia has also increased within last years. 10 years ago this ratio was only 16.4%. By the end of 2016, Armenia's debt-to-GDP ratio was 56.6%.
There is still no data for 2017, since the annual GDP volume hasn’t been published, but it’s forecasted to have a 60.7% debt-to-GDP ratio by the end of 2017.
The RA Law on Public Debt, which stipulates standards that concern only the debt of the government, not that of the RA Central Bank, has been quite flexible recently.
Prior to 2016, the law stipulated that the government debt should not exceed 60% of Armenia's GDP as of December 31 of the previous year. In 2015, the government and the National Assembly decided that this threshold should be applied only to the debt of the government.
This part of the law was again changed in December last year. Accordingly, the size of the debt should not be compared with the GDP of the previous year but to the GDP of the current year.
For example, if the government's debt at the end of 2017 is compared with the previous year's GDP, then 58.8% turns out to be quite close to 60%, while after the amendment, according to the forecast of the Ministry of Finance, it will not reach 55%.
The Armenian government, represented by the Ministry of Finance, periodically says that there is no need to worry about debt burden, management and redemption, and that the situation is under control. If viewed from purely a legal point of view and by several other criteria, such as debt / export ratio, the public debt is within the limits of the norms. However, it’s clear that these figures are worrying.