ARMENIAN 2013 BUDGET DEFICIT COMES IN BELOW PLAN, DETERIORATION LIKELY

IHS Global Insight
June 5, 2014

by Venla Sipila

Quoting Finance Ministry data, ARKA News reports that Armenian budget
revenues in 2013 totalled AMD1.07 trillion (USD2.6 billion), while
spending amounted to AMD1.14 trillion. These results left the budget
deficit at AMD71.4 billion. Given that the GDP for last year was
earlier reported at AMD4.3 trillion, this deficit corresponds to 1.7%
of the GDP. Thus, the budget gap came in below the shortfall of AMD120
billion, or 2.6% of GDP, specified in the original 2013 fiscal draft.

The budget outperformed even if economic growth last year proved
significantly lower than the targeted expansion rate of 6.2% used
as a basis of the fiscal plan. The stronger-than-planned budget
results partly drew on total social spending remaining under the
budgeted total. Indeed, according to a statement by Deputy Finance
Minister and Treasury Secretary Atom Janjughazyan, social spending,
which amounted to 26% of GDP, remained 1.4% below plan. Meanwhile, the
National Statistical Service of Armenia reports that external public
debt ended last year at USD3.9 billion, up 4.3% over the year. External
public debt then remained virtually stable during the first quarter
of 2014, however ending March 7.5% higher than a year before.

Significance:The stronger-than-planned budget results well fit our
expectations. They mainly draw on problems in implementation of some
government programs. For 2014, the government has outlined increases
in pensions and the minimum wage. Thus, the budget position is likely
to weaken again this year. The 2014 budget draft calls for a deficit of
AMD110 billion, or 2.3% of GDP (seeArmenia: 7 January 2014:Budget 2014:
Armenian fiscal plan brings increase in public spending), and also the
IMF has advocated somewhat higher fiscal spending, given the need to
reduce poverty (seeArmenia: 27 December 2013:IMF sends positive signal
for a potential 38-month loan to Armenia). We believe that the 2014
budget plan is fairly realistic. However, the government does still
have important challenges to tackle as relates to public finances. In
particular – and taking into account of the continued need for social
spending in particular – it is important to continue and strive to
strengthen the revenue side of the budget, by widening the tax base.

From: Emil Lazarian | Ararat NewsPress