Minister Admits $102 Million Budget Gap

YEREVAN (RFE/RL)–The Armenian government will soon take a set of austerity measures to cope with a mounting shortfall in budget revenues which it expects to reach a staggering 55 billion drams ($102 million) by the end of this year–Finance and Economy Minister Levon Barkhudarian announced on Wednesday. The gap–which results from a worse-than-expected tax collection and the World Bank’s decision to delay the release of deficit-funding loans to Armenia–means that the government will be unable to make 86 billion drams worth of expenditures projected for this year–he said. The sum is equal to about one third of total budget expenditures and includes public sector debts accumulated in the previous years.

Barkhudarian said that the government hopes to save 24 billion drams by cutting back spending and re-scheduling some of its external debts–while the rest of the money in question will be transferred to next year’s budget. "We will try to repay this debt in the course of the year 2001," he a told a news conference.

The cabinet of Prime Minister Andranik Markarian is expected to approve the finance ministry’s proposals amounting to a budget sequestration at its session on Thursday. At least 9 billion drams in expenditures will likely be cut as a result. Under Armenian law changes in the budget must be approved by the parliament in order to come into force.

Government figures show that only 60 percent of projected annual taxes and duties have been collected so far. Barkhudarian acknowledged that despite their improved performance in the second half of the year tax authorities will fall short of their target. "Three quarters have passed and it is evident that there will be a shortfall in revenues," he said.

Repeated delays in the privatization of the state-run energy distribution networks mean that Armenia will not receive the bulk of $46 million in fresh World Bank loans which were supposed to cover about half of this year’s budget deficit. The authorities hope that the funds will be made available before the end of March. The cabinet decided last week to complete the privatization process by that time.

According to Barkhudarian–the austerity measures–including the proposed changes in the 2000 budget–have been on the whole approved by the International Monetary Fund. The IMF has been negotiating with Yerevan on the release of a new three-year loan program designed for "poverty reduction and development." Barkhudarian said the two sides have already agreed on the key conditions for the loan which would be worth roughly $120 million. "There remain some minor technical issues to be agreed upon and I think that we will successfully conclude the negotiations," he added. A senior IMF mission is scheduled to visit Yerevan again on November 7.

The transfer of government expenditures will lead to a sharp increase in next year’s budget deficit. Barkhudarian–whose ministry has already drafted the main points of the 2001 budget–estimated it at 95 billion drams–saying that most of the deficit will continue to be covered by external loans. He said the government has still to figure out how to obtain the remaining 41 billion drams.

"Proceeds from privatization will allow us to close that gap–but it is more desirable to spend those funds on other purposes," he said. "We will try to reduce those 41 billion drams so as to spend less and save more from other sources."

Barkhudarian further noted that despite the "tense" fiscal situation economic outlook for next year is positive–with the Armenian economy expected to grow by at least 6.5 percent. "We have reason to anticipate a considerable rise in foreign investmen’s." Official figures put the GDP growth at 2.9 percent in the first nine months of this year. Barkhudarian attributed the modest by Armenian standards figure to the recent severe drought that hit hard the agricultural sector. But he described as "encouraging" the 6.8 percent rise in industrial output and the 22.5 percent growth in exports.

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