Armenian Budget Deficit Soars Amid Tax Shortfall

YEREVAN (RFE/RL)–The Armenian government’s budget deficit continues to soar to its highest levels in years as expected state tax revenues continue to plummet as the global credit crisis drags the Armenian economy deeper into a recession.

In a monthly budgetary report released at the weekend, the Finance Ministry said the government’s overall revenues fell by 14.6 percent to 84.6 billion drams ($230 million) in the first two months of this year.

Proceeds from value-added tax (VAT), the number one source of public funds, were down by almost 22 percent at 33 billion drams. Two-thirds of them were levied from imported goods. Armenia’s net imports tumbled by 21 percent in January-February 2009.

The recession explains why proceeds from corporate profit tax fell by 21 percent to almost 9 billion drams. Even before the economic crisis the 20 percent flat tax accounted for a very modest share of the government’s tax revenues, highlighting widespread tax evasion in the country.

The decreased revenues contrasted with a 5.3 percent year-on-year increase in government expenditures registered by the Finance Ministry during the two-month period. This translated into a budget deficit of 14.3 billion drams, equivalent to 5 percent of Gross Domestic Product. The government posted a virtually zero deficit last year. Its projected budget for 2009 is also essentially balanced.

The worsening economic situation in Armenia is making the record-high spending and revenue targets set by the 2009 budget increasingly unrealistic. In what may well have been a prelude to their downward revision, the government last week rescheduled 131 billion drams ($359 million) in planned expenditures until the fourth quarter of the year. The figure is equivalent to 14 percent of the full-year spending target.

It is still not clear whether the Armenian authorities will use more than $1 billion in emergency loans promised by the International Monetary Fund (IMF) and Russia’s government for budgetary purposes. The IMF has already disbursed nearly half of its $540 million loan package primarily designed to bolster the recently devalued Armenian currency, the dram. The authorities in Yerevan expect to receive the $500 million Russian loan in late May or early June.

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