By Shakeh Avoyan
Macroeconomic stability in Armenia reached another milestone on Thursday when its Finance Ministry issued and easily sold its first-ever bonds repayable in more than five years. The event followed a sharp decrease in yields on short-term treasury bills that have so far been the Armenian government’s main source of internal borrowing.
The seven-year bonds worth 1.5 billion drams ($3 million) were quickly auctioned off for an average yield of 9.24 percent, just below the starting rate of 10 percent set by the government. They appeared to have attracted strong interest from local banks and other financial institutions.
“Demand exceeded supply by almost three times,” Arshaluys Markarian, head of the Finance Ministry’s debt management department, told RFE/RL. He said that testifies to investors’ confidence in the country’s economic future. The government plans to issue more bonds by the end of this year and eventually increase their maturity to 30 years, he added.
Post-Soviet Armenian governments have so far relied only on short-term T-bills to finance their budget deficits. The borrowing used to be hugely expensive, with yields averaging 60 percent in the late 1990s. The T-bills were a key source of revenue for the Armenian commercial banks at the time.
Their maturity did not exceed 12 months until 2000 when the government introduced mid-term treasury notes repayable in up to five years. The average yield has since plummeted from 24.3 percent to a record-low level of 6 percent. The process accelerated dramatically in the first half of this year along with the strengthening of the national currency, the dram. The cost of borrowing from the local banks has seen a much slower decrease in recent years.
The sale of the T-bills and medium-term “coupon securities” has covered only a fraction of Armenia’s budget deficit. The lion’s share of the deficit, projected at almost 50 billion drams this year, continues to be covered by low-interest external loans and grants.
The government’s internal debt worth 46 billion drams ($90 million) likewise pales in comparison with the Armenian external debt which currently stands at about $1.1 billion.