The International Monetary Fund (IMF) deems that targeted subsidies, if administered correctly, would be an appropriate policy response to the increase in gas prices expected in Armenia in April.
This position voiced in an RFE/RL interview by IMF Mission Chief for Armenia Mark Lewis appears to contradict the main arguments of the Armenian government that international donor organizations are against subsidies.
Natural gas tariffs for individual and corporate consumers in Armenia are expected to be raised beginning on April 1. ArmRosGazprom (ARG), the Russian-dominated national gas distribution company in Armenia, has asked the regulatory body to approve its bid to raise the price of natural gas supplied to individual consumers from the current 96 drams ($0.25) per cubic meter to 136 drams (about $0.36).
Most experts expect the Public Services Regulatory Commission to largely approve the distribution company’s bid and agree that the resulting increase in gas prices will mostly hit the vulnerable strata of the society.
The Armenian government has already indicated that no compensations are planned for the population. Responding to a question about a possible subsidy over higher gas prices late last year, Prime Minister Tigran Sargsian particularly spoke against general subsidies.
“No such thing has even occurred to me, and I do not advise that you should prompt that to anyone. No, I am not a proponent of that,” said the head of the Armenian government without elaborating as to whether targeted subsidies would be appropriate.
But talking to RFE/RL on Wednesday, Lewis said that the IMF does support subsidies in specific cases and that “if administered correctly, targeted subsidies would be an appropriate policy response.”
“Generally with these kinds of policy changes it can be very effective to provide targeted subsidies, not general subsidies. So, the principle is that if there is a policy change and it has a negative impact, you try to help the people that are most affected,” said the IMF mission chief for Armenia. “So, indeed, we do support in specific cases targeted subsidies to help the poor.”
ARG Deputy Director Vahagn Arakelian said earlier this week that individual consumers will have to spend up to 2,000 drams (about $5.2) more on the average per month in connection with the expected price rise. He added, however, that it was up to the government to decide whether to provide subsidies or not.
“We cannot subsidize. Solving social problems is not our task. This is up to the government to decide, because they know who are the consumers [that need it],” said Arakelian. “We will pay considerably more in taxes – 5 billion drams (about $13.1 million) in value-added tax. This is several times more than needed to provide compensation for such people… And this is what will be a social state when the rich pay for what they should pay.”