By Emil Danielyan
The Armenian parliament has overwhelmingly passed the government’s budget for next year that calls for an almost 25 increase in public spending which will largely be channeled into social security, health care and education.
The government expects to collect a record-high 345.3 billion drams ($712 million) in revenues and spend 394.6 billion drams. This is roughly 5 percent more than was envisaged in the initial version of the bill unveiled by ministers in late October.
The budgetary targets were revised upwards during subsequent parliamentary discussions and especially after this month’s $132 million sale of Armenia’s largest metallurgical complex to a German-led consortium. The government will use $25 million in proceeds from the deal for financing a large part of the last-minute revenue and expenditure increase approved by the National Assembly on Friday night.
Most of the extra money, 7.3 billion drams ($15 million), will be allocated to the Armenian military. It was initially due to get about 54 billion drams, a sum which Defense Minister Serzh Sarkisian says would not have been enough to meet the army’s needs in 2005. Armenia’s defense spending in 2003 stood at 50 billion drams.
Nonetheless, the military will cease to be the number one recipient of the scarce public funds as it is due to receive slightly less than the public education sector for the first time in Armenia’s post-Soviet history. The chronically underpaid schoolteachers will be the main beneficiaries of that. Their average monthly salary is to soar by 65 percent to 50,500 drams ($104) in the course of next year.
The government also plans sizable rises in health care and social expenditures. Officials are therefore keen to stress that the 2005 budget has a “social orientation.”
The budgetary parameters, endorsed by the International Monetary Fund and the World Bank, are based on government expectations of continued economic growth and improved tax collection.
The Armenian economy is on track to growth by 11 percent this year, according to officials figures. The growth rate is forecast to slow down to 8 percent in 2005.
In an extensive report released earlier this month, the IMF offered a largely favorable economic outlook for Armenia, but warned of potential pitfalls lying ahead. The government’s “weak” tax collection record is one of them, according to the IMF.
“While tax revenues increased rapidly in both real and nominal terms since 2000, they have not fared well as a share of GDP,” said the report.
That tax collection leaves much to be desired was acknowledged by President Robert Kocharian at a meeting with a large group of Armenian businessmen on Monday. Kocharian, according to his press service, vowed to crack down on the huge informal sector of the economy and widespread tax evasion in 2005.
“Next year there will be no concessions to anybody on this issue and we will start from [dealing with] those persons that are in the public spotlight,” he said without naming names.”
Kocharian added that higher tax revenues are essential for achieving an economic “breakthrough.” “2005 will be a serious year for our economy,” he said. “In terms of obligations, the government will carry a big burden.”