By Emil DanielyanThe Armenian government’s tax revenues continued to drop significantly in February, pushing up the state budget deficit to the highest level in years.
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 as the global credit crunch dragged the Armenian economy deeper into a recession.
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.
(Photolur photo: Government ministers approve the expenditure delay at a cabinet meeting outside Yerevan on March 26.)