The Armenian government announced on Monday plans to slash its budgetary expenditures by 9 percent next year, citing the ongoing economic recession and the resulting serious shortfall in its tax revenues.
The government’s draft budget for 2010 approved by ministers envisages an even sharper reduction in state revenues which would dramatically widen Armenia’s public deficit.
Finance Minister Tigran Davtian said the austerity measures reflect the economic situation in the country that has progressively worsened this year amid a deepening fallout from the global financial crisis. “We drew up the budget in a conservative regime,” he told journalists after an extraordinary session of Prime Minister Tigran Sarkisian’s cabinet.
Armenia’s state budgets have steadily and rapidly grown over the past decade on the back of robust economic growth that came to an end last year. The proposed 2010 budget, if adopted by parliament, will mark the first cut in Armenian government spending since the economic turmoil of the early 1990s.
A relevant bill drafted by the Finance Ministry calls for 859.6 billion drams ($2.23 billion) in budgetary expenditures, down from 945.4 billion drams budgeted for this year. The government has been struggling to meet the 2009 target due to a significant fall in its tax revenues resulting from the recession. The Armenian economy contracted by as much as 18.4 percent in the first eight months of 2009.
The revenue shortfall will be mostly offset by anti-crisis loans allocated to Armenia by Russia, the International Monetary Fund, the World Bank and other international institutions. One of Davtian’s deputies, Vahan Aramian, told RFE/RL in late July that the government will still have to cut its projected 2009 spending by about 4 percent.
The government has already failed to keep the 2009 budget deficit from rising above the projected level of 40 billion drams. The deficit totaled 67.5 billion drams in January-July 2009, according to the Finance Ministry.
It is projected to surge to 183 billion drams as a consequence of a 25.2 percent drop in state revenues envisaged by the draft 2010 budget. According to Davtian, the government plans to use external loans for financing half of the fiscal gap.
“Unfortunately, spending on debt servicing will rise next year,” said the finance minister. “That is one of the reasons why we will be as cautious as possible in attracting new credit resources.” That is why, he added, the government will abandon earlier plans for further rises in pensions, poverty benefits and other social spending.
Labor and Social Security Minister Gevorg Petrosian openly criticized the measure. In particular, he demanded more government funding for boarding schools, orphanages and seniors houses, offering to personally show fellow cabinet members the dire conditions of those institutions.
The complaint prompted a stern rebuke from Prime Minister Sarkisian, who recalled a recent corruption scandal over the alleged misuse of government funds by Petrosian’s ministry. “When it comes to the allocation of financial resources, we all recall the difficult plight of our compatriots,” he said. “But once we start spending money somehow we forget that those people live in dire conditions.”