Effectively increasing Armenia’s public debt, the Armenian government has committed itself to compensating the Central Bank for 81 billion drams ($170 million) in net financial losses that have been incurred by it over the past decade.
Under Armenian law, the government is entitled to receiving profits made by the Central Bank spending them at will but is also liable for its debts.
Prime Minister Hovik Abrahamian’s cabinet formally assumed the debts at a weekly meeting in Yerevan on Thursday. But it made clear that it will not immediately repay them with cash. The government decided instead to issue promissory notes certifying its new financial obligation equivalent to about 7 percent of Armenia’s 2016 state budget.
The government did not publicize a repayment schedule. Deputy Finance Minister Pavel Safarian also declined to specify it when he spoke to reporters after the cabinet meeting.
“These large debts have been accumulated by the Central Bank since the early 2000s,” Safarian said. “There have been various reasons for that. I can’t explain them to you in two or three minutes.”
The Central Bank similarly declined to explain the causes of its losses, which stood at 106 billion drams until this week. The government spent the bulk of 31 billion drams in profits made by the bank last year on reducing the losses to 81 billion drams.
According to Vahagn Khachatrian, an economist affiliated with the opposition Armenian National Congress (HAK), the bank started losing money in 2004. Khachatrian blamed the losses on “unacceptable luxuries” such as the construction of the bank’s training and recreational centers in the resort towns of Tsaghkadzor and Dilijan.