Despite a significant increase in Armenia’s public debt, the government will obtain $350 million in fresh loans this year to finance its budget deficit, Finance Minister Vartan Aramian said on Thursday.
The debt will thus rise to a new record high of $6.25 billion, a figure equivalent to around 60 percent of the country’s Gross Domestic Product.
“As long as the state’s fiscal and budgetary policy entails a [budget] deficit, it is obvious that the deficit will have to be covered through borrowing,” Aramian told reporters. “As long as our revenue lags behind our need for [government] spending, we will have to borrow,” he said.
The public debt stood at less than $2 billion before the 2008-2009 global financial crisis plunged Armenia into a severe recession. The authorities in Yerevan have since borrowed heavily from the World Bank, the International Monetary Fund and other external sources to prevent massive spending cuts and finance infrastructure projects.
Economic growth in Armenia has been sluggish in the last few years, translating into shortfalls in tax revenue and bigger budget deficits.
Prime Minister Karen Karapetian’s cabinet plans to rein in the deficit through significant spending cuts envisaged by its 2017 budget. Aramian said in September that the planned cuts will also help the government keep the debt under control.
The minister insisted on Thursday Armenia is still not a heavily indebted country despite its increased debt burden. But he acknowledged that budgetary expenditures on debt servicing will continue to rise and will peak at $500 million in 2020.
The Armenian state budget is currently worth about $3 billion.
David Lipton, the IMF’s first deputy managing director, said in December that the Armenian authorities intend to “ensure that debt remains below 60 percent of GDP over the medium term.”