Armenia’s government on Thursday forecast that the domestic economy will shrink by 2 percent this year due to the coronavirus pandemic and announced plans to borrow more than $500 million to cushion the impact of the recession.
Speaking at a cabinet meeting in Yerevan, Finance Minister Atom Janjughazian argued that the global health crisis has caused a major drop in international prices of copper, one of the court’s main exports, shut down the Armenian tourism sector and will cut multimillion-dollar remittances from Armenians working abroad.
Janjughazian said that this necessitates a revision of the government’s spending and revenue targets for year which were based on an economic growth rate of at least 4.9 percent projected for this year. He said the 2020 state budget should be amended to take account of 150 billion drams ($310 million) in coronavirus-related relief measures planned by the government and a shortfall in tax revenues which will likely total 170 billion drams.
Prime Minister Nikol Pashinian’s cabinet approved corresponding changes in its budget proposed by the Ministry of Finance. The changes also have to be approved by the Armenian parliament.
Janjughazian estimated that the government needs about 260 billion drams ($540 million) in “additional financial resources,” presumably foreign loans, in order to meet its revised budgetary targets. Armenia’s public debt should therefore reach a level equivalent to 60 percent of GDP by the end of this year, he said.
According to Janjughazian, the aggregate debt stood at almost $7.3 billion as of last month.
The minister did not specify the sources of extra borrowing planned by the government.
The authorities in Yerevan can use a $248 million “stand-by arrangement” approved by the International Monetary Fund in May 2019. The IMF said at the time that the three-year lending program will be launched in case of “unforeseen economic shocks.”
In its World Economic Outlook released last week, the IMF forecast a 1.5 percent drop in Armenia’s GDP in 2020. It cautioned that this is a “baseline scenario” which assumes that the pandemic will fade in the second half of 2020.
The Armenian economy grew by 7.6 percent last year and continued to expand robustly in the first two months of this year. However, the situation changed dramatically in March as the government put the country under lockdown to fight against coronavirus.
The month-long lockdown has involved the temporary closure of most nonessential businesses. The government allowed construction companies as well as manufacturers of construction materials and cigarettes to resume their work on April 13.
Deputy Prime Minister Tigran Avinian said on Thursday that the government will also allow other sectors of the economy to resume work if the spread of the virus remains “manageable.” But he gave no time frames for their reopening.