On Armenia`s national debt in light of USD/AMD exchange rate last March: ArmInfo

On Armenia`s national debt in light of USD/AMD exchange rate last  March: ArmInfo

An analysis of the stability of the RA government's debt shows that although the latter  is stable, manageable and low-risk, it is sensitive to economic growth as well as exchange rate shocks, reads the 2024 budget message.

The authors of the draft budget point out the fact that by the end of  2022, the state treasury deficit amounted to 179.5 billion drams or  2.1% of GDP, which is by 2.5 percentage points. lower than the  previous year's figure of 320.5 billion drams. As a result, the ratio  of the RA government's debt to GDP was 46.7%, decreasing by 13.6  percentage points compared to 2021.

The decrease in the ratio of government debt to GDP was mainly due to  the revaluation of the dram and the growth of real GDP, the document  says. Thus, a decrease in the indicator by 13.6 percentage points.   contributed to: revaluation of the national currency against the US  dollar - by 11 percentage points, economic growth - by 6.2 percentage  points, a decrease in the real interest rate - by 1.8 percentage  points.  and the primary deficit - by 0.2 percentage points. Net  lending from the state budget amounted to 1.7% of GDP.

From this point of view, the country's financial authorities assessed  the size of the possible deviation of government debt from forecasts  in conditions of economic growth that was lower than predicted and  currency risks. Calculations have shown that the estimated economic  growth shock in case of growth (by 1.5% menu), the ratio of  government debt/GDP of the Republic of Armenia in 2024 will be 49.5%,  and in the case of an exchange rate shock (return to 480 drams per  $1) - 51.8%, if the expected deficit exceeds (by 1 percentage point)  - 49.5%. If these shocks are combined, the government debt/GDP ratio  will be 53.5%, remaining below the "critical" threshold of 60%.

However, the Ministry of Finance of Armenia hopes to ensure 7% GDP  growth (and in the presence of favorable external conditions - all  9%), as well as improving the tax-to-GDP ratio by 0.75 percentage  points. Then the deficit will be 341 billion 303 million drams or  3.2% of GDP (of which 220.5 million drams will be financed from  internal resources, and 120.8 from external sources).

As a result, the ratio of public debt to GDP at the end of 2024 will  be 50.7%, against those expected by the end of this year. 49.4% and  actual 49.3% for 2022. The government's debt will be 48.4%, instead  of the 47% expected for 2023 and the actual 46.7% for last year.  This, as the head of the Ministry of Finance noted earlier, will  preserve the prospects for positive credit ratings. In dollar terms,  the government's debt by the end of 2024 will reach $11 billion 891  million, against the expected $10 billion 900 million for the current  year and $10 billion 086 million for 2022.

Domestic debt is planned to increase to 44.3%, against 43.2% expected  by the end of 2023 and actual for 2022 - 41.6%. Dram debt in the  structure of government debt will reach 44.4%, instead of what was  expected for this year. 42.7% and actual for last year - 37.9%.

In 2024, 805.2 billion drams will be required to service and repay  the government's debt, of which debt repayments will amount to 483  billion drams, and 322.2 billion drams for interest payments or 3.1%  of GDP (2.9% per ton). 2.3% - for 2022).