The Armenian government pledged on Thursday to significantly increase public spending on infrastructure projects and defense while ensuring a corresponding rise in its tax revenue next year.
The draft state budget for 2018 approved by ministers calls for over 1.46 trillion drams ($3.1 billion) in total expenditure, up by 7.6 percent from the government’s 2017 spending target. It commits the authorities to collecting almost 1.31 trillion drams in taxes and other state revenue.
The projected budget deficit would slightly rise, in absolute terms, to 157 billion drams ($330 million). But it would be equivalent to 2.7 percent of Gross Domestic Product, down from roughly 3 percent expected in 2017.
The deficit reached almost 6 percent of GDP last year amid sluggish economic growth and a resulting shortfall in budgetary revenue.
Finance Minister Vartan Aramian said most of the extra spending planned by the government will be channeled into various infrastructure projects. He said capital spending will total 175 billion drams, compared with less than 100 billion drams that were originally earmarked for this year. This is meant to stimulate economic activity in Armenia, he told reporters.
Prime Minister Karen Karapetian’s cabinet pledged in April to spend an extra 50 billion drams on capital projects in 2017, citing better-than-expected tax collection. The move was backed by the International Monetary Fund.
The government reported a more than 7 percent increase in its tax revenue in the first half of this year. The draft 2018 budget calls for a sharper rise.
The current head of Armenia’s State Revenue Committee (SRC), Vartan Harutiunian, promised a far-reaching reform of tax administration shortly after taking office a year ago. Harutiunian, who is a figure close to Karapetian, also pledged to crack down on widespread tax evasion and corruption among SRC officials.
The budgetary targets are based on a government projection that the Armenian economy will grow by 4.5 percent in 2018. The government has forecast a similar growth rate for 2017.
The budget proposal, which will be sent to parliament next month, would also increase Armenia’s defense spending by about 18 percent to 247 billion drams ($515 million). This reflects a continuing arms race with Azerbaijan in the unresolved conflict over Nagorno-Karabakh.
Speaking after a weekly cabinet meeting, Aramian made clear that the government does not plan any rises in public sector salaries and pensions next year.He cited the need to avoid additional government borrowing that would add to the country’s mounting debt burden.
In Aramian’s words, Armenia’s aggregate public debt is on track to reach $6.7 billion, or roughly 60 percent of GDP, at the end of this year. The minister did not exclude that it will pass the $7 billion mark within a year. The government will finance the 2018 budget deficit with fresh foreign loans and bond sales.
Opposition politicians and other critics of the government increasingly voice concern at the rising debt. They also accuse the authorities in Yerevan of misusing multimillion-dollar external loans.
Government officials dismiss these claims. Aramian again argued on Thursday low-interest loans provided to Armenia by the IMF, the World Bank and other international lenders account for the bulk of the debt.
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