The Armenian economy is projected to grow by 5.8 percent this year and 5.6 percent next year, Hovannisian told the National Assembly as it began debating the draft 2025 state budget put forward by the government.
GDP growth reached 12 percent in 2022 and 8.7 percent in 2023 mainly because of positive side-effects of Western sanctions against Russia. Armenian entrepreneurs took advantage of the sanctions by re-exporting many Western-manufactured goods to Russia. Early this year, Armenia appeared to have also become a conduit for exports of Russian diamonds and gold to world markets.
“The economy has now entered a phase during which the rates of economic growth and [tax] revenue generated from it tend to return to certain normal levels. Under these conditions, we should spend taxes paid by our public with greater care and prudence,” Hovannisian said, adding that the government should at the same time keep up its crackdown on tax evasion.
In what he portrayed as the first step towards greater fiscal austerity, he announced that the government will cut its public administration costs by 4 percent in 2025.
Still, its draft budget calls for an 8.6 percent rise in overall public spending that should total about 3.5 trillion drams ($8.9 billion). Hovannisian said earlier that this would widen the budget deficit to 5.5 percent of GDP from 4.6 percent anticipated in 2024.
Opposition lawmakers scoffed at the minister’s comments made during the parliament debate on the proposed budget.
“He admits that they have not spent [public funds] efficiently and sparingly until now and since the [inflow of tax] money is now falling they have decided to spend more efficiently,” one of them, Artur Khachatrian, said.
In its five-year policy program approved by the parliament in 2021, the government pledged to ensure that the Armenian economy expands by 7 percent annually. Prime Minister Nikol Pashinian insisted as recently as last December that it is on track to continue meeting this growth target.
Khachatrian said it is now clear that Pashinian’s administration has “deceived the people.” The rapid growth posted in 2022 and 2023 was the result of economic fallout from Russia’s war on Ukraine, rather than Armenian government policies, he said.
Hovannisian downplayed the economic slowdown, saying that even the growth rates expected in 2024 and 2025 are robust for a country like Armenia.
The slowdown has already led to a shortfall in the government’s tax revenue. It stood at 117.4 billion drams ($300 million) in the first half of this year. Some local economists argued that economic growth driven by the lucrative re-exports to Russia can no longer translate into strong increases in tax revenue because it mainly benefits a narrow circle of individuals.