The Government presented the draft budget at the end of September, when the forced displacement of our compatriots from Nagorno-Karabakh was taking place. In the presented scenario of the budget, we do not have the complete framework of the measures and programmes that we are going to implement in 2024. Currently, our various ministries are working on the additional programmes and measures that we should include in the 2024 budget. We will introduce all the plans that must be implemented in the later stages of the debates. The RA Minister of Finance Vahe Hovhannisyan said this on October 30, presenting the RA draft law on the RA State Budget for 2024 at the joint sitting of the NA Standing Committees.
Vahe Hovhannisyan referred to the support money given to the Armenians forcibly displaced from Nagorno-Karabakh and their impact on the budget. The Minister said that although the current version of the budget is presented with a 3.2% deficit, as a result of implementing additional expenses, it will increase to 4.6% in 2024. The Minister noted that this fact will not add additional burden on our country: The money that was allocated to Nagorno-Karabakh as an interstate loan will now be allocated for various expenses.
The Minister spoke about the features of the 2024 state budget, the assumptions based on it, the current economic developments, macroeconomic forecasts, the fiscal framework and the individual indicators of the state budget draft.
“All the measures of the economic policy should be aimed at increasing the economic potential, at the same time taking into consideration that these effects should be of such sizes that will not cause additional inflationary pressures in our country,” the Minister mentioned.
Read also
According to Vahe Hovhannisyan, the capital expenditures in 2024 will amount to 695 billion AMD. The capital expenditures in the gross domestic product (GDP) are reaching 6.6%, compared to 2023 it is increasing by 0.7 percentage. 42% of the capital spending in 2024 will be allocated to the defense sector. Defense expenditures will amount to 555 billion AMD, 7% more than in 2023. 755 billion AMD will be allocated to the social protection sector, which is 16% higher than in 2023 and will make up 7.2% of the GDP. Health care expenses will amount to 171 billion AMD, they are 14% more than in 2023. The increase in spending on education is more significant. It will amount to 289 billion AMD in 2024, which is 39% more than in 2023. As a result, spending on education will make up 2.8% of the GDP, which is 0.6 percentage higher.
The Minister noted that the most important part of the increase in the budget allocated to the Ministry of Education, Science, Culture and Sport is the construction programme of 300 schools and 500 kindergartens. According to Vahe Hovhannisyan, the Government will start the purchase works for the construction of 200 schools in 2023, and they will be implemented next year. According to the rapporteur, this budget does not include the additional expenses that will be incurred as a result of providing education to the population of Nagorno-Karabakh in the RA.
Tourism, exports, money transfers, bonds are also an important part of the budget. According to the rapporteur, in 2023, exports increased by 48.4%, re-export to the Russian Federation has a big role – it increased almost 3 times, the export of goods of Armenian origin decreased by 0.8%.
Vahe Hovhannisyan informed that as of 2023 there is a 48.8% increase in the number of tourists, the number of tourists visiting Armenia from Russia increased by 64.3%. In January-September, the number of tourists reached 1 million 850 thousand, 945 thousand- from Russia and 905 thousand – from other countries. In 2024, the number of tourists is expected to reach 2 million 575 thousand. In terms of money transfers, there is also a decreasing tendency, because last year there was a sufficiently high level.
The Minister noted that high rates of economic activity are ensured in 2023. Compared to the previous period, the growth of economic activity in January-September was 9.7%. According to him, industry has negatively affected economic activity. The reason for this is mainly the termination of operation of the Sotk mine.
There are positive developments in the labor market.
“In the first and second quarters of 2023, the employment level increased, unemployment – decreased. We have 17.4% salary increase, 19% in the private sector, 9.4% – in the public sector. Real salaries rose 13.9% amid 3.1% inflation, which is a pretty big increase. The number of hired workers increased by 5.8%, and the number of unemployed decreased by 16%. The unemployment rate at the end of the second quarter is 17.1%, historically it is the lowest indicator,” Vahe Hovhannisyan said.
“It is a difficult economic period for our trading partners, and we must implement such a policy that these slowdowns in economic growth do not affect us. Based on all this, it is predicted that international oil prices will decrease slightly, international copper prices will decrease by 1.9%, and food prices will also decrease by 2.8% in 2024,” Vahe Hovhannisyan said.
The Minister stated that 7% economic growth will be targeted in 2024.
“The debt level will be 48.6%. In case of materialization of all the risks, the debt can be higher than 60%, but the probability of this is low,” the Head of the Ministry informed.
The Minister of Finance also presented the annual budget of the Ministry for 2024. It amounts to 330 billion AMD, of which debt service amounts to 322 billion AMD.
The NA Vice President Hakob Arshakyan inquired whether there is any kind of calculation, what kind of damage the dram strengthening has caused to the processing industry, and whether there is a coefficient from the viewpoint of ‘cashback’ that takes into account exchange rate fluctuations? The Vice President also introduced proposals regarding the ‘cashback’ system for complex products.
The Minister of Finance informed that the Ministry did not make such a calculation, if possible the calculations will be done.
Concerning ‘cashback’ I have to say that we do not have such a toolkit to guarantee the risks of exporters of various products with state funds for currency fluctuations. These are usually implemented through marketing tools. It’s time for the RA to have such tools as well. The state is not able to manage such risks at the expense of public funds on such a scale,” Vahe Hovhannisyan said.
The Deputy Chair of the NA Standing Committee on Economic Affairs Babken Tunyan noticed in his turn that the rate of economic growth has slowed down. “Won’t there be difficulties for Armenia to ensure 7% economic growth in 2024?” Babken Tunyan asked.
Vahe Hovhannisyan noted that the Government should accelerate the pace of implementing reforms and added that growth of investments and a continued high level of exports should be ensured.
Babken Tunyan mentioned that in order to ensure the expenditure part of the budget and its revenues, it is not necessary to go to extreme strictness of the administration. “Collecting tax revenue is not an objetive, but a means. We should not deviate from that direction,” the Deputy Chair of the Committee said.
The Chair of the NA Standing Committee on Financial-Credit and Budgetary Affairs Gevorg Papoyan inquired in his turn what the Ministry of Finance is initiating in terms of tax expenditures.
Vahe Hovhannisyan noted that steps aimed at tax expenditures are always in the center of attention of the Government.
“We aim to reduce administration costs by 0.5 percentage every year. As for the support programmes, we do not aim to give new tax benefits, but we aim to reduce and cancel existing non-working tax benefits. We will collect the taxes and follow up, where support is needed, we will provide it. Over the years, we have seen how the tax benefits distort the general environment and enable tax avoidance mechanisms to be adopted,” the Minister of Finance noted.
National Assembly of the Republic of Armenia