Armenia's 2.5 Billion Budget for 2008 – A Realistic One

Traditionally, the amount of attention given to the State Budget in Armenia is nil. This important document, which sets out exactly how the country will develop in the next year, defines the mechanisms of how the state policies and activities will impact every single citizen in the country, is usually presented as an indecipherable book of figures, which is hardly ever explained to the average citizen. This year however, everything changed with the sensational announcement of Prime Minister Serge Sargsyan: the state budget will be 2.5 billion dollars, which is nearly double of the state budget in 2007.

[September 17, 2007 |Lragir]It became known from Serge Sargsyan’s speech a few days ago that the Armenian government is going to present a draft budget of 2.5 billion dollars to the National Assembly for 2008. It is about 1.5 times bigger than the budget of 2007. The first question that occurs after hearing this number is where the government’s ambitions come from. The question certainly has an answer that appears first: Serge Sargsyan desires to become president of Armenia in 2008, and a state budget of 2.5 billion dollars is an excellent election campaign for the prime minister aspiring to presidency.

As my collegue Gegham Vardanyan, accredited journalist in the NA noted, that it had seemed as though Serge Sargsyan had come to the NA that day only to announce this figure, and a couple of others along the way: the military budget planned for 2008 will be equal to that of Armenia’s state budget in 1998 (which means something around 400 million dollars), and the claims of Azerbaijan to make their military budget equal to the total state budget of Armenia have failed. The last one sounds childish for a Prime-Minister and former Defense Minister to announce if you ask me, but oh well!
There have been a number of publications in the newspapers, as well as the blogosphere discussing the unexpected figure. Despite the Prime-Minister’s words, that he is not and adventurer, and the budget is a realistic one, nobody seems to have taken it seriously. The 2008 Presidential Election Monitor blog, for example, has seen it as the start of the pre-eleciton campaign.
Despite the analyses in the media and the widespread scepticism, I find this article in Lragir.am worth every attention, as it steps behind the curtain of disbelief, and tries to see what will happen if the budget is indeed a realistic one, and if, as the Prime-Minister noted, there is a need to increase the state revenues by acheiving almost a two-fold increase in tax revenues.

The point is that with the methods and approaches of tax collection the so-called battle against black economy will clamp down on the retailers rather than the owners of markets, and after paying the last thing they have the independent small and medium-sized businesses which are not in the domain of any oligarch will be unable to bear the tax load any more and will have to sell their businesses to the oligarch or make an arrangement with them to work under the protection of that particular clan. It means that any such performed budget will push Armenia closer towards a clannish economy, and one day the society will wish it had no budget and trouble.

14 thoughts on “Armenia's 2.5 Billion Budget for 2008 – A Realistic One

  1. Reply
    Onnik Krikorian - 18.09.2007

    There’s no doubt the budget is realistic and it could have been bigger a long time ago if tax collection had been better — especially from the oligarchs and big businesses. What’s interesting is that it’s happening now.
    Of course, the state budgets of all the three South Caucasus republics are increasing in leaps and bounds so perhaps for whatever the reason, this was bound to happen anyway. Perhaps even this is how such things happen.
    I know many people won’t agree with me here, but perhaps this really is democratization. Sorry, but governments anywhere do things only when they have to, and I do consider that for whatever the reason, Serzh is really doing the kinds of things we’re used to expecting from our politicians before elections.
    In a sense, I think that’s good. Cynical, but then again, that’s politics. What we’re not sure of yet, however, is whether it will be successful and if it’s not what he’d do then. But for now I think he’s doing all the right things.

  2. Reply
    Observer - 18.09.2007

    Regarding the figure 2.5 billion dollars we have been told on many occasions, that with tax revenues making 14-19% of GDP, Armenia needs to at least double the figure to meet IMF standards. It could be just that. Perhaps Serzh has had some long and hard talk with oligarchs of various caliber like Putin did after disposing of Yucos?
    Or perhaps the PM has decided to start paying taxes himself – and that, according to his calculation will make up for the gains in state revenues? It is no secret that Serzh Sargsyan and Robert Kocharyan have become behind the scenes owners of most large businesses in the country.

  3. Reply
    Observer - 18.09.2007

    I would also be very much interested to find out what effects will the increased government spending have of AMD/USD exchange rate.
    I predict double digit inflation and ‘unexpected’ rise of dollar – let’s say above 420 dams per USD. These two developments might frustrate my ‘beloved’ IMF cousultants, but will certainly be good for the economy, especially export.

  4. Reply
    Onnik Krikorian - 18.09.2007

    Armenia does need to sort out its tax collection and I’m sure they don’t need to tax as heavily as you might think. There will still be stuff in the shadows. However, tax collection is apparently on track to meet this year’s budget of $1.7 billion.
    Anyway, if Sarkisyan says the budget will be $2.5 billion next year then I think it will have to, and this will be confirmed by parliament later in the year. Anyway, a great pre-election move and one that will have to be met by whatever means the government has to.
    Pretty much the stuff elections and governments are made of when appealing to the masses. Now, I wonder how the opposition will counter that? The usual words, perhaps, but ones that will fall mainly on deaf ears.
    The proof of the pudding is in the eating, they say, and once again, Sarkisyan appears to be the only candidate prepared to take this election seriously — for now, at least. Anyway.

  5. Reply
    Onnik Krikorian - 18.09.2007

    BTW: It’s amazing how short people’s memories are. With all this talk of Levon Ter Petrosian returning it’s amazing to consider that one of his main supporters is Aram Z Sarkisyan and the Republic Party.
    Ironic to consider that it was Aram’s brother who was one of the leading architects of Sarkisyan’s downfall and that when I arrived here in October 1998, it was reference to the Sarkisyan clan which was made when it came to corruption and the non-payment of taxes along with little Aram at the Ararat cement factory.
    One guesses that there are few if any opposition leaders who can genuinely stand up and talk about the non-payment of taxes by officials and oligarchs given their own records. Certainly, as soon as it becomes a campaign issue then see what would come out of the woodwork about their own financial dealings.
    Anyway, corruption and the non-payment of taxes is not considered to be wrong here. It’s considered to be the main method of survival and it can be found from the schools through the hospitals to the NGO sector and media and then right at the top, in the government. In such a context, and just like Vazgen in the months before he was killed, this gradual approach to increasing tax collection might be the only way to do things in Armenia.
    And for sure, it’s obviously paying dividends. Just look at the economic activity in Yerevan at least and I don’t believe that remittance alone are responsible for this. For sure, however, many Armenians are somehow living well above the average $200 a month salary level in the capital. Anyway, if I was a voter I think the main issue is if not Sarkisyan, then who?
    This is the question that needs to be resolved because for sure there are hardly any alternatives who can say they were any different, are any different or would be any different if put in the presidential palace. Besides, the parliament is Republican and Prosperous Armenia controlled so what could any president do if the NA doesn’t agree, and there is no recession in Armenia although yes, the exchange rate issue is one of concern.

  6. Reply
    nazarian - 18.09.2007

    Don’t forget that the transactions inn Armenia are in Drams and he talks about Dollars. Dollars have depreciated a lot since 1998 so a lot of the increase in the budget can be explained by the exchange rates.
    What’s interesting to see is how much of a change there has been in Drams since 1998.

  7. Reply
    Onnik Krikorian - 19.09.2007

    Sure, as I think I say in my original post mentioning the budget rise, the rise in the budget in drams is not as large as it sounds in dollars. Even so, the rise is still a significant one.

  8. Reply
    Observer - 19.09.2007

    Actually – what I most warried about is the fact, that if there are difficulties in ensuring adequate amount of tax collection next year, Serzh might force the Central Bank to actually print the missing amount of Armenian drams, which will result in a more serious devaluation of AMD. This will become a tragedy to pensioneers and people living on budget salaries – i.e. teachers. But – let’s wait first for the NA to approve the budget, and then see what will follow.
    I’m sure if noone else will ask the questions, Hairitage party will – so all hope is on them now 🙂

  9. Reply
    Armen - 26.09.2007

    Hello,
    I am wondering whether if any of you live in Armenia for at least a few years to judge how nice Serge is ?
    Anyone made a simple research to find out how much consumer prices rose in last three years ?
    This year alone bread,butter,sugar and potato has got more expensive by 25% in AMD,in USD even more.
    How come that potato along with many other goods, in Yerevan cost more than in Los Angeles or Moscow which is officialy third most expensive city in the world ?
    Yerevan has occupied 18 place according to official stats which were made of based on 2006 summer data which is now outdated.
    How come that Armenia,which is considered as poor country as per UN reports has such a high prices ?
    There are just two things behind those glarious two digit economic groowth:
    USD rate which they dropped by 45% in 3 years and the same time prices have rosen by another 50% in AMD,you shouldnt be a genie to calculate that the life has became three time more expensive in three years.
    A family of 4 people cant live for $1000 a month here.
    Whats happenign is people which have relatives working in foreign countries ask to send them more and more USD and Euros because they cant survive on what they were gettign before.
    The same time oligarchs became so wealthy as probably they wouldnt even dream 5 years ago.
    I have seen more Mercedess 600 and Hammers in Yerevan than in Istanbul which we hate that much,but you know what does that mean when there les expensive cars in more rich country than in more poor one ?
    Sure you do and Onik you call it a democracy and a realoistic budget ?
    Sorry,but you are missing the point and the point is that bigger budget means thiner pocket for most of the population and it has nothing to do with the fight on black economy and corruption.

  10. Reply
    Onnik Krikorian - 26.09.2007

    Firstly, Armen, I have lived here for 9 years. Secondly, I didn’t call anything democratic. However, there is some kind of process going on. Otherwise, somewhat ironically, I am one of the greatest critics of the situation in Armenia but unfortunately, during the parliamentary election in May understood there is no solution offered by the opposition or civil society.
    As for the larger budget, let’s see. Hopefully better tax collection will yield results. However, if it’s achieved in other ways for sure I’ll be one of the first to publicize and criticize it all.

  11. Reply
    Armen - 26.09.2007

    Onik,
    Of course “better collection will yield results”,results which will directly hit citizens pockets.
    Its known that starting January 1 2008 so called simplified tax which was just 5 % from turnover.
    Simplified tax was widely used by small businesses,but also been abused by mid and large businesses in a number of ways.
    Government terminated simplified tax as per official statment “to reduce dark side of economy,rise tax colection etc”
    In fact,starting January 1 2008,small businesses must start paying 15% more taxes.
    Thats one of the ways that Serge is sure that tax collection will rise.
    But as always it will have side effect,the prices will rise as well by at least 10%.
    Thats a simple math which shows that another fantastic,bigger and better budget will be replenished from out pockets,not from the pockets of oligarchs.
    While number look better year to year,oligarchs are getting much more walthier than most of citizens of RA.

  12. Reply
    Armen - 26.09.2007

    And in fact the richest to poorest ratio along RA citizens has grown significantly in the last 7 years.

  13. Reply

    […] of the budget increase was reported here and also by The Armenian Observer. Traditionally, the amount of attention given to the State Budget in Armenia is nil. This […]

  14. Reply

    […] from both its Caucasian ex-Soviet neighbors, despite the fact, that last year its military budget – around $400 million, was half that of Georgia and 6 times less than that of it’s main rival – Azerbaijan, which […]

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