conclusion on the republic of armenia government's...
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CONCLUSION
on the Republic of Armenia Government 's report “On implementation of 2010
state budget of the Republic of Armenia”
Study basis: Annual program of the RA Control Chamber for 2011, RA laws “On Control Chamber”
and “On RA budget system”.
Purpose of the study: Compliance of the RA Government’s report “On implementation of the RA
2010 state budget” (hereinafter report) with the RA legislation.
Objects of the study: RA Ministry of Finance, Treasury system.
Study period from 01.05.2011 to 20.05.2011
The study was conducted based on the following documents: RA Governmental report “On
implementation of the RA 2010 state budget”; RA Governmental resolution # 1522-N “On measures
ensuring the implementation of the RA 2010 state budget and on fulfillment of the redistribution in
the RA 2010 state budget” dated 24 December, 2009; RA Governmental resolution # 48 “On
approving the procedure for implementation of the Republic of Armenia state and municipal
budgets” dated 18 June, 2002; RA governmental resolutions on budget implementation, as well as
other legal acts.
Summary indicators of the RA state budget for 2010
According to the RA Government’s report on Implementation of the RA 2010 state budget
(hereinafter report), under the RA law “On 2010 RA state budget” (hereinafter Law) revenues of the
RA state budget for 2010 were planned to be in the amount of 742,138,045,800 drams. During 2010
under the RA Governmental resolutions revenues of the state budget were increased by
30,823,549,700 drams, and consequently, adjusted plan for the 2010 RA state budget revenues
amounted to 772,961,595,500 drams.
According to the clause 11 of the article 9 of the Law, estimates and actual indicators of inflows and
outflows to and from a number of accounts of the extra-budgetary funds were included in the report
on implementation of the RA 2010 state budget and were reflected as the relevant inflows and
outflows of the state budget. In the report, inflows to the accounts of extra-budgetary funds of the
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RA 2010 state institutions under the adjusted plan amounted to 25,188,356,200 drams, out of which
in the observed period 19,943,141,200 drams were the received revenues, the amount of
5,257,227,300 drams was the free balance of the extra-budgetary funds at the beginning of the
observed period, 12,012,300 drams were the inflows coming from alienation of nonfinancial assets.
Actual inflows to the accounts of the extra-budgetary funds amounted to 24,600,449,500 drams, out
of which 19,288,854,100 drams were actually received revenues in the observed period, the amount
of 5,290,048,500 drams was the free balance of the extra-budgetary funds at the beginning of the
observed period, and 21,546,800 drams were the inflows coming from alienation of nonfinancial
assets.
Revenues of the RA 2010 state budget, without extra-budgetary funds, factually amounted to
761,150,572,900 drams or 101.1% of the adjusted plan (without extra-budgetary funds); and
revenues of the RA 2010 state budget including extra-budgetary funds factually amounted to
780,439,427,100 drams or 105.2% of the indicator foreseen by the Law and 101.0% of the adjusted
plan. Factual revenues of the 2010 state budget amounted to 22.5% of GDP (3,461,883,200,000
drams) against 22.2% of 2009.
Under the Law the total expenditures of the RA 2010 state budget were planned in the amount of
935,524,584,000 drams, during 2010 under the RA Governmental resolutions expenditures were
increased by 40,772,320,100 drams and consequently, adjusted plan for the expenditures (including
24,121,918,800 drams – expenditures made at the expense of the extra-budgetary funds) amounted
to 976,296,904,100 drams; and the adjusted plan of the expenditures, without the expenditures
made at the expense of the extra-budgetary funds, amounted to 952,174,985,400 drams. The total
factual expenditures (including 18,785,251,700 drams of the factual extra-budgetary expenditures)
amounted to 954,316,528,300 drams or 102.0% of the amount planned by the Law, and 97.8% of the
adjusted plan. Factual expenditures of the 2010 state budget amounted to 27.6% of the GDP (in 2009
– 29.9%).
By the Law the deficit of the RA 2010 state budget was approved in the amount of 193,386,538,200
drams. During the year the planned deficit of the RA 2010 state budget was increased by
9,948,770,400 drams, i.e. the adjusted plan amounted to 203,335,308,600 drams. In the course of
the RA 2010 state budget implementation a deficit of 173,877,101,300 drams was recorded, which is
89.9% of the amount planned by the Law, and by the annual adjusted plan 85.5% of the foreseen
amount. The deficit of 2010 amounts to 5.0% of the GDP (in 2009 – 7.7%).
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Analysis of the RA laws on the RA state budgets for 2002-2010 shows expansion of authorities
assigned to the RA Government, by which in 2010 the RA Government was authorized to make
distribution of additional expenditures in case of availability of additional revenues and raised funds.
About revenues of the 2010 state budget
In 2010 the factual revenues of the state budget amounted to 780,439,427,100 drams (including
extra-budgetary funds); compared to 2009, factual revenues of the budget increased in 2010 by
90,444,325,600 drams or by 13.1%, and without extra-budgetary funds growth amounts to
87,947,545,600 drams or 13.1%. In 2010 the ratio of the factual revenues of the state budget to the
GDP, including extra-budgetary funds, amounted to 22.5%, against 22.2% of 2009, i.e. the previous
year’s rate was surpassed by 0.3 percentage points.
According to the report, in the structure of the factual revenues of the 2010 state budget tax
revenues amounted to 73.6%, without revenues of the extra-budgetary funds – 75.2%, state duties –
2.6% and 2.6%, respectively, compulsory social security payments – 13.5% and 13.8%, respectively,
official transfers – 3.9% and 3.7%, respectively, and other revenues – 6.5% and 4.6%, respectively.
Factual tax revenues of the RA 2010 state budget (including extra-budgetary revenues), compared to
the foreseen by the Law amount of 550,062,405,000 drams, were more by 24,002,028,400 drams or
by 4.4%, ensuring 102.5% performance of the adjusted annual plan. Factual tax revenues of the 2010
state budget amounted to 16.6% of the GDP, against 16.2% of the previous year.
In 2010 state duties of 20,034,563,200 drams were transferred to the state budget, which amounted
to 98.5% of the adjusted plan, and 100.5% of the amount approved by the Law. In 2010 state duties
amounted to 2.6% of the factual revenues.
In 2010 compulsory social security payments were foreseen by the Law in the amount of
105,234,500,000 drams, the factual indicator against adjusted plan was performed more by
101,419,300 drams and amounted to 105,335,919,300 drams, or was performed by 100.1%. In 2010
compulsory social security payments amounted to 13.5% of the factual revenues.
In 2010 official transfers to the state budget were foreseen by the Law in the amount of
42,503,285,800 drams, under adjusted plan the amount was 47,582,256,400 drams, the factual
indicator was performed by 30,588,819,500 drams, or 72.0% of the amount foreseen by the Law, and
64.3% of the adjusted plan. Without extra-budgetary revenues, the factual official transfers
amounted to 28,242,509,300 drams, compared to the amount approved by the Law the performance
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rate of which amounted to 66.5%, and 63.6% of the adjusted plan (without extra-budgetary
revenues). In 2010 official transfers amounted to 3.9% of the factual revenues.
In 2010 “other revenues” of the state budget were foreseen by the Law in the amount of
24,400,260,000 drams, under adjusted plan the amount was 39,592,257,400 drams, the factual
indicator was performed by 50,415,691,700 drams, or 206.6% of the amount foreseen by the Law,
and 127.3% of the adjusted plan. Without extra-budgetary revenues, the factual “other revenues”
amounted to 35,047,548,600 drams, compared to the amount approved by the Law the performance
rate of which amounted to 143.6%, and 142.0% of the adjusted plan (without extra-budgetary
revenues). In 2010 “other revenues” amounted to 6.5% of the factual revenues.
The data on adjusted plan and performance rate by the types of the revenues are missing from the
report, which makes impossible to carry out a comprehensive analysis. In the opinion of the Control
Chamber, it is necessary to foresee the revenues by the revenue types, especially tax revenues by
revenue types in every year’s law “On the RA state budget”.
During 2010 companies with state-owned stake from the net profit of their financial activity paid
dividends of 658,717,200 drams, instead of planned 330,000,000 drams.
Analysis revealed that currently there are 772 companies with state-owned stake registered in the RA
state registry, out of which 715 companies are those with 50 and more percent of the state stake,
and 57 are with less than 50%. It should be noted that currently out of 772 companies only 387
companies are included in the field of control, out of which 382 companies are those with 50 and
more percent of the state-owned stake, and 5 companies are those with less than 50 percent of the
state-owned stake. It means that total number of 385 companies (52 companies are those with less
than 50 percent of the state-owned stake and 333 companies are with 50 and more percent) are left
out of the control field of the RA Ministry of Finance, which in case of having profit were supposed to
pay dividends from the net profit. It is suggested that measures should be developed to include those
385 companies in the process, which will give opportunity to enter additional revenues to the RA
state budget.
About expenditures of the 2010 state budget
According to the report, the total factual expenditures (including 18,785,251,700 drams of the factual
extra-budgetary expenditures) amounted to 954,316,528,300 drams, which amounts to 97.8% of the
adjusted plan.
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Study on the performance of the RA 2010 state budget programs (by the functional classification)
revealed that:
1. in total 8 programs, the amount of which under adjusted plans was foreseen to be
7,522,191,700 drams, were not performed, i.e. payments were not made;
2. under 30 expenditure programs factual expenditures amounted to 59,985,426,000 drams, the
expenditures exceeded the amount of the adjusted plan by 15,332,146,600 drams;
3. Under 23 expenditure programs (including 17 external credit and grant programs) the factual
performance rate was lower than 50% of the adjusted plan (unfulfilled programs are not
included). The adjusted target figure of those programs amounted to 15,980,158,000 drams
or 27.1% of the adjusted plan. It should be noted that in those programs the biggest negative
deviation of the factual indicator against adjusted plan in monetary terms was recorded in the
credit programs “North-South transport corridor development project implemented with the
support of the Asian Development Bank ” and “Gyumri-2” substation reconstruction project
implemented with the support of the German Development Bank” with the total value of
-5,001,669,300 drams (under 04050110 program -3,524,933,500 drams and under 04030504
program -1,476,735,800 drams);
4. During 2010 seven expenditure programs amounting to the planned 635,406,000 drams have
been zeroized as a result of the adjustment in the annual program;
5. 22 expenditure programs were not foreseen by the Law, however under adjusted plan were
foreseen in the amount of 9,239,414,100 drams (without extra-budgetary funds), and were
factually performed in the amount of 10,585,317,500 drams, or 114.6% of the adjusted plan.
8 programs of those 22 are grant programs, the factual expenditure of which amounted to
1,926,634,000 drams, and 10 credit programs with the factual expenditure of 7,250,515,100
drams;
6. During 2010 the structure of the made expenditures was the following: social protection –
25.6%, defense – 15.5%, general public services – 15.0%, economic relations – 11.8%,
education – 10.3%, public order, security and judicial activity – 7.1%, healthcare – 5.9%,
housing construction and communal services – 4.5%, reserve funds not included in the main
sections – 2.3%, leisure, culture and religion – 1.7%, environmental protection – 0.5%.
Factual expenditures' performance rate of the RA 2010 state budget (by the functional classification)
against adjusted plan in ten sections was lower than it was planned, in this way, the lowest
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performance rate was recorded in the “Environmental protection” section – 78.4%, and the plan was
over performed only in Leisure, culture and religion section – 100.1%. From the programs the lowest
performance rate of 1.4% was recorded in the “Education quality and compliance project”
implemented with the support of the World bank, and the highest – 3,799.4% in the “Inflows from
alienation of the nonfinancial assets” program.
According to the report, the structure (by the economic classification) of the factual expenditures of
the RA 2010 state budget (including expenditures made in the course of using extra-budgetary funds)
is the following: 80.0% was directed to financing of the current expenditures, 20.0% - to the
operations related to nonfinancial assets.
Compared to 2009, in 2010 expenditures of the RA state budget increased by 2.7%. In 2010
expenditures were foreseen by the Law in the amount of 935,524,584,000 drams. In 2010 factual
expenditures amounted to 954,316,528,300 drams or were performed by 102.0% of the indicator
approved by the Law, and 97.8% of the adjusted plan.
In 2010 17,849,862,300 drams from the state budget were allocated to subsidies, out of which
16,785,545,100 drams or 94.0% are the subsidies provided to the state organizations, and
1,064,317,300 drams or 6.0% are the subsidies provided to non-state organizations.
In reporting year grants of 94,375,285,800 drams were provided from the state budget (9.9% of the
total expenditures), out of which 87,223,956,000 drams (92.4% of the total grants) were the grants
provided to other levels of the state sector, 5,583,072,900 drams were the capital grants (5.9% of the
total grants) provided to other levels of the state sector, 1,451,446,200 drams (1.5% of the total
grants) were allocated to the international organizations.
From the current grants 32,421,789,300 drams were directed to dotations given to community
budgets by the method of equalization, 17,595,994,600 drams were directed to the state and
municipal non-commercial organizations, and other current grants amounted to 26,017,488,400
drams.
In 2010 25.6% of the RA state budget expenditures or 244,020,961,900 drams were social benefits
and pensions, out of which 73.3% was only pensions.
Under the article “other expenditures” 138,305,321,200 drams were allocated, out of which
134,508,889,600 drams or 97.3% were other expenditures of the “other expenditures”.
In 2010 expenditures under the article “Operations related to non-financial assets” were foreseen by
the Law in the amount of 164,020,047,000 drams, which was increased by 39,560,298,600 drams or
by 24.1% during the budget year, under the adjusted plan amounted to 203,580,345,800 drams and
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factually amounted to 191,186,412,600 drams. During the budget year expenditures foreseen by the
Law in relation to non-financial assets and inflows from their alienation increased by 39,572,311,100
drams and 12,012,300 drams, respectively; and adjusted plan amounted to 203,606,648,100 drams
and 26,302,300 drams, respectively; and factual expenditures related to non-financial assets and
inflows from their alienation amounted to 191,750,886,400 drams and 564,473,800 drams,
respectively.
Analysis of the expenditures (by the administrative classification) of the RA 2010 state budget
revealed that 56.7% of the total factual expenditures fall to the share of five agencies. For instance:
1. 20% of the total factual expenditures of the RA 2010 state budget fall to the share of the State
Social Security Service of the RA Ministry of Labour and Social Affairs. It was foreseen by the Law
to allocate 189,865,475,200 drams to the State Social Security Service of the RA Ministry of
Labour and Social Affairs, under adjusted plan – 190,459,999,500 drams, and the factual
expenditure was made in the amount of 190,441,336,600 drams or 100.0% of the adjusted
indicator. In 2010 the factual expenditures of the funds allocated to the State Social Security
Service of the RA Ministry of Labour and Social Affairs increased by 1.8% in comparison with
2009.
2. In 2010 expenditures of the RA Ministry of Finance amounted to 9.5% of the total factual
expenditures of the state budget, which had been foreseen by the Law in the amount of
92,845,923,700 drams, and under adjusted plan – in the amount of 93,148,519,100 drams. The
factual expenditures of the RA Ministry of Finance amount to 92,562,998,500 drams or 99.7% of
the amount foreseen by the Law, and 99.4% of the adjusted plan.
3. In 2010 5.9% of the total factual expenditures of the agencies fell to the share of the RA Ministry
of Health. For the use of the funds assigned to this agency it was foreseen by the Law to allocate
55,462,854,700 drams, under adjusted plan – 58,223,126,500 drams, and factual expenditures
were made in the amount of 56,702,249,200 drams, or 97.4% of the adjusted indicator. In
comparison with 2009, in 2010 factual expenditures of the RA Ministry of Health increased by
1.2%.
4. In 2010 5.7% of the total factual expenditures of the agencies fell to the share of the RA Ministry
of Labour and Social Affairs. It was foreseen by the Law to allocate 53,155,579,000 drams, under
adjusted plan – 54,283,246,900 drams, factual expenditures were made in the amount of
54,227,575,300 drams, or 99.9% of the adjusted indicator. In comparison with 2009, in 2010
factual expenditures of the RA Ministry of Labour and Social Affairs increased by 4.6%.
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In 2010 from all the agencies the lowest performance rate against adjusted plan was recorded in the
“General Department of Civil Aviation adjunct to the RA Government” agency, in this way: it was
foreseen by the Law to allocate 144,795,200 drams, under adjusted plan – 521,346,300 drams, and
factual expenditures were made in the amount of 396,367,700 drams, or 76.0% of the adjusted
indicator. Under performance is mainly conditioned by the program “Maintenance (at the expense of
extra-budgetary funds) of executive bodies, republican and territorial management bodies of state
government”, performance rate of which amounted to 68.4% of the adjusted plan.
According to the report, under the resolutions adopted by the RA Government in 2010 the factual
expenditures of the funds circulated from the extra-budgetary accounts opened for the state offices
amounted to 18,785,251,700 drams or 77.9% of the adjusted plan.
In 2010 the following 3 agencies made the highest factual expenditures of the funds circulated from
the extra-budgetary accounts:
1. Police department adjunct to the RA Government – 59.4% of the total extra-budgetary funds.
2. State Revenue Committee adjunct to the RA Government – 27.1% of the total extra-budgetary
funds.
3. RA Ministry of Health – 6.9% of the total extra-budgetary funds.
In 2010 it was foreseen by the Law to allocate 21,898,748,700 drams from the RA Government's
Reserve Fund. During the year this indicator increased by 639,298,400 drams, and the adjusted plan
amounted to 22,538,047,100 drams. In 2010 the actual amount allocated from the RA Government's
Reserve Fund was 21,649,375,500 drams. In 2010 49.7% of the finances allocated from the RA
Government's Reserve Fund were directed to the operations related to non-financial assets, at the
same time the biggest portion in the expenditures of the operations related to non-financial assets
belongs to the expenditures made under the article “Capital repair of buildings and constructions”.
Analysis revealed that in 2010 53.0% of the expenditures for the operations related to non-financial
assets made at the expense of the RA Government's Reserve Fund falls to the share of the RA
Ministry of Transport and Communications, 48% of which was directed to the expenditures made
under the article “Capital repair of buildings and constructions”. Under this article in 2010, based on
5 resolutions of the RA Government, it was foreseen to allocate 5,522,044,200 drams to the Ministry
of Transport and Communications: resolution # 476-N dated 29.04.10 – 175,000,000 drams,
resolution # 858-N dated 01.07.10 – 2,940,374,200 drams, resolution # 874-N dated 01.07.10 –
1,432,800,000 drams, resolution # 1169-N dated 29.07.10 – 47,930,000 drams and resolution # 1204-
N dated 26.08.10 – 925,940,000 drams. However, factually under this article 5,222,345,400 drams
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were allocated from the RA Government's Reserve Fund to the RA Ministry of Transport and
Communications, or less by 299,698,800 drams. It should be noted that it was foreseen by the RA
Government's resolution # 1169-N dated 29.07.10 to allocate 62,000,000 drams to the RA Ministry of
Transport and Communications, out of which 47,930,000 drams had to be directed to the
expenditures made under the article “Capital repair of buildings and constructions”, 2,070,000 drams
to the expenditures made under the article “Projecting and research expenditures”, however
factually only expenditures made under the article “Other capital expenditures” were fulfilled, which
were directed to the purchase of a car, and the rest expenditures of 50,000,000 drams related to
operations with non-financial assets were not fulfilled.
Under agreements concluded in 2010 budget year it was foreseen to make procurements of
336,911,193,600 drams for the state needs (without procurements of external credits and grants
programs), however factually 330,377,733,600 drams were paid.
In the opinion of the Control Chamber, the report must include relevant information on the
procurement process by agency transactions (selectively), which will make it possible to assess
efficiency of procurements made for the state needs in the Republic of Armenia.
About the deficit of the 2010 state budget
The factual financing of the 2010 state budget deficit amounted to 173,877,101,300 drams.
Compared to 2009, in 2010 amount of the deficit decreased by 27.3 percentage points, which is the
result of a reduction in both external and internal source of deficit financing.
In 2010 it was foreseen by the Law to finance the state budget deficit by 193,386,538,200 drams.
During the year the RA Government in the scope of the authorities assigned to itself increased the
amount of the deficit financing by 9,948,770,400 drams, and the adjusted plan amounted to
203,335,308,600 drams. The performance rate against the indicator approved by the Law amounted
to 89.9%, and 85.5% against the adjusted plan.
In 2010 internal sources of the deficit financing were foreseen by the Law in the amount of
99,554,058,800 drams, changes were made during the year, and the amount of financing from
internal sources increased by 33,873,618,100 drams, consequently adjusted plan of deficit financing
from internal sources amounted to 133,427,676,900 drams. Factually this indicator amounted to
107,402,605,100 drams or 107.9% of the indicator approved by the Law and 80.5% of the adjusted
plan.
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According to the clause 4 of the article 11 of the RA law “On the RA Central bank”, “If the losses of
the Central Bank exceed the aggregate amount of its reserves as reflected in the balance sheet,
within 30 days from the moment of publication of such balance sheet, the Government of the
Republic of Armenia, in the manner prescribed by the Law, as means of investment in the capital of
the Central bank provides Central Bank with non-interest ordinary state demand notes equaling to
the size of exceeding amount. The repayment of these notes is done on demand of the Central Bank
at the expense of the state budget.”
By the resolution # 989-A dated August 12, 2010, as a result of the 2009 financial activity RA
Government provided the RA Central Bank with non-interest ordinary state demand notes with
nominal value of 55,644,010,355,000 drams, i.e. an obligation (guarantee) was formed towards the
RA Central Bank.
It is noteworthy to mention that in comparison with 2009, in 2010 total state resources reduced by
49,926,900,000 drams, i.e. there is a tendency of reduction in total state resources.
According to the report, during 2010 the change in the free balance of the state budgetary funds
amounted to 49,879,300,000 drams, including the change in the balance of the unified treasury
account of (9,642,500,000) drams, out of which:
(18,742.0) mln drams – change in the Central Treasury’s deposit,
2,391.3 mln drams – change in local budget,
2,850.8 mln drams – change in extra-budget,
(32.8) mln drams – change in monetization accounts,
2,817.1 mln drams – change in PIU (Project Implementation Unit) funds,
1,073.1 mln drams – change in stage budget funds,
(51,000.0) mln drams – time deposits in the CB,
(49,926.9) mln drams – change in state total resources (including time deposits in the CB), among
which 435.3 mln drams – change in interim accounts,
(153.6) mln drams – change in the free balance at the beginning of the year,
111.9 mln drams – change in the balance of the extra-budgetary accounts of the RA state agencies,
467.5 mln drams – difference in financing and cash desk expenditures,
57.1 mln drams – funds transferred to the extra-budgetary account opened in the Central Treasury
for the purpose of holding “Armenia-2010” training exercises.
Studies revealed that at the beginning of 2011 total state resources amounted to 32,495,500,000 mln
drams.
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In 2010 it was foreseen by the Law to receive an external credit of 137,548,601,800 drams from
international organizations and foreign states, however during the year this indicator had changed
and the yearly adjusted plan amounted to 113,390,250,700 drams. In 2010 the factual amount of
received external credits and loans amounted to 107,741,042,200 drams or 95% of the adjusted plan.
In 2010 it was foreseen by the Law to repay 9,810,563,500 drams, factually 9,681,583,200 drams
were repaid. The performance rate against the plan and adjusted plan amounted to 98.7%.
As of 31st December, 2010, provision of budgetary credits to economic entities, at the expense of the
state credit of 500 mln US dollars (185,085.0 mln drams) provided to the RA Government by the RF,
amounted to 103,434,340,500 drams, out of which 5,831,241,500 drams were the amount of the
crediting implemented during 2010. During 2009-2010 repayment of the budgetary credits provided
to the economic entities at the expense of the state credit of 500 mln US dollars (185,085.0 mln
drams) given to the RA Government by the RF amounted to 21,053,577,000 drams, out of which
repayment of 16,397,596,000 drams was made during 2010.
Analysis revealed that the decision based on which the RA Government provided “Armrusgazard”
company with a budgetary credit with a six-month repayment period was made on October 1, 2009
(# 1127-N), and the RA Ministry of Finance, while drawing up the RA budget for 2010, did not foresee
amounts in the items of the deficit's Internal sources: 1. “Repayment of credits assigned to the
economic entities at the expense of state credit funds provided by the Russian Federation” in clause
2.5 of “Inflows from repayment of the provided credits and loans”, 2. Provided to economic entities
in “Stabilization deposit account replenishment” of clause 2.6 in “Others”.
In the report the use and receipt of external credits were calculated on the day external credits were
received and used, at the exchange rate of Republic of Armenia dram vis-à-vis relevant foreign
currency of the given external credit, and servicing and repayment was mainly performed based on
the contract # 11/301261 dated 05.01.2007 “On account servicing” concluded between the RA
Ministry of Finance and Central Bank, and in addition to this contract, agreement # 6 dated
September 1, 2009, according to which the servicing and repayment of the RA state external debt
must be calculated at the fixed exchange rate (for 2010 1 US dollar = 386.4 RA drams) prescribed in
the draft RA law “On RA state budget”, with the exception of payments related to servicing (interest
charges, repayment) of the credits provided to the RA Government by the Russian Federation and
the International Monetary Fund, which are being regulated by relevant addenda to the contract #
11/301261 dated 05.01.2007 “On account servicing” concluded between the RA Ministry of Finance
and Central Bank, as well as related to interest charges of the credit programs of the Asian
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Development Bank, lump sum commission charges for credits of the International Bank for
Reconstruction and Development and European Bank for Reconstruction and Development,
payments of which are made in accordance with the provisions of credit agreements and are
converted at the average exchange rates formed in the currency market on the day of payment.
Analysis revealed that out of 98 the servicing of 88 credit programs, which amounts to 42% of the
total servicing amount, was completely carried out in accordance with the contract # 11/301261
dated 05.01.2007 “On account servicing” concluded between the RA Ministry of Finance and Central
Bank, and in addition to this contract, with the agreement # 6 dated 01.09.2009 at the fixed
exchange rate (for 2010 1 US dollar = 386.4 RA drams) prescribed in the draft RA law “On RA state
budget”. The major part (about 2/3) of the servicing of the credit provided by the Russian Federation
was also performed at the same fixed exchange rate, which amounts to 31.4% of the RA
Government’s state external debt service, the servicing of the remaining part of the credit provided
by the Russian Federation was performed at 1 US dollar = 370.17 drams exchange rate, which is
16.4% of the RA Government’s state external debt service. 10.1% of the RA Government’s state
external debt service was performed at the exchange rate formed on the day of payment.
The RA Control Chamber has repeatedly recorded that circulation of all the budgetary funds provided
to the Republic of Armenia in the scope of international agreements is not performed through a
unified treasury account, and on March 25, 2010, RA Government adopted resolution “On approving
procedure for circulating the credit and grant funds provided to the Republic of Armenia by foreign
states and international credit organizations through the treasury system of the Republic of
Armenia”, according to which the circulation of the credit and grant funds provided to the Republic
of Armenia must be performed through a unified treasury account. During 2010 eleven PIU accounts
of the World Bank were transferred to the unified treasury account, i.e. the RA Government’s
resolution of March 25, 2010, was fulfilled partially.
In our opinion, for the purpose of efficient management of the RA budgetary funds it is necessary
that according to the clause 2 of the article 14 of the RA law “On the Treasury system”, all budgetary
funds assigned to the Republic of Armenia and communities are credited and circulated through a
unified treasury account. In particular, all budgetary funds provided to SNCOs, JSCs, Funds, as well as
to the “Program Management Unit of the “German-Armenian fund”” should be circulated through a
unified treasury account.
RA state debt of 2010
13
As of December 31, 2010, the RA state debt was 3,795.0 mln U.S. dollars (1,279.3 bln drams), out of
which the RA state external debt amounted to 3,299.0 mln U.S. dollars (1,199.0 bln drams), and the
RA state internal debt was 496.0 mln U.S. dollars (180.3 bln drams). In 2010 the RA state external
debt amounted to 86.9% of the RA state debt, and the RA state internal debt to – 13.1%, i.e.
compared to 2009, in the structure of the RA state debt the RA state external debt decreased by 1.3
percentage points.
According to clause 6 of the article 5 of the RA law “On state debt”, “The state debt as of December
31 of the given year must not exceed 60% of the gross domestic product (hereinafter GDP) of the
Republic of Armenia for the previous year”. As of December 31, 2010, the RA state debt amounted to
44.5% of the GDP for 2009, while in 2009 this indicator was 35.6%. In both cases the requirement of
the mentioned law provision was met.
As of December 31, 2010, the RA state external debt amounted to 3,299.0 mln U.S. dollars, out of
which 2,736.4 mln U.S. dollars were the obligation of the RA Government, and 562.6 mln U.S. dollars
were the obligation of the RA Central Bank (hereinafter CB). In 2010 the RA state external debt,
compared to 2009, increased by about 1.1 times. According to the projection of the RA Ministry of
Finance (in case of not attracting new foreign credits) the RA state external debt will reach its “peak”
in 2012 coming to 3,821.2 mln U.S. dollars, after it which will reduce.
Macroeconomic analysis of the RA state external debt burden for 2010 revealed that State external
debt/GDP ratio is 34.6%, i.e. by this indicator the bound of 50% was not exceeded, by three
indicators the Republic of Armenia is described as a country with low debt burden, by one indicator –
as a country with medium debt burden, and by one indicator was classified in the group of countries
with heavy debt burden (table 1).
Table 1
Macroeconomic indicators describing the state external debt burden of the Republic of Armenia
Indicator name
Indicator ranges by classification groups Factual indicators
2007 2008 2009 2010
NDP/GDP
Countries with the most heavy debt burden 80% and more
Countries with medium debt burden 48%-80%
Countries with low debt burden up to 48%
9.0% 8.5% 26.5% 28%
NDP/Export Countries with the most heavy debt burden 220% and more
14
Countries with medium debt burden 132%-220%
168.8% 139.4%
Countries with low debt burden up to 132%
46.9% 56.6%
External debt service/Export
Countries with the most heavy debt burden 25.9%
Countries with medium debt burden 23.45%
Countries with low debt burden 7.8%
2.9% 3.1% 5.4% 4.9%
Interest charges/Export
Countries with the most heavy debt burden 11.65%
Countries with medium debt burden 9.85%
Countries with low debt burden 3.6%
0.6% 0.7% 2% 2.4%
State external debt/Export
Countries with the most heavy debt burden 387.95%
221.7%
Countries with medium debt burden 209.00% 81.6% 89.8% 177.1%
Countries with low debt burden 64.00%
External debt/GDP
Bound of 50.00% 14% 13.6% 36.1% 34.6%
RA state external debt
service/State budget revenues
2.6% 2.1% 3.8% 4.4%
According to the results of the factorial analysis on the change in the RA 2010 state external debt
compared to 2009, in the reporting year as a result of the changes in the exchange rates of the U.S.
dollars and the currency of the provided external credits the change that occurred in the state
external debt amounted to 11.6 mln U.S. dollars with a negative sign or -3.5%, and as a result of the
difference between the receipt and repayment amounts of the provided external credit the change
that occurred in the state external debt amounted to 344.0 mln U.S. dollars or 103.5%.
During 2010 receipts (charges) related to external credits provided to the Republic of Armenia
amounted to 380.4 mln U.S. dollars, out of which RA Government received 287.0 mln U.S. drams
(107,741.0 mln drams), and CB received 93.5 mln U.S. dollars. 65.7% of the external credits received
in 2010 or 250.1 mln U.S. dollars are non-preferential credits.
In 2010 the portion of preferential credits amounted to 60.8% of the RA external state debt. The
analysis revealed that during 2009 and 2010 there has been a reduction in the share of preferential
credits in the RA state external debt. Compared to 2008, in 2009 the preferential credits reduced by
34.4 percentage points; and in 2010, again compared to 2008, reduction was by 38.2 percentage
points.
Out of 287.0 mln U.S. dollars (107,741.0 mln drams) of the RA Government’s external credits:
15
94.5 mln U.S. dollars (35,660.7 mln drams) or 33.0% is the total amount of three programs
directed at deficit financing by two international organizations (IMF, IDA).
192.5 mln U.S. dollars (72,080.4 mln drams) or 67.0% were received from a number of
international financial organizations and foreign states for the purposes of financing
investment programs directed at developing primary spheres of the economy by programs
and creditors.
In 2010 the expenditure for repayment and service of the Republic of Armenia state external debt
amounted to 91.0 mln U.S. dollars (interest payments of 44.2 U.S. dollars and repayment of 46.7 mln
U.S. dollars), out of which the expenditure for repayment and service of the external credits
attracted by the RA Government amounted to 63.3 mln U.S. dollars ((24,285.3 mln drams), interest
payments of 38.2 U.S. dollars (14,603.8 mln drams) and repayment of 25.1 mln U.S. dollars (9,681.6
mln drams)) and those of CB amounted to 27.7 mln U.S. dollars (interest payments of 6.0 mln U.S.
dollars and repayment of 21.7 mln U.S. dollars).
In 2010 out of 38.2 mln U.S. dollars (14,603.8 mln drams) of the made interest payments for the
external credits attracted by the RA Government, 18.3 mln U.S. dollars (6,957.3 mln drams) or 47.8%
are the interest payments for the credit of 500 mln U.S. dollars (180,085.0 mln drams) provided by
the RF.
The analysis revealed that:
1. During three years the expenditure of the external credits’ repayment and service increased
many times. In this way, in 2013 433.6 mln U.S. dollars will be needed to make interest payments
and repayment of the RA external credits, or more by 4.8 times than in 2010, out of which for
making interest payments and repayment of the external credits RA Government will need 226.4
mln U.S. dollars or more by 3.6 times than in 2010.
2. Growth in expenditures of the external credit's repayment and service is mainly conditioned first
of all by attracting credits provided by the International Monetary Fund and RF, and as of
December 31, 2010, obligation for those credits amounted to 37.6% of the RA state external
debt, and their repayment and service amounted to 53.4% of the repayment and service amount
of the RA state external debt. The image changes starting from 2012, when the process of credit
repayments should start. In this way, in 2012 the debt of credits provided by the International
Monetary Fund and RF will amount to 34.0% of the RA state external debt, and their repayment
and service will amount to 77.4% of the repayment and service amount of the RA state external
16
debt, in 2013 this figure will amount to 29.2% of the RA state external debt, and repayment and
service will amount to 83.7% of the repayment and service amount of the RA state external debt.
From the point of view of the Control Chamber if the economic growth and the volumes of the tax
revenue collections will remain at the level of 2010, then there is a danger that the Republic of
Armenia could have serious issues in repaying previously taken obligations and in their servicing
(interest payments), i.e. a debt crisis may occur. That is why it is necessary to undertake a number of
measures, which are:
1. Conditioned by the growth of the RA state debt volumes as well as amounts directed at their
servicing, the share of the internal debt in the RA state debt should be currently increased, as
riskiness of the latter is low, i.e. the factor of currency misses.
2. For the purpose of creating further opportunity for economic growth, the deadline for non-
preferential credits repayment should be prolonged, by which the issue of meeting the obligation
can be solved.
3. At the expense of the additional revenues and savings made in the given budgetary year non-
preferential credits should be repaid before the deadline, in particular credits provided by the RF.
On the basis of the abovementioned, the Control Chamber concludes:
Indicators related to the revenues, expenditures and deficit presented in the annual report “On
implementation of 2010 state budget of the Republic of Armenia” submitted to the RA National
Assembly by the RA Government reflect the factual performance of the state budget.