Default inevitable for Armenia

By Azernews

By Rashid Shirinov 

Armenia is on the verge of a default as the country is having a critical level of ratio between the foreign debt and GDP.  In other words, increasing amount of foreign debts and dramatically low GDP rate may set a really dangerous scene for the government.   

Armenia needs to ensure 7-8 percent of GDP growth to avoid a possible default, the head of Armenia’s Union of Domestic Manufacturers Vazgen Safaryan told reporters.

He said Armenia's GDP is about $10 billion, while the public debt reaches $5.8 billion.

“If we continue to borrow, Armenia can come to a critical level of the ratio between the public debt and GDP, and thus to be among the non-creditworthy countries. In this regard, the volume of Armenia's GDP must increase by 7-8 each year in order to not let the country end up in default,” he said.

Armenia’s National Statistical Service (NSS) informed that the country’s public debt at the end of September 2016 amounted to $5.6 billion. Meanwhile, Armenian Ministry of Finance predicted that the public debt will grow by $789 million by the end of the year, amounting to $5,867 million, and in 2017 it will be $6,277 million. The share of public debt in GDP will grow from 48.8 percent in 2015 to 54.1 percent in 2016, and in 2017 it will reach 55.1 percent.

Last month, the country’s first President Levon Ter-Petrosyan already warned about the coming default. “The governing regime is busy with theatrical ceremonies of reforming the government and electoral process, which are clearly aimed at the strengthening its own power rather than at the improvement of the country,” Ter-Petrosyan stressed. “In the near future, our country will face a real economic disaster, hidden under a harmonious title “default,” he added.

However, the Armenian authorities perceived Ter-Petrosyan’s statement with hostility and ridiculed it. Ter-Petrosyan was even accused of incompetence and alarmism. But soon after that, Finance Minister Vardan Aramyan, acknowledged that the country's public debt was close to 55 percent of GDP.

It is noteworthy that just two years ago it was much less – 43.7 percent. Under current law, Armenian government's debt must not exceed 60 percent of GDP. Then it will be followed by default, which Ter-Petrosyan and Safaryan warn about.

In the background of growing public debt, investments in Armenia, on the contrary, fall. Thus, net inflows of total foreign investments in the Armenian economy in January-September 2016 made up just $56 million compared to $200 million received in the same period of 2015, according to the NSS data.

Thus, if things stay the same and Armenian government does not find a way to reanimate the country's economy, Armenians will live in unprecedentedly low life conditions as the threat of default will become a reality.