After gaining independence, Armenia's foreign debt has steadily increased. In 2000, this figure was $1.01 billion, but in 2020 it reached to $13.09 billion. Only compared to 2019, the amount of foreign debt has increased by $ 1.2 billion. In 2000, public debt was 51.6% of GDP, in 2019 it was 86.1%, and in 2020 it was 105.2%
Starting since 2021, the public debt began to grow faster. According to Armenia's annual foreign borrowing plan, in 2021, for financing the 341 billion drams’ deficit Armenia planned to attract a total of $308.2 million dollars, or 152.2 billion drams. Just in the second quarter of 2021, it attracted an additional $220 million public debt.
For these loans taken by the Armenian state from local and foreign residents, continuous interest expenses are paid from the state budget. From 2012 to 2020, the share of interest expenditures in the total state budget doubled. In 2020, interest expenditures accounted for 8.6% of total budget expenditures, or $329.6 million. In other words, about 2.6% of GDP is spent on foreign debt and liabilities. This sharp and steady increase in interest expenses as part of budget expenditures indicates future risks.
Another noteworthy point is that these interest expenses are paid mainly for debts from previous years, rather than for newly acquired loans. According to the analysis by Samson Avetian, graduated the Harvard University, macroeconomic researcher of Armenia, if this trend in the state budget continues at the same pace, in 2030, interest expenditures will be 30% of total state budget expenditures. In other words, 30% of the state budget will be mobilized to finance debts received in previous years. At the same time, any possible weakening in the dram will further increase interest costs in the future of the Armenian national currency. As we know, public spending in some areas can encourage greater economic growth. However, if public revenues are not stable and balanced, rising public spending could pose a threat to financial sustainability and macroeconomic stability. The same situation applies to the Republic of Armenia. Thus, according to the methodology of economic distribution of state budget expenditures in Armenia, investment expenditures make up only 15.7% of total state budget expenditures. This means that while the state budget is spent more on current expenditures, the investment costs that ensure future economic growth and efficiency are low.
Given that the country's debt is very high and above acceptable levels, and that limited industrial and natural resources are limited, it is unlikely that public spending will be able to grow in the short term.
The analysis of the foreign debt of the Armenian economy shows that if it does not give up its dreams of war and aggression and make serious changes in its policy, it will go bankrupt in the next decade, unable to pay its debts. In order to continue its independence as a state, Armenia has no choice but to give up its current dreams of aggression and take advantage of new opportunities for cooperation in the region.
Saftar Velizade,
Doctoral student of the Institute of Economics of ANAS
