Calls for Caution Over Armenian Growth Figures

Armenia’s government has hailed the success of its policies after the economy bounced back strongly in the first four months of the year.

Opposition activists and many businessmen said officials were over-reacting to the news, and should wait to see whether the recovery from last year’s dire performance could be sustained.

The National Statistics Service announced that gross domestic product, GDP, grew by 7.2 per cent from January to April compared with the same period last year. This was good news for the government, since it had based its budget projections on growth of just 1.2 per cent for 2010.

“As a result of the anti-crisis measures that have been implemented, it’s been possible to halt the rapid rate of decline, by 18.3 per cent, recorded in the first half of 2009, and to create beneficial conditions for economic growth in 2010,” Prime Minister Tigran Sargsyan told parliament.

However. many businessmen wondered what these anti-crisis measures had been. One importer of chocolate who asked not to be named was particularly gloomy, saying the total taxes levied on imports had remained the same and only the customs procedures had been simplified, while exporters enjoyed tax breaks.

“I see no changes for the better,” he said. “Turnover has contracted by 30-35 per cent, and there’s a lot of unsold stock in shops and warehouses. It’s possible I will have to return it to the producer, which would be another expense.”

Experts say Armenia’s budget has long been dependent on such importers. A slump in imports in 2009 reduced tax revenues by around 200 million US dollars, or more than 20 per cent.

Opposition figures, meanwhile, accused the government of short-sightedness, saying the growth revision would end up having a negative impact by raising expectations that would later be dashed.

“If GDP growth is high, then you have to collect a lot of taxes, but that’s something the government cannot do since it isn’t creating a real economy, or doing real work to make real improvements,” said Artsvik Minasyan, a member of parliament from the Dashnaktsutyun party.

He said that there were continued risks to economic recovery, especially considering the high levels of corruption in Armenia, and that the government would be wiser to remain cautious rather than boast about renewed growth.

According to official figures, government budget revenues in 2009 were 12 per cent down on the previous years.

Armen Alaverdyan, deputy head of the State Revenues Committee, insisted the situation had now turned round.

“Yes, we had problems with tax collection last year,” he said. “We collected 15.9 percent less tax from construction, imports, local production, mining, services and all spheres connected with agriculture. But this year, there are no problems of underpayment of tax. On the contrary, this year the budget will be over-fulfilled.”

Experts note a long-term tendency towards small and medium-sized businesses accounting for an ever greater proportion of budget revenues.

According to the finance ministry, just over 600 companies have remained on the list of the 1,000 top taxpayers for each of the last three years. However, the share of total tax revenue contributed by the top 1,000 has been falling – it was 46 per cent last year compared with 52 per cent in 2007. This is seen as a welcome shift towards a more diversified economy.

Broadly speaking, international experts have praised the government’s efforts to get the economy moving again. The International Monetary Fund has raised its own estimate for this year’s economic growth from 1.8 to four per cent, while the European Bank for Reconstruction and Development is forecasting growth of ten per cent.

Some economists say the only reason GDP growth looks so healthy in 2010 is that it is measured against a very low base point last year.

“If you compare things with last year, when all industrial companies were at a standstill because of the crisis, then there is growth,” said Anna Harutyunyan, a PhD candidate in economics. “But it isn’t real growth; it’s more like restorative growth returning the figures to the level they were at the year before last.” 

Harutyunyan expects to see strong growth in June, too, but predicts that the growth rate will fall slightly to give a full-year figure of five to six per cent, with the biggest contribution coming from industry rather than from construction, the key sector before the collapse.

Prime Minister Sargsyan said the government was determined to allow other parts of the economy to develop.

“The main lessons we’ve learned from the crisis are that a low level of diversification leaves the economy vulnerable and, because of the structure of the economy, the construction sector dealt a serious blow to the whole of the economy,” he said.

Among its other anti-crisis steps, the government provided some 100 million dollars in subsidies to help the industrial sector survive.

It was not all good news, however. Experts warn that inflationary pressures will return with economic growth, and will likely exceed the budget’s assumption of a four per cent rise in prices.

“If economic growth is around six per cent, then the problem is above all one of inflation,” said Gagik Minasyan, who chairs the parliamentary committee on finance and budget matters. “It is true that inflation fell by 0.4 per cent in the last month, coming to eight per cent, but all the same it is higher than what was forecast in the budget. I think that the growth in GDP will allow the government and the central bank to make joint efforts to apply small amounts of pressure to curb inflation.”

The central bank is predicting that inflation will continue to fall, but most independent experts disagree and expect it to remain high.

“Inflation will be high, which is unavoidable when a lot of money is being pumped into the economy. In the last year, Armenia has received a lot of loans, as a result of which government debt has increased to three billion dollars,” said Harutyunyan.

Naira Melkumyan is an freelance journalist in Yerevan.