SPEED OF SOCIAL REFORMS LAGS BEHIND RATE OF MACROECONOMIC
REFORMS IN ARMENIA
02-04-2008 15:00:00 | Armenia | Economy
YEREVAN, APRIL 2, NOYAN TAPAN. The implementation of social
reforms will make an important part of Armenia's socioeconomic
policy in 2008-2009. Today the speed of social reforms lags
behind the rate of macroeconomic reforms. The government has
taken a lot of measures to direct the economic growth at raising
the population's standard of living. However, strategic
investments are necessary in order to deal with the tendency of
growing inequality in the society and the problems of the
edication and health sectors. These conclusions were presented
in the Economic and Social Survey for Asia and the Pacific 2008
of the UN Economic and Social Commission for Asia and the
Pacific (UNESCAP).
The survey reminds that in 2007 the Armenian government
adopted a 5-year political program of poverty reduction, which
envisages reducing the poverty level from current 30% to 12% in
2012. It is said that the number of people with low incomes on
the verge of poverty declined from 55% in 1988 to 34% in 2005.
The Gini coefficient for measuring income inequality, in which
high values show large inequality in income distribution,
made 44.42 in Armenia in 1996 and 33.8 in 2003. Nevertheless,
income inequality continues to be a big problem in the country.
According to the survey, in 2007 Armenia registered a
two-digit economic growth for the sixth consecutive year and was
among the most rapidly developng countries in the world.
Armenian GDP grew by 13.8% in 2007, with construction,
agriculture and services being the main factors of GDP growth in
the country. Construction growth increased thanks to a
considerale growth in construction of industrial, residential
and office buildings. The growth of economy included such
services as trade and communication. In 2007, the growth of
agricultural output made 9.6%, with wheat harvest doubling and
reaching 450 thousand tons.
The survey notes that in 2008-2009 Armenia gives priority
to management improvement, poverty reduction, as well as to
increasing the tax collection (by abolishing tax exemption) and
improvemenet of small and medium business environment. It is
envisaged to ensure 10% GDP growth in 2008 and at least 8%
growth in 2009.
According to the survey, in 2007 the Armenian state budget
registered a surplus equivalent to 0,1% of GDP at the expense of
a growth in tax collection. However, taking into account
expenditures on social programs and infrastructure development,
it is expected that by 2009 the budget will again have a deficit
of 2.6%. State revenues may increase in 2008-2009 thanks to the
amendments to the tax legislation and tax and customs
administration improvement, but tax collection will continue to
be serious problem in Armenia.
Besides, it is said in the survey that monetary and credit
policies in North and Central Asia, as well as in Armenia
pursued the goal of suspending inflation and preventing a large
growth of the real exchange rate. The governments of these
countries tightened the monetary and credit policy by increasing
the deposits of their governments and banks, regularly raising
the initial interest rates and refinancing the central banks. In
particular, the Central Bank of Armenia raised refinancing to
5.75% and increased the use of such internal instruments as sale
and repurchase (repo) agreements.
The survey notes that the growth of consumer prices in
Armenia increased from 2.9% in 2006 to 4.4% in 2007 as a result
of increasing food prices, further rise of salaries and
household incomes. This rapid monetary expansion and high import
prices resulted in considerable inflation in Armenia. In the
last quarter of 2007 the Armenian dram appreciated by about 10%
against the US dollar. The appreciation of the dram causes
concern of those households whose incomes depend on remittances
from abroad.
It is noted that although exports of goods from Armenia
increased by 9.1%, the trade deficit notably grew in the first
nine months of 2007 - from 826 mln USD in 2006 to almost 1.4 bln
USD. Imports grew by 1.9% to 2.2 bln USD in the first nine
months of 2007 at the expense of the import of ores, cars and
equipment for construction programs. The deficit of current
accounts grew from 78 mln USD (equivalent to 1.9% of GDP) in the
first nine months of 2006 to 327 mln USD (5.7% of GDP) in the
first nine months of 2007 at the expense of the growing trade
deficit.
The UNESCAP experts indicated that remittances from abroad
have become an important source of foreign financing for
Armenia's economic development. In 2007 these remittances
represented a considerable investment in the socioeconomic
sphere. Remittances from those, who left abroad for temporary
and permanent work, amounted to 1.32 bln USD (equavalent to 14%
of the country's GDP) in 2007. The foreign investment inflow
continued to play a major role in Armenia's economic development
and modernization in 2007. The foreign investment inflow made
351 mln USD in Armenia in first nine months of 2007 - against
202 mln USD in the same period of 2006. Considerable part of
growing foreign investments was allocated to communication and
municipal sectors and for financing of the deficit of the
country's current account.