"Fact" daily writes:
The dynamics of the public debt of the Republic of Armenia in recent years has acquired a character that requires serious analysis, public discussion and systemic political decisions, especially for the purpose of preventing long-term consequences.
Official statistical data indicate alarming trends, which, if not stopped in time, can create serious threats to both the current economic stability and the well-being of future generations of the country. The numbers speak for themselves and show the reality that Armenia is facing.
The country's public debt in 2017 amounted to 6.8 billion dollars, which, despite its relative importance, was still within manageable limits and corresponded to the country's economic capabilities. However, in just eight years, that number has almost doubled, reaching 14.2 billion dollars as of September of this year.
These growth rates, which exceed economic growth indicators, indicate deep systemic problems related to public finance management, budget policy and economic development strategy.
Moreover, it is expected that the national debt will cross the fifteen billion dollar mark as early as 2026, which reflects the unmanageable and threatening pace of debt accumulation.
Public debt is not inherently negative or harmful if it is used for the right purposes and under prudent management.
For example, South Korea's economic miracle, which took place in the second half of the last century, was largely based on foreign loans, but these funds were directed to the development of industry, the promotion of exports, and the introduction of scientific and technical innovations. As a result, the country not only returned its debts in a short period of time, but also turned into one of the leading players in the world economy.
Similar examples can be found in Singapore, Taiwan, Ireland, where debts served as seed capital to build powerful economies. Armenia's situation, however, is significantly different from those success stories.
In our country, the public debt is constantly increasing, but the economy does not show appropriate development, which proves that the funds taken are not directed to increasing productivity, creating a competitive economy, and developing new value-adding sectors.
Instead, debts are mainly used to cover current budget deficits and to close the gaps caused by insufficient revenues and uncontrolled growth of expenditures. This creates a picture of circulation, where debts do not solve the main problems, but simply delay their solution, while exacerbating the situation.
When debts are not invested in development, but are used for current consumption, the country is in an economic deadlock, from which it will become more and more difficult to get out over time.
The reaction of the authorities to the criticism of the increase in the state debt often leads to the search for excuses, the most frequently heard of which is that the increased debts were used to ensure security, in particular, to purchase weapons and ammunition. At first glance, this may appear to be an acceptable explanation, especially given the country's geopolitical situation and security challenges.
However, a deep analysis shows that this argument, apart from being manipulative in itself, first of all indicates the failure of the policy, not its success.
Pashinyan and his team, who came to power with big promises and plans, were obliged to focus on the development of the economy for years, to create such an economy that would be able to independently provide sufficient funds and resources to ensure the security of the country, without accumulating debts.
When a country has to resort to foreign loans to ensure its security, this is a direct evidence of the failure of economic policy and especially the fact that adequate internal economic capacities have not been created.
It is also important to focus on another aspect of the justification for the acquisition of weapons and ammunition. If the country were to pursue a consistent policy in the direction of economic development, if the industry, particularly the military industry, was developed, then the country would not only be able to independently produce at least a significant part of the necessary weapons, but would also become an exporter, which would bring additional income and strengthen the economy.
Armenia has all the necessary prerequisites for the development of the military-industrial sector: qualified engineering personnel, scientific and technical traditions, certain production capacities, but this potential has remained unused. For years, the authorities have talked about the need to develop the military industry, plans have been drawn up, goals have been announced, but at the level of practical implementation, this sector has remained almost at zero.
The example of Germany gives a clear idea of how to approach the question of the ratio of public debt to security costs. Germany, Europe's largest and most developed economy, has followed a policy of strict fiscal discipline for decades, keeping public debt relatively low compared to the size of its economy.
The country has a strong export sector, where German products, from cars to high-tech equipment, enjoy global demand, providing a large inflow of capital. And when the German authorities talk about increasing the financing of the defense sector at the expense of the debt, it is a completely logical and rational decision, because their debt is within manageable limits, and they have a clear plan to close this debt in the future.
But the most important lesson from Germany's example is not the financing of security with debt, but the approach to how they do it. Germany sees the increase in debt as an investment not only in security, but also in the economy. First of all, we are talking about the significant development of the military-industrial sector, the expansion of the production of military technologies and equipment, which means the creation of new jobs, technological development and, most importantly, new export opportunities.
The German military industry already occupies an important place in the world market, and the authorities plan to further strengthen this position. In other words, the debts are used in such a way that in the future they are not only returned, but also bring additional income to the state budget.
This is the essence of economic rational thinking, which, unfortunately, is missing in Armenia's strategic planning. Unlike Germany, Armenia is in a completely different situation. Our country does not have such a powerful economy that can allow a significant increase in debt without the risk of serious consequences.
Our exports are limited and mainly focus on raw materials and low value added products. Although Armenia has all the opportunities to produce high-quality, including military products, including the potential to establish joint ventures with partners, however, the full potential remains unrealized.
A paradoxical situation results, where our state continues to survive at the expense of debt, without any clear strategy to close those debts in the future. It has become easier and preferable for the authorities to show some economic activity at the expense of debts than to undertake constructive reforms that will create a basis for a real productive and competitive economy.
Debts can be used to show short-term results: to implement social programs, raise wages, implement infrastructure projects, but if all this is not accompanied by structural reforms of the economy, increase in productivity, expansion of exports, then the country simply accumulates debts without a real possibility of closing them in the future.
The international experience of public debt management shows that a sound economic policy requires certain debt limitations and clear rules. That is why a number of countries have set maximum permissible limits for public debt and try to strictly follow these limits.
Although some countries often violate the limits, especially in times of crisis, the existence of these rules in itself creates a certain discipline and makes governments accountable for their financial policies. In Armenia, however, the growth of public debt occurs without such mechanisms that would ensure transparency, accountability and strategic planning.
The society does not have a clear idea of where the taken funds are used, what kind of projects are financed, what kind of return is expected from these investments. Decisions to raise new debts are made without broad public discussion, without evaluations by independent experts, without analysis of long-term effects.
This creates a situation where debts can be taken for non-rational needs, efficiency can be low and the risk of corruption high. Debt servicing costs are already a significant burden for the state budget. Each year, the state is required to allocate significant sums of money for debt interest payments, and these sums continue to grow as the debt grows.
This means that the significant part of the state budget, which could have been allocated for productive costs, social programs, infrastructure development, education and health care, is provided for debt service. This creates a vicious circle where rising debts reduce the state's ability to invest in development, which in turn slows economic growth and forces new debts to be taken on, even with the burden of repaying old debts.
Assessments by international financial organizations also express concerns about Armenia's public debt trends. The International Monetary Fund, the World Bank and other institutions often address the question of debt sustainability in their reports and propose appropriate measures.
However, the implementation of these recommendations remains insufficient, and debt growth continues at an unmanageable pace. It should also be noted that even though international lenders continue to provide loans to Armenia, they are simultaneously observing the indicators of the country's debt stability and may tighten lending conditions in the future or reduce the volume of loans if the situation continues to deteriorate.
The growth of social inequality in Armenia is also indirectly related to the issue of public debt. When wealth is concentrated in the hands of a very narrow segment of society, and the majority lives on very limited incomes, as a result, the country does not have a broad middle class that can be the basis of economic growth.
The middle class, which is usually the main source of consumption, savings and investment, remains underdeveloped in Armenia. This reduces domestic demand, limits opportunities for business development, and reduces tax revenues. Another serious problem is the over-concentration of resources in the capital Yerevan, which is also a clear example of polarization.
The obligation of the state is to ensure social justice, to create conditions for the formation of the middle class, to reduce the polarization of wealth, to reduce territorial polarization.
Inadequate funding for education and science is another direct consequence of debt growth and budget shortfalls. When the state has to allocate a significant part of the expenses to debt service, less funds are left for the development of the education system.
However, it is education that can ensure long-term economic development, can create a qualified workforce, can stimulate innovations and technological development. Without serious investments in education and science, the country cannot be competitive, cannot develop high value-added industries.
ARTHUR KARAPETIAN
