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  • Speed Of Social Reforms Lags Behind Rate Of Macroeconomic Reforms In

    SPEED OF SOCIAL REFORMS LAGS BEHIND RATE OF MACROECONOMIC REFORMS IN ARMENIA

    Noyan Tapan
    April 2, 2008

    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.
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