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At the December 11 extraordinary session of the National Assembly, in response to the question of Prosperous Armenia faction MP Michael Melkumyan whether the budget had any problem due to which the state took loans from international organizations, Deputy Minister of Finance Armen Hayrapetyan, answered that the budget had no problems and the reason for the poor budget execution was the loans by external funding.
“Suppose we have poor execution in the North-South corridor construction project, but the costs covered by internal sources continue with the same logic, with the same funding amount, with the same proportion as last year, including capital costs from internal sources. We expect that by the end of the year it will be the same as last year – 97-98%,” Hayrapetyan said.
According to Hayrapetyan, it was planned to receive loan funding from international organizations to fund the 2019 budget deficit. However, negotiations with these organizations were concluded only in December.
It should be noted that during the extraordinary session the National Assembly was discussing the issue of ratification of 4 foreign loan agreements.
Fact Investigation Platform has examined the state budget execution reports and checked the accuracy of the Deputy Minister’s statements.
State budget execution
Quarterly reports on state budget execution are submitted by the Ministry of Finance. The document includes planned, adjusted and actual budget figures. Thus, the adjusted budget plan for the first nine months of 2019 made up about 1 trillion 276 billion drams against which 1 trillion 53 billion drams was actually spent. That is, the budget execution for the nine months is 82.5%. Compared to the annual budget data only 60.8% of the budget funds was spent in 9 months. It should also be noted that state budget in terms of revenues has been executed by 100% in accordance with the nine-month plan and by 70% compared to the annual plan. Poor revenue execution was recorded only under the official grants, which also include funds from foreign organizations. The nine-month plan for official grants was executed by 37.5%, i.e. only 9.3 billion of the planned 24.2 billion drams were received.
The indicator for the nine-month performance of 2018 was 84 percent. About 959 billion drams were spent from 1 trillion 142 billion drams of the adjusted budget for this period last year. Thus, the difference in the performance of the nine-month budget plan is insignificant compared to last year. The difference in annual figures is not big either as in the nine months of the previous year the performance of the annual adjusted plan was 63.2%.
State budget execution of pre-revolutionary year of 2017 was a little higher. The nine-month adjusted plan was 1 trillion 96 billion drams, which was executed by about 90 percent. In fact, 981 billion AMD was spent. In September, the annual adjusted budget plan was executed by 66.2 percent.
In the nine months of this year about 49.5 percent of non-executed funds derived from current expenses, and 50.5 percent from planned operations with non-financial assets or capital costs. According to the analysis of last year’s budget execution, the non-executed funds proportionally made up about 50% under current expenses and almost as much under capital costs. In 2017, this figure was 55 percent and 45.3 percent respectively.
Thus, it is noted that in parallel with the increase of state budget funds, the execution of budget has somewhat decreased. In this context, the issue of poor execution of capital costs has been particularly criticized.
On capital costs
Non-financial assets or capital costs are one of the most problematic items of budget execution. These are the funds used to build roads, construct and restore various institutions and structures and so on. The annual adjusted budget plan is 248 billion drams for these items, and the nine-month adjusted plan has been performed by 29 percent compared to the annual plan. That is to say, over the nine-month period about 71 percent of capital costs were not executed.
More than half of the planned capital costs – about 98.1 billion drams – was planned to receive from external sources. In this regard, the budget execution amounted to 25.3 billion drams or 25.8%. That is to say, the observation of Deputy Minister of Finance, Armen Hayrapetyan, that the poor execution of these expenses is linked to external sources, is true. According to Hayrapetyan, the reason for the lack of external funding was that there was no donor until then.
During the same period of the previous year, the execution of capital costs was about 40% or 58.4 billion drams. The annual adjusted plan was 174 billion drams, and for nine months it was 150 billion drams. Compared to the annual plan, capital costs were executed by 33.6%.
The figures of 2017 regarding capital costs are noteworthy too. During the nine months of 2017, about 62 percent of capital costs was executed. About 47 percent of the annual budget plan was spent during this period. It is also noteworthy that the difference between the approved and adjusted budget figures was almost double. Thus, the approved budget plan was 98 billion drams and the adjusted plan was 180 billion drams. And about 61.7% of capital costs was executed from January to September 2017. About 84.2 billion drams were actually spent. Of these, 73.7% of capital costs was executed amounting to 62.4 billion drams or 74.3% of planned expenses.
Annual indicators of poor budget execution
Given the conviction of Deputy Finance Minister that by the end of the year the state budget figures will be the same as last year, Fip.am has also examined the annual performance reports of the previous two years.
Although the execution of the nine-month budget of the previous two years was also not very high, the budget execution reached 90 percent and more by the end of the year.
Thus, the annual adjusted plan for 2018 was 1.5 trillion drams out of which 1.4 trillion were spent. It was executed by 94 percent. In this regard, there is some contradiction with the statement made by the Deputy Minister of Finance. Interestingly, the execution of 97-98 percent mentioned by him was accomplished in terms of 2018 state budget revenues, but what he actually talked about was budget expenses.
Thus, the statements of Deputy Minister of Finance Armen Hayrapetyan on the execution of the state budget of Armenia are generally true.
Ani Avetisyan
