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Armenia: New Government Faces Budget Challenges

By Vahan Hovannisian

Yerevan, 13 November 1996 (RFE/RL) -- The newly-installed government of Armenia is facing multiple challenges, not the least of which is a difficult budgetary problem.

The outgoing government has presented the 1997 budget draft to the National Assembly. This forsees expenditure of $388 million for the central budget and approximately $20 to $25 million for the newly-established local communities' budget.

Our correspondent in Yerevan reports that envisaged total expenditure represents an increase of $100 million compared with the present year. He says this sort of increase in expenditure has to be accompanied by a 6 percent economic growth rate to be sustainable. The draft sets out that the main recipients of the extra expenditure will be social welfare programs and the military.

The budget forsees the deficit remaining unchanged at $85 million, or 4.3 percent of GDP. Inflation is predicted as reducing to 14.3 percent.

The present draft was outlined and introduced to the legislature by former Prime Minister Grant Bagratian, who resigned on November 4. Our correspondent reports that the new prime Minister Armen Sarkissian is likely to take over the draft, but the extent of the changes he and the parliament might make to it are not yet clear.

Economists who support Sarkissian have quickly characterized Bagratian's budget document as "populist" and said the revenue which it forsees will prove impossible to secure. But the new Prime Minister is unlikely to find much room for maneuver, and in any case, the draft sets out clearly where the extra revenue is to come from.

The lion's share of the increase is to come from value added tax, with projected revenues from this source to go up by 90 percent. This will be done not by increasing the present rate, but by improving tax compliance, in particular the tax discipline of importing companies.

Extra revenue will come from higher special taxes on petrol, tobacco and liquor, increasing the income from this source by 137 percent. And the government is also looking to the privatization process to provide $24 million in 1997 -- a 24-fold increase on the amount expected during the current year.

Implementation of these methods to increase revenue can be considered realistic only if the Sarkissian government tackles the issue of corruption efficiently. Bagratian warned on the day of his resignation that Armenia's economy is passing into the hands of a few powerful groups which overlap with the state.

Our correspondent says the main reason for Bagratian's resignation was his inability to gain control of the power ministries. Sarkissian now faces the same challenge. He has two choices: to fight against the illegal "tax free" business groups protected by high officials, or to reduce social welfare, medical care, education programs and military financing.