I ncrease in revenues, progressive increase in expenditure, increase in deficit, slowdown in Government debt/GDP ratio: these are the main features included in the 2023 financial master documents.

As every year, this year in fall, along with the end of the current budget year, the discussions on the next year’s state budget document started, within the framework of which the RA Ministry of Finance presented the draft law “On the State Budget of RA 2023” (hereinafter: the Draft), which was approved by the RA Government on September 27.

Taking into account the importance of fiscal policy from the viewpoint of reliable management of state budget revenues, expanses, debts, as well as increasing the potential of the economy, the main directions and forecasts of fiscal policy implementation in the draft state budget were studied, presenting the key changes, which are the main priorities of the Government’s long-term strategy for 2021-2026. [1]

Budget revenue, expenditure, deficit

B ased on the 2023 budget message, 7% economic growth is expected as a result of the fiscal policy, significantly increasing the share of state investments (increasing the weight of capital expenditures in GDP to 5.9%) and increasing the efficiency of spending, as well as maintaining debt stability. Moreover, it is expected that the fiscal policy will have a neutral effect on aggregate demand in 2023, stimulating potential economic growth.

            The RA Government has predicted a significant increase in the state budget revenues for the next year, in the amount of more than 2.301 billion AMD, in which expected revenues from tax revenues and state taxes make up the majority and official grants account for 0.7% as in previous years.

According to the Draft, in conditions of high economic growth, as a result of additional efforts of the tax administration, it is expected that the tax/GDP ratio will improve by about 0.5% in 2023, making about 2203.7 billion AMD or 23.7% of the GDP.

Overall, there was recorded an increase in revenues of the RA state budget in recent years, which was the basis for predicting such a high level of revenues in 2023. However, it should be noted that there are still uncertainties in parallel reality, related to the possible effects of the Russian-Ukrainian conflict, probable economic downturns in RA trade partner countries, as well as related to the consequences of the Artsakh war and the pandemic, which can reveal certain fiscal risks, deviating actual events from expectations.
Referring to the level of expenditures provided for in the 2023 state budget document, it should be noted that it has registered a progressive increase compared to revenues, amounting to more than 2.590 bil. AMD. About 79% of the total expenditure or 2,042.5 bil. AMD is allocated to current expenditures, and more than 21% or 547.7 bil. AMD to net expenditures on non-financial assets. It is noteworthy that the expenditure part of the RA 2023 state budget draft has increased by about 406.1 bil. AMD compared to the approved level of the RA 2022 state budget. The draft expects, that the increase in current expenditure will be largely supported by the increase in state budgets (656 bil. AMD) in terms of social benefits and pension payments, increasing by 14.6% compared to the approved budget of 2022. 

The scenario underlying the 2023 budget envisages a significantly higher level of capital expenditure in the amount of 5.9% of GDP. Yet, taking into account the actual expenditure performance of the previous years, there is a risk of underachievement of targeted indicators, which can violate the indicators of the defined fiscal framework and we may once again face a situation, where we have planned capital expenditures but not enough potential to implement them.

Actually, the Draft envisages that in 2023, due to the increase in capital expenditure, an increase in the state budget deficit is expected in the amount of 3.1% of GDP, and the fiscal policy will be neutral, aiming to contribute to the increase of economic potential and to ensure a reduction of the debt burden.

According to the draft, the main part of the internal sources of deficit financing in 2023 will be formed from the proceeds from the placement of state securities, from the funds of the stabilization deposit account, as well as from the net receipts of budget loans provided to economic entities. Funds for financing the state budget deficit at the expense of loans from international organizations and foreign countries are still significant.

Based on the forecasts, official budget support grants and loans to finance targeted programs will dominate in the structure of external assistance during the program period.

Based on the level of revenues of the RA 2023 state budget of 24.7% of the GDP and based on the possibilities of financing the shortfall/deficit of 3.1% of the GDP, the Armenian Government plans to cover the 2023 expenditure in the amount of 27.8% of the GDP.

Are the fiscal rules being followed?

T he compliance with fiscal rules is emphasized within the context of the implementation of the fiscal policy, which will be consistent with the following “golden rules”:

• When the government debt/GDP ratio exceeds 40%, the capital expenditures of the state budget must not be less than the budget deficit.
• If the government debt/GDP ratio is in the range of 50-60%, the rate of growth of current primary expenses is limited by the average growth of GDP of the previous 7 years.
• When the government’s debt exceeds 60% of the GDP, the rate of growth of current primary expenditures is limited by the rate reduced by 0.5% points from the average growth of the GDP of the previous 7 years, current expenditures are limited by the amount of taxes and duties.[2]

The fiscal framework was formed on the basis of the modernized system of fiscal rules developed in 2017 and entered into force since 2018. The draft mentions, that the indicators of the state budget for 2023 were planned in a full compliance with the fiscal rules.

According to the 2023 Draft, the maintenance of the “golden rules” of state finances will allow to ensure the growth of progressive state assets leading to the net involvement of the debt and keep the country’s real debt position manageable and therefore the long-term fiscal risks. Simultaneously, the Government debt/GDP ratio will continue to decline, thus shifting fiscal policy to more relaxed regimes of rule restriction allowing for a more flexible policy. 

Based on the Draft, the formation of the state budget in 2023 will continue with expenditure exceeding budget revenues, and the attraction of funds to finance the budget deficit will be carried out via both internal and external sources, respectively in the amount of 368.4 bil. AMD and 79.5 bil. AMD.

In the current year, the financing of the state budget deficit is planned to be implemented mostly at the expense of internal sources, the share of which according to the Draft, will increase even more in 2023.

The 2023 budget: logical continuation of the 2022 developments

I t is obvious, that the 2023 Draft was formed taking into account the economic developments of last year, as well as the existing risks and uncertainties, which may have an impact in terms of ensuring the targeted economic indicators for 2023, that’s why it is important to study the current developments of 2022 as well.

According to the Draft, in January-August 2022, the impact of the fiscal policy on total demand was restraining. At the same time, the Government initiated measures to stimulate individual sectors of the economy, as well as to provide social support as a result of external shocks.

During the observed period, based on the Draft, a high rate of growth of the RA state budget revenues was recorded due to high economic growth and inflation, as well as changes in the tax legislation.

Based on the results of January-August 2022, the total revenues of the RA state budget increased by more than 26% compared to the same period of last year, due to the growth of tax bases, as well as the reforms of the tax legislation of 2021, particularly the introduction of the export tax on metallic minerals.

The state budget expenditures increased in the first 8 months of 2022 due to the increase in both current and capital expenditures. It is noteworthy that, in order to alleviate the negative effects caused by the Russian-Ukrainian conflict escalation, a number of social support measures were taken by the Government.

In the first 8 months of the current year, a surplus of 53.7 bil. AMD was recorded in the state budget, compared to the deficit of 143.5 bil. AMD in the same period of last year.

According to the 2023 budget draft, in 2022 a significant overachievement of tax revenues is predicted compared to the previously planned, as a result of which the budget deficit is expected to decrease, as well as a faster decrease in the Government’s debt burden than expected.

According to the Draft, the fiscal policy aimed to significantly increase the level of state investments and at the same time ensure the decreasing trend of the RA Government’s debt burden, with the aim of contributing to the increase of economic growth potential and at the same time ensuring a fiscal stability.

The fiscal consolidation started in 2021 will continue in 2022-2023, thus resulting a significant debt decrease of the Government. It is expected that in 2022, the RA Government’s debt/GDP ratio will be 50.7% and 49.7% in 2023.

According to the Draft predictions, the debt of the Government will amount to 4,628 bil. AMD as of December 31, 2023, which will decrease by 1% compared to the GDP at the end of 2022.


The analyses of the stability of the RA government’s debt indicate that although it is stable, manageable and low-risk, it is sensitive to economic growth and exchange rate shocks. 

Thus, both the negative manifestations of the COVID-19 pandemic and the Artsakh war, as well as the existing uncertainties caused by the Russian-Ukrainian conflict escalation, continue to persist, particularly from the viewpoint of possible effects on the RA economy caused by the sanctions applied to the Russian Federation, as well as ensuring the recovery and further growth of the economy.  

To sum up, let’s note that the 2023 state budget draft envisages a progressive increase in expenditures compared to revenues, as a result of which the budget deficit is expected to increase even more, making 3.1% of the GDP, compared to the 2.5% in 2022. At the same time, significant increases are planned in both the revenue and expenditure sectors of the state budget compared to last year, which will have a positive impact in terms of ensuring the targeted 7% economic growth. However, it should also be noted that there are still uncertainties that may undermine the provision of targeted indicators.

It is noteworthy that the 2023 budget draft envisages an improvement of the Government debt/GDP ratio by 1% compared to the current year. However, it should also be noted that sharp exchange rate fluctuations continue to persist along with the current global structural changes, which may also cause some instability, undermining the provision of targeted indicators.

As for the financing of the budget deficit, in fact, it was mostly financed by external sources in 2021, and in the current and following year, it is planned to implement most of the financing by domestic sources. Nevertheless, the dependence of the RA state budget on foreign financing sources continues.

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[1]  The basis for the development of the RA 2023 state budget draft was the main principle established by the RA 2023-2025 Medium-Term Expenditure Program (MTEP).

[2] The mentioned restrictions do not apply in exceptional cases defined by the government’s decision, based on large-scale natural and man-made disasters, war operations, transition of the economy from peacetime to wartime, negative economic developments caused by the economic shock circumstances.