The Government of the Republic of Armenia

Honorable President of the National Assembly,

Dear Members of Parliament,

Dear Members of Government,

Ladies and Gentlemen:

In accordance with Article 90 of the Constitution of the Republic of Armenia, the Government of the Republic of Armenia is hereby submitting to the National Assembly the 2008 draft State budget law.

The 2008 draft State budget law is quite ambitious: as a starting-point for the second-generation reforms, it envisages increase in both revenue and expenditure sides.

Here, I would like to state those strategic tasks which will be addressed by the 2008 State budget.

Today it seems undeniable that we live in a rapidly evolving world which is keeps on getting smaller and smaller.

On the one hand, cross-country economic developments exercise a direct impact on our social and economic life, on the other hand, they urge us to ascertain our vision of Armenia's position in worldwide economic processes.

Today we should concentrate upon our vision of the future instead of pulverizing our potential in the debates over the failures and shortcomings of the past. Let us cooperate and deliberate over such tasks as are aiming the future.

Worldwide processes evidence that States are gradually substituting compulsory management tools for cooperative schemes which imply solidarity. The principle of public-private sector cooperation is an imperative in today's world.

According to international evaluations, the global economy is facing a stormy period of turbulences. The current state of affaires in the US secondary mortgage market, the sharp decrease in interest rates and the drastic devaluation of the US dollar against other currencies, the suspension of agricultural subsidies on the part of the European Union, the unprecedented rise in food and fuel prices on the international markets are affecting immediately our economy.

Finance and manpower have become very mobile in this ever-liberalizing world due to which China and India have gained a strategic competitive edge in the labor markets. The steady increase in real wages in Armenia prevents many enterprises from being competitive and necessitates the enhancement of their productive capacity.

Worldwide equity flows to those countries having a comparative advantage.

Retreating in the face of increased competition, the developed countries are shutting down industrial enterprises and replace them with knowledge-based modern branches.

Economic developments in our region, too, reveal a drive for strategic comparative assets.

Azerbaijan aspires to a status of raw materials supplier and the development of oil processing industry in that country appears to be affecting considerably all the spheres of domestic economy. Proceeding from its geographic assets, Georgia is proposing ambitious economic and political development programs.

I feel we all understand that today's geopolitical and economic realities compel Armenia to base the development plans on its human capacity. By saying human capacity I mean Armenians all over the world. It seems evident that Motherland is turning into the focus of the political and economic interests of Armenians worldwide. They are truly interested in Armenia's development and, speaking economically, we ought to consider them as the residents of our financial and economic systems. This means that it will be impossible hereinafter to develop and realize any global program without making allowance of this factor.

Thus, our competitive asset is the consolidated potential of all Armenians.

Having received the vote of confidence of our people and after forming a government cabinet, I presented to you the next five-year program as based on a new paradigm. The 2008 State budget law is the first step on the way to the implementing this program and it features the following 5 priorities:

1. Tackling of social, demographic and moral challenges.

2. Development of educational and intellectual capacity.

3. Expansion of health care services, resort networks and organized holiday facilities.

4. Addressing of tasks associated with the modernization of industry, agriculture and construction.

5. Promotion of financial intermediation schemes.

6. Formation of an up-to-date and efficacious security system.

7. Ensuring enhanced efficiency in central and local administration systems.

A chief pre-requisite to the development of our country is the spiritual unity of our people.

The establishment of an atmosphere of mutual respect, cooperation and trust will be the key to successful government activity.

The share of social expenditure will constitute 46% of overall budget spending in 2008 which means that our budget will have a well-pronounced social orientation.

Pension system reforms are supposed to lead the efforts for the mitigation of social polarization and the reduction of the great number of vulnerable households.

The not less than 60% rise in retirement pensions as envisaged by the 2008 State budget law will be seconded by introduction of a new pensions' system.

Here, I would like to provide a broad outline of the new pensions' system.

- Any citizen of Armenia, whether able-bodied or not, will be entitled to a minimum allowance no less than the real cost of living.

- The amount of pension will be directly tied up with individual income inclusive of wages.

- Any able-bodied citizen pf Armenia will have a personal funded account and the funds so accumulated will ensure additional pension income for him.

The Government will continue making efforts towards the solution of the existing demographic problems. Starting from 2008, those households registered with the system of vulnerability assessment will be receiving a lump-sum benefit of 300.000 AMD for any third or next newborn child, which is a 50% increase over the current level of such benefits.

High-quality education will be the most reliable way to getting rich in the 21st century. It seems incontestable that our future is the formation of a knowledge-based society, the main values of which shall be the aptitude of thinking and generating knowledge. The realization of this goal will depend on to what extent we will succeed in building an effective, competitive and up-to-date educational and scientific system. In particular:

1. Educational institutions should teach teaching.

2. The quality of knowledge dispensed by and the availability of information technologies in our universities shall be adequate to those provided by an average European university.

3. Research must be competitive and must tend to providing applied knowledge.

4. Universities should become research centers in addition to their capacity of educational institution.

Spending on science and research will grow by 19.7%. Teachers' wages will be raised to make up 89.6 thousand drams for the standard rate of weekly hours, inclusive of over-payments, as compared to AMD 74 thousand paid in 2007. Administrative staff wages will be raised by nearly twice to constitute 136.000 drams.

Separate expenditure items will be envisaged for the training of teachers and the repair of 184 educational centers.

State expenditure on science and research has grown by 16.5%. A 50% rise is planned for the remuneration paid to those research workers employed on a contractual basis.

A priority task in the public health-care sector is the promotion of our country into a regional resort center. This means that as equipped with highly technological medical supplies, our health-care institutions should live up to the international standards by providing specific services against reasonable charges.

Public health-care spending will grow by 24.2% to 54.6 billion drams in 2008. Treating staff's average salary will be up by 20%. 600 million drams will be allocated directly from the State budget for the rehabilitation of 11 medical establishments.

Dear Members of Parliament,

The historical and cultural patrimony of the people of Armenia, the wealth of Armenia's nature and the traditional hospitality of our people may be conducive to Armenia's becoming a center of organized holida'. Our culture shall continue reinforcing the bridge between Armenians all over the world.

Spending on culture, sport and tourism will rise to 14.9 billion drams in 2008. In particular, 1.4 billion drams are envisaged for the rehabilitation of 12 libraries, 20 cultural facilities and 24 monuments to the past.

Dear colleagues,

We are facing a two-fold problem in the real sector of economy. On the one hand, we must ensure a long-term growth for the hard core of industry and, on the other hand, we have to build a launching-pad for such modern, prospective and research-based branches of economy as are information technologies and nanno-technologies.

What is the Government planning in this area?

First, we will continue improving the investment environment of Armenia. The Government has set itself the ambitious task of making of Armenia a country with the best possible business and investment opportunities.

We must have a competitive tax system. In other words, the tax burden should be reasonable and the administrative tools