The Government of the Republic of Armenia

Honorable President of the National Assembly,

Dear Members of Parliament,

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 FY2009 State budget bill. This bill is based on the government program as approved earlier this year by the National Assembly, which was developed based on the key provisions of the RA national security strategy and poverty reduction strategic paper, as well as on the electoral programs of the RA President and the coalition parties and the basic provisions of the political agreement.

Through consistent implementation of the provisions and actions specified in the aforesaid documents, it will be possible to provide for high rates of economic development and improved living standards in the country, as well as to meet the threats coming from outside the country. The Republic of Armenia is on the path of comprehensive reform. The reforms tend to higher level of democracy, public sector efficiency, independent and unbiased judiciary, developed system of local self-government and strengthened fight against corruption.

For 5 years now, State budget laws in Armenia have been designed on the basis of medium-term public expenditure programs of strategic relevance. The FY2009 State budget bill was developed based on Republic of Armenia's medium-term public spending program for the period 2009-2011, which is a comprehensive document covering all the sectors of Armenia's economy. Therefore, the 2009 State budget bill reflects the following strategic directions of development:

Firstly, the 2001-2007 growth rates in Armenia (13% on average) made it possible to double the per capita GDP in the Republic. The government has set the task of ensuring an annual real GDP growth of 8-10% in 2008-2012, and we expect to maintain the past few years' high rates of economic growth, with the real GDP due to increase by 9.2% next year. Macroeconomic stability is highly prioritized from the perspective of ensuring sustained growth rates in the country, and the government will continue with its fiscal policies aimed at maintaining the level of macroeconomic stability and economic growth.

Secondly, the planned macroeconomic policy implies low inflation and budget deficit, a reasonable that is economically safe level of public debt, floating exchange rates. In particular, the 12-month inflation target is estimated at 4.0% /-1.5%, with a 1% ratio of budget deficit/GDP ratio. The gap will mainly be covered through borrowed funds consisting of both domestic resources and foreign loans contracted on preferential terms. Under these conditions, the overall level of Armenia's public debt will rise to USD2210.3mn as of late 2009, which makes 16.1% of the GDP (against 17.6% expected for late 2008). The share of foreign indebtedness will be 81.5% or 13.1% of the GDP (against 14.9% expected in late 2008). Here, it should be noted that as a whole the foreign indebtedness-related qualitative indicators will not be higher than the ones characteristic to countries with low or medium debt burden.

Thirdly, the State will continue building up its financial capacity. The projected increase in the level of revenue collection in 2008-2012 is among the fiscal priorities of the government program. An average annual increase of 0.3-0.4% in tax revenue/GDP ratio will be achieved without having to raise the tax rates. Therefore, as in the previous years, a progressive pace of revenue collection against the GDP rise will be achieved in 2009 (revenue collection will be up 21.4% in 2009 against the stated level of 2008 as compared to the planned 18.4% growth of the nominal GDP). The FY2009 budget resource package, projected in accordance with the previous years' methodology, will be funded chiefly through enhanced revenue collection. Taxes and duties will be collected to the amount of AMD726.0bn next year, which exceeds the actual receipts of 2008 and 2007 by AMD128.9bn and AMD225.3bn respectively. A 17.4% projected tax revenue-State duties/GDP ratio will be achieved in 2009 against the projected 17.0% in 2008 and the actual 15.9% of 2007. The stated increase in revenue collection will be brought about by corresponding macroeconomic developments and the government's administrative arrangements in the fiscal sector.

Fourthly, State budget expenditure policies will keep on focusing on the rise in the share of welfare spending, development of economic infrastructures, enhanced national security and public governance efficiency, higher funding for local self-government, as well as will help build up an image of a reliable borrower for Armenia.

The minimum wage will continue upwards in the Republic of Armenia. It will be up 20% to AMD30.000 in 2009, as compared to this year's level.

Spending in the following sectors will prevail on the expenditure side of the FY2009 State budget with an aggregate share of 74.3%, which is broken down as follows: social sector (education, health care, public welfare)