The Government of the Republic of Armenia

Dear National Assembly Chairman,
Dear Members of Parliament,
Dear Colleagues,

The draft State budget of the Republic of Armenia for 2015 features the provisions of the Government Program, as approved by the National Assembly, and the ones adopted by the Government of the Republic of Armenia in its medium-term program of public spending for 2015-2017.

And the very priorities and main directions stipulated in these programs will outline the landmarks for the policy of economic development in 2015.

The members of the Government will present to you in detail the draft State budget for 2015 program per program and expenditure per expenditure. I will only present a general description of the budget and the policy approaches behind it.

In the first place, I would call realistic both the Government Program as approved by you and the draft State budget.

I think that even in the context of complex regional economic developments, of which the possible scenarios we have presented, we can be sure that the necessary expenditures will necessarily implemented. In terms of policy changes, the budget system is strictly inert: in the budget for one year, at best, one can see only the beginning of the policy emphasis. Restrictions are available both in terms of long-term planning of budgetary processes and continuity of programs.

This year too, the draft State budget has a clear social orientation, as evidenced by the fact that almost half of all budget expenditures in 2015 (47.9%) constitute the costs of the social and cultural spheres, with spending in the sectors of education, social protection and public healthcare will be about 596.5 billion drams in 2015, exceeding the same figure of 2014 by 25.7 billion drams. An appropriate level is provided for national defense, public order and national security - in the amount of 21.4% of total expenditure.

Similarly, in 2015 we will continue to provide financial assistance to the Nagorno-Karabakh Republic. The draft envisages providing the NKR an interstate credit of about 45.5 billion drams.

To the extent possible, however, we are guided by our motto: to create a level playing field and listen to the views of society. The main emphasis of economic policy will be put onto two groups of key areas: the improvement of the business environment and the development of exports, and secondly the development of reference sectors.

Building legal and economic relationship should serve as a confidence-building measure between businesses and the State - as the pledge for high business activity and attracting sustained investment flows into the country. The partnerships with the private sector will be supported by a level playing field for businesses.

The National Assembly is currently discussing a draft amendment to the law On Value Added Tax, the meaning of which is to apply the same conditions for the State and business entities, ruling out the double standards.

Now, for example, the State says to the entrepreneur: if the customer has received the goods, please be so kind to honor your tax obligations, even if you have not yet received the full amount. However, if the same business entity wants to deem the advance payment so made as non-taxable income; the government says, no, account it now.

This creates unequal conditions for economic entities by reducing their working capital. An immediate correction of this policy will create a single multi-billion dollar burden on the budget, and it cannot be done in one go.

Our approach is to create realistic and equal conditions. That is, we do it realistically: the very large load flow is divided into three stages over a period of 3 years. We do it by creating a level playing field, especially liberating the small business. Will this move have a revolutionary impact in 2015? I think not. If appropriate, whether it is realistic, and finally effective this step? I have no doubt.

In terms of ruling out the double standards, streamlining the State-businesses relationship and working in transparency, we will continue to actively reform the inspection system. My approach is very simple: the less inspection, the better. The more orderly and transparent inspections we have, the better it will be. At this point our draft law is in the National Assembly, and I call on you to deal with it as carefully as possible and adopt it.

The main work here will focus on the full implementation in the inspection system of risk-based inspections, the start of the inspection program optimization system that we will finish within 3 years.

Numerous programs available in the budget target step by step the identification of Armenia’s competitive advantages and encouragement of investment, whether by shaping an appropriate business climate, collecting investment programs and presenting them to foreign and local investors. Reducing the shadow is a process that can be improved step by step.

We have no magic wand to eliminate within an instant the vicious practice formed over years. However, we have the will and determination to do so step by step, sector per sector.

Our target is the big business, and if individual steps aimed at ensuring the accountability of major businesses are sometimes perceived as attempts to harass small and medium enterprises, I do hope for your understanding and support.

I am sure that time will put everything in its place. We consider small businesses as a source of employment and we will create the conditions necessary for its privileged work.

Our target is the big business, and here we will reduce the shadow. Consistently. Patiently. In Armenia.

Aspirations on the development of foreign economic relations activities will be aimed at improving the competitiveness of the economy and the deepening integration into the global economy. Necessary measures will be taken to ensure continuity in the use of the generalized and updated preferential trade regime of the European Union, as well as to set a key emphasis on providing effective steps toward Armenia’s accession to the Eurasian Economic Union.

From the perspective of developing the reference spheres, we will continue a program of measures to implement strategies already approved by for having the potential of promising sectors identified by the strategy of export-oriented industrial policy.

In particular, programs will continue in precision engineering, brandy-making, wine-making, pharmaceuticals and biotechnology, production of watches and diamonds, light industry. We will launch a program of action to implement a strategy of development of food industry.

The countryside will remain a focus along with its concerns and problems. The policy implemented will be aimed at ensuring balanced development of rural areas and increasing the level of resource potential, accessibility of basic farming resources - fertilizers, diesel fuel, and the availability of credits. Consistent efforts will be made to subsidize interest rate on loans available to such business entities as are working in the most adverse conditions and to develop various methods of management in the agricultural sector through co-financing programs.

The draft budget for 2015 assumes a 50 percent increase in subsidies provided to farmers, bringing it to 6 percent, with 1.163 billion drams available in 2015 instead of those 872.5 million drams envisaged in the State budget for 2014.

For the country’s overall economic development and, in particular, for rural and agricultural development, important is to coordinate work on the design and construction of four major reservoirs - Kaps, Vedi, Yeghvard and Mastara. They call for sizeable investment, which we get mainly from donors.

We will continue with the activities on the construction of the North-South Road Corridor, along with the building of lifeline roads and border crossing points.

At the same time, with expenditure on the drinking and irrigation water reservoir system, an important step is to strengthen the lawful and proper operations in this field. Of particular importance is the development of a management plan for the Ararat valley watershed, the implementation of measures to restore and protect the ecological balance of Lake Sevan, a ruthless struggle against illegal wells.

Any such well shall be closed, all large water users should make investments in a reasonable time to move to a new, more efficient technologies. Here, we have no alternative, and we will be consistent.

The public policy implemented in the field of energy, will continue to be consistently directed at improving the energy security of the Republic of Armenia by ensuring security in power supply, effective use of local renewable energy resources, widespread adoption of energy-saving measures and implementation of the requirements of environmental protection.

Pillars in the energy sector will be the realization of domestic renewable energy resources, building an export-oriented sustainable and reliable energy system, building new generation capacity equipped with modern technologies, further development of nuclear energy, including improved security and reliability of the existing NPP that will extend the life of its operation and integration into the regional power grid.

As I said, the budget can be clearly called as socially oriented not only in terms of the obvious share of expenditures, but also for compliance with the demands of society and their consistent implementation. The problems accumulated over many years are dealt with in an open and transparent manner by our government.

The subject of my daily activities, for example, is the fate of those citizens who have lost their flats due to failed developers, many of whom already know personally. The subject of my concern was, for example, the streamlining of penalties levied on citizens.

Listening to the needs of society, together with you we halved the fines fixed by speed meters, and, in the general context, we left high fines only for the offenses representing high public danger, such as driving a motor vehicle while intoxicated.

Now a similar problem is up for discussion. We all know that in the part of disability benefits we currently have significant risks and abuse when the government suffers damage worth billions of drams. When we looked at the international experience we saw that everywhere there are obvious limitations, however, clearly understanding the sensitivity of the issue, we decided that the proposals arising from the international experiences should be put up for broad public discussion.

I personally think that, say, the basis for the calculated childbirth allowance for women who have a work experience of up to one year, must be at least 60 percent of salary, instead of 40, for those who have an experience of 1-3 years - 70 instead of 60 percent, and so on. In my opinion, this is a subject of discussion, and I am ready to discuss the matter with the National Assembly factions.

When public, including the parliamentary debate will end, we can clearly summarize and give final proposals following our motto - be complying with the public demands.

Let me give another example. I will not detail the course and outcome of the lengthy discussions of pension reform. I can only assure you that the now working solutions were not born in someone’s office; they are the result of discussions with different sectors of society. For example, a few highlights the fact that the state currently provides co-financing for those under the age of 50 years having voluntarily joined the system.

This provision like the one implying phased implementation had not been foreseen in the preliminary design. However, after listening to people, we realized that either it was a demanded change.

In the field of pensions, a priority for the Government will continue to be ensuring continued growth in the level of pensions and, as to social services, their integrated provision.

We will continue the implementation of a system of integrated social services. Fully will involve 29 territorial centers of integrated social services, in other regions of the country we will continue to work to repair and refurbish the buildings earmarked for integrated territorial centers of social services.

As practice shows, integrated social services are an important link in terms of not only solving people’s urgent problems, but also preserving and developing the human capital. From the viewpoint of improving the human capital we have taken significant steps in the areas of education and health. Availability of highly skilled human capital is the main precondition of economic development of society, so the development of education and health is one of the development priorities of the country, and here I would like to touch on a number of important programs of these spheres.

In secondary schools we will introduce the subject of National Song and Dance, whose goal is the preservation of national values and transfer between generations, forming a system of values education in the spirit of patriotism, the preservation of the Armenian thinking.

Also implemented will be a national program of centers of excellence of education that will increase the level of general education and the effective operation of the system of general education.

By implementing the program called “Implementation of robotics in schools,” we will provide students with the opportunity to learn the basics of mechanics, electronics, programming and robotics, bringing will develop their engineering and systems thinking, teamwork and willingness to cooperate.

We are hopeful that these circles will grow up those boys who tomorrow will take advantage of the legislative package due to be sent to the National Assembly in the coming ten days, which provides a framework legislation, substantially stimulating entrepreneurship in information technology. This activity will also stimulate the formation of links between science and industry, and I hope that the National Assembly will support our initiative.

In the health sector, to ensure quality, availability and accessibility of health services, there will be gradually introduced criteria for granting medical assistance on the basis of evidence-based medicine, provided with accurate and early diagnosis of diseases, their high-quality treatment, as well as the proper conduct of the rehabilitation period.

To ensure the availability of medical care we will continue to develop and improve new health financing mechanisms. Revised will be the procedure for the provision of public order, gradually expanding the scope of health insurance mechanisms.

Work will be carried out in the direction of increasing the availability of health services for unsecured and most vulnerable groups, continuously expanding the scope of compelling free heart surgery for the citizens of Armenia.

Outpatient care institutions will implement screening programs for early detection of diseases and their diagnosis. Mandatory annual inspections for all beneficiaries of the social package will create effective mechanisms for prevention of diseases.

The programs are many and important, but unfortunately, I do not have time to touch on all the details, since the members of the Government will give you the details. All are worthy of increasing and broadening, but we have to consider them in the framework of the existing economic realities. The levels of income, expenditure and deficit have been formed within the expected macroeconomic scenario, which in turn are predicted in accordance with the Government’s policies aimed at sustained rates of economic development and the existing macroeconomic conditions.

In particular, the draft provides revenue of 1 trillion 184.5 billion drams, which is 4.3% more than in 2014 as approved a comparable amount. Projected revenue will comprise a large share of taxes and State duties - 95.5%. It is expected that the ratio of GDP/budget revenue for the 2015 State budget will be 24.33% instead of the index of 24.05% in the 2014.

The draft envisages a set amount of deficit of 114.1 billion drams, or 3.6 billion drams more than in 2014. It should be noted that the preservation of the stability of public debt continues to be a major priority of fiscal policy of the Government. In this context, the ratio of the projected deficit and planned nominal GDP for 2015 is projected at 2.34%, maintaining the level of 2014.

Taking as a basis the projected level of the State budget for 2015 and on the basis of the possibilities of financing the deficit, the Government is planning to ensure expenditures in the amount of 26.68% of GDP, or 1 trillion 298.6 billion drams in 2015.

Dear Chairman of the National Assembly!
Dear deputies
Dear Colleagues,

I think you will agree with me that the country’s budget, in essence, is the most pragmatic document that we are dealing here with a clean dry numbers and calculations, and as if the budget discussions should be deprived of the ideological and political debate.

But experience shows that in all countries budgetary discussions are translated into political and ideological debate. We have in this regard is no exception, and the budget for 2015 is due to generate heated political discussion.

Today it is the first time I have been introducing the draft law on the State Budget of the Republic of Armenia. I have many times participated in budget discussions, but for the first time I am doing this as head of government.

I want to touch on the point of the principles that while starting this process I formulated for myself and kept throughout the budgeting process. They are important, and I want to share them with you, showing both my personal attitude and expecting a similar approach from you. It is for this reason that I would like to make a few observations before the start of the political discussion in Parliament.

Firstly, I would ask you to bear in mind while addressing your questions that we will spend as much as we have (including the reasonable debt amount), regardless of what and how much we need. I am suggesting one exercise: write down and justify all the raised requirements on preferred areas, article by article. When added together, the resulting number is approximately equal to the budget of France.

Secondly, lobbying not lose touch with reality and always think about the general. I would say that I normally relate to lobbying, it is everywhere. As I emphasized during the discussions in the government, it is entirely a collegial body should consider the reality in its entirety and cannot afford the luxury to approach a particular area with emotion or feeling.

Of course, situation is the same in the National Assembly. You have been chosen from the territories, you have your preferred sphere, the problems of your voters, the protection of which is a high priority for you. But, nevertheless, I am asking you to realize one thing that is crucial for the Government. We have no right to disturb the balance of reasonableness of the budget, that is, we can not jeopardize the defense of the country in favor of the social sphere, and we cannot jeopardize the educational sector of the country in favor of national security or culture.

Thirdly, there are political processes taking place in the country. We have numerous parties, each trying to influence public policy with its own interest and vision. I think this is normal. As vice-chairman of the Republican Party, of course, I have my opinion and a clear position on the running processes, but today I will refrain from voicing my opinion.

I think that still there will be reasons and grounds to do so. And my request is that, in the discussion and adoption of the budget, we should refrain from excessive politicization and bringing into this room the passion of the street.

In a word, I call for healthy discussion and debate. Please keep possibly away from populism. It does not benefit anyone.

Finally, do not forget that we do the same thing in the country; just we do it in different planes which, believe me, will not hinder our performance. And, finally, I am optimistic about this prospect.

Thank you.