The Armenian economy declined by 15.7 percent during January-March 2009, compared to the same period the previous year. This recession, which is one of the deepest among the CIS countries, has also created a shortage in budgetary incomes. These were 13.7 percent lower in January-May 2009, compared to the revenues one year ago, meaning that the budgetary revenues were some 25 percent below the planned value. This has led the government to revise its initial economic performance predictions to a worse scenario, predicting that by the end of the year, the GDP will decrease by at least 9.5 percent from 2008 levels. In addition, private remittances, an important source of foreign exchange in Armenia, have fallen to some 35 percent, mainly due to the deterioration of the Russian economy, the source of 80 percent of these remittances. Finally, the American Millennium Challenge Corporation has announced that it would not provide US$67 million of its funding for rural road construction, as Armenia has failed to meet democratic criteria. Under these conditions, the Armenian government faces the danger of insufficient budgetary funding, which is especially crucial this year when the economy needs additional support due to the crisis.

Armenia had serious concerns that its 2009 state budget of 940 billion drams (nearly US$ 2.6 billion) would not be fulfilled. The government has even re-scheduled its budget plan to move many of its planned expenditures from the first or second quarters to the end of the year.

Under these conditions, the Armenian government has succeeded to gain additional funding from foreign sources, all as concession loans. Of these, the largest is the IMF standby arrangement, which was increased on June 22 to US$ 822 million from the initially approved sum of US$ 540 million. This 28-month loan will be used for supplementing the Central bank currency reserves, and for covering the budget deficit. US$ 264 million of this sum have already been provided to the Armenian government, of which US$ 150 million will be used for covering the budget deficit. 

The second largest source of external funding is a US$ 500 million credit from the Russian government. It was provided in June and the government has decided to use it mostly for crediting institutions and some companies. Only US$ 66.7 million of these funds will be used for covering budgetary expenditures, namely, for housing construction in the zone of the 1988 earthquake. The rest will be given as loans. In some cases, the government will provide direct loans to enterprises. These are the so-called system-forming enterprises such as big metallurgical factories in the south of the country, as well as companies which the government would like to stimulate (e.g. tourism development). Meanwhile, the bulk of the Russian loan will be given as loans to commercial banks, to the recently created mortgage agency and to the agency for developing small and medium enterprises. These loans are expected to stimulate the country’s credit market.

Another foreign donor, the World Bank, has just provided a US$ 60 million loan to help the Armenian government cover its social protection program. The government has also stated it expects a loan of around US$ 80 million from the Asian Development Bank.

These funds are sufficient for the government not only in fulfilling its current budgetary commitment. They also provide the government with additional leverages to stimulate the economy under the current crisis situation. Moreover, the Armenian government also expects that the money is enough for balancing the budget for the year 2010, where a modest GDP growth of 1 percent is expected.