Consequences of Dram Depreciation; Budget, Remittances, and Poverty, Say Economists

Armenia is in the stage of discussing its new budget, in which the exchange rate is set at 411 AMD to the dollar, however, as of today, the exchange rate has increased by more than 20 drams. The latter issue was raised during a Media Center discussion by Armenian National Congress Party member and economist Vahagn Khachatryan, who stated the government has made no reference to the issue and is generally incapable of making any predictions.

Khachatryan stressed that the members of government rationalize that the budget was written when the exchange rate was set at 411 AMD to the dollar, however, according to the economist, the latter rationale is unsatisfactory, because even Russia has 4-5 different versions of their budget.

“They don’t treat the budget seriously, not the Central Bank, not the Ministry of Finance, not the International Monetary Fund. If they were serious, the budget would include that in the coming years export policy would lead to a depreciation of the dram, assuming 10-15%, which would result in creation of jobs,” said Khachatryan.

The economist considered the Central Bank’s justification for the depreciation to be untrustworthy. They stated dram’s depreciation was contributed by competitiveness in exports, economic growth, creation and maintenance of sustainable employment, as well as, purchasing power for those receiving remittances. According to Khachatryan, the following points are economic truths that need to be proven in reality.

“It’s ridiculous, whose purchasing power has increased? Not everyone receives remittances. For example, I don’t receive them. Well, what are civil servants going to do, what about pensioners?” stated Khachatryan.

Economist Vilen Khachatryan also discussed the Central Bank’s statement and the dram’s depreciation. He stressed that in all incidences the remittances received in rubles would not have any purchasing power because of the ruble’s depreciation.

“The depreciated ruble is definitely not going to increase purchasing power,” said Vilen Khachatryan. He also stressed that the 20 dram increase to the dollar can not leave a significant effect on exports. “We have a standard export potential, which can’t grow so quickly,” said Khachatryan.

According to the economist, the dram’s depreciation will contribute to an increase in poverty because 60% of debt in Armenia is loaned in dollars. Subsequently, those who have debt in dollars will be put in a risky situation where they will be forced to pay with higher interest rates and higher principal amounts, while salaries would not increase as fast.