Financial Journal №4(44) July-August 2018
E. N. Hakobyan, N. N. Karapetyan
How to Ensure Debt Sustainability and React to Economic Cycles? The Upgrade of Fiscal Rules in Armenia, p. 10-20
The article discusses the international experience and theoretical foundations of fiscal rules, problems of Armenia’s fiscal policy, the upgrade of fiscal rules in Armenia and the directions for their future improvement. The authors consider the reforms of fiscal rules in the sphere of Armenia’s fiscal policy as a crucial change in the logic of policy, because new rules aim at significant increase of the fiscal policy role in ensuring public debt sustainability on the one hand and respond to economic cycles on the other hand.
Keywords: fiscal rules, “golden rule” of public finances, public debt sustainability, economic cycles, economic growth, current and capital expenditures
JEL: E62, E32, G28, H62, H63
S. S. Lazaryan, M. A. Elkina
Estimation of the Government Expenditures Multiplier in the Republic of Armenia, p. 21-31
The purpose of this article is to estimate government expenditure multiplier in the Republic of Armenia via a SVAR model. The model is evaluated using the data over the period from 2004 to 2017 and accounts for a structural break, which occurred in the year 2009. In addition, it controls for the dynamics of copper prices and output of the Russian Federation. The results indicate that the response of output to the government expenditure shock is quite strong right after the discretionary change of fiscal policy. The multiplier reaches its peak on impact with the estimated value about 3. However, there is a substantial uncertainty regarding the exact value of the multiplier and the 95 % lower bound estimate is only 0.8. Moreover, the value of the government expenditure multiplier decreases over time rather quickly. In the medium term the impact of the government expenditure shock on output is negligible. Overall, the authors conclude that government expenditure policy can be used successfully to stabilize the dynamics of output in the event of substantial recession or boom. Estimates obtained in this study do not contradict the results of previous researches dedicated to the evaluation of fiscal multipliers in the Republic of Armenia.
Keywords: government expenditure multiplier, fiscal multiplier, government expenditure, fiscal policy, SVAR model
JEL: E62, E63, H50
O. А. Alaverdyan, N. R. Avetisyan
Modern Challenges of International Tax Cooperation and Armenia, p. 32-37
Obviously, that the main destination for vast majority of capital flows are countries with favourable conditions, particularly countries that apply low tax rates and provide preferential tax regimes. Because of this process, the outflow of capital occurs from non-offshore countries to law tax or offshore jurisdictions, which is considered as a harmful tax practice. The issue is more emphasized in developing countries, as the national tax authorities more often have not enough capacity to fight against tax fraud and tax evasion. Aiming to solve the mentioned issues the Organization of Economic Cooperation and Development together with G20 have joined efforts to set up new standards for tax control (OECD Global Forum). They also elaborate new rules that will ensure taxation of profits where economic activities are carried out and value is created as well as increase predictability, transparency and flexibility of international tax environment for business. The article analyzes the government activities of the Republic of Armenia to create a tax system that corresponds to the current trends in international tax cooperation.
Keywords: international tax cooperation, base erosion and profit shifting, Global Forum, standard of tax transparency, beneficial ownership
JEL: F38, H26
M. R. Pinskaya, N. S. Milogolov, S. F. Adamyan
Tax Treaty Shopping: Risk Analysis at the Macro Level (on the Example of the Republic of Armenia), p. 38-52
The article analyzes domestic tax legislation of the Republic of Armenia and main countries investing in Armenia in combination with double tax treaties concluded between Armenia and these countries. The aim of such analysis is to find out the riskiest double tax treaties in terms of tax treaty shopping potential. Research approach is based on assessment of indicator characterizing country position in the global investment and capital flows comparing to the main countries investing in Armenia. This indicator is determined as ratio of foreign direct investment to gross domestic product. Based on this assessment countries-investors were divided to two groups according to the level of tax base erosion risk. The article further presents the detailed analysis of national legislation and double tax treaties with these countries. Moreover, the authors discuss international experience of developing legal approaches towards addressing the issue of tax treaty abuse, such as Principle Purpose Test, Limitation of Benefits Rule and Concept of Beneficial Owner of Income. The authors also analyze international experience of formulating the criteria of assessment of necessary conditions for obtaining tax treaty benefits. These approaches can be used for development of international tax policy in the Republic of Armenia with the aim of defending its sovereign tax base and creating certain and sustainable business and tax rules for foreign investors and domestic taxpayers expanding overseas.
Keywords: treaty shopping, tax policy, base erosion, corporate income tax, developing countries, OECD, foreign direct investments
JEL: H25, H26
K. R. Tamazyan, A. E. Jhangiryan
Funded Pension System of Armenia: History of Formation, p. 53-61
The article reviews the Armenian pension system, particularly, funded pension system, its history and necessity of implementation. At the same time, international practices of countries such as Peru and Chile which have undertaken a private pension system are being introduced. Moreover, the authors draw a comparisons between “private” and “state” pensions, considering possible alternatives to the private system. The article includes a brief overview of how funded pension system works, as well as the figures for assets under management for pension funds and their allocation.
Keywords: Armenia, pension system, funded pension system, pension shares, pension assets manager
JEL: G20, H55, J26
V. Y. Cherkasov, J. A. Maklakova
Dollarization in Armenia: Structural Causes and Evolution of Monetary Policy, p. 62-75
The article considers financial dollarization as one of the distinctive features of the Armenian economy. During the time of currency sovereignty, the country systematically pursued a policy of dedollarization. Various traditionally recommended tools have been applied, including legislative measures, stabilization of domestic prices, differentiation of required reserve ratios and deposit guarantees. Nevertheless, the level of dollarization remains high. The article analyzes its structural causes (labor migration, diaspora, persistent trade deficit). The structural policy gap affects the effectiveness of monetary policy in Armenia conducted within inflation targeting framework, which detailed review is also given in the article. The
authors assume that targeted measures toward dedollarization should be supported by comprehensive policy of the Armenian economy competitiveness increase as envisaged by the ongoing medium-term program of national development.
Keywords: Armenia, dollarization, structural causes, central bank, exchange rate, monetary policy, tools, minimum reserve requirements
JEL: E52, F31
M. I. Kudelich, H. V. Khachatryan
Participation of Financial Bodies of Armenia in Public-Private Partnership Process, p. 76-89
The article is addressed to the issues of ensuring the correlation between the budgetary process and public-private partnership (PPP) in the context of its implementation in the Republic of Armenia and the formation of an appropriate regulatory and legal framework. The article contains recommendations for end-to-end participation procedure of the Armenia’s financial authorities at all PPP project stages: from preparation and justification to monitoring and evaluation of effectiveness based on the results of its implementation. The recommendations were prepared on the basis of the best international practices for financial grounding and structuring PPP projects. They are aimed at budget expenditures optimization, appropriate budgetary arrangement and provision of other resources for PPP projects, increasing the validity of proposals for financial support for various forms of public partner participation in PPP projects at the expense of state (local) budget of the Republic of Armenia.
Keywords: public-private partnership, budget expenditures, Republic of Armenia, state obligations under PPP project, financial support, forms of participation of public partner in PPP
JEL: L32, H57, H61
I. A. Yakovlev, K. V. Shvandar
Armenian Financial Market: Development, Present Conditions and Perspective, p. 90-102
The goal of this article is to show how the financial market of Armenia is arranged at the moment with short descriptions of the historical path of its development, explaining how past difficulties were solved and what problems still need to be addressed. The country’s banking system demonstrates high capital adequacy and liquidity ratios, while the infrastructure of organized market for trading in financial assets meets the best world standards. However, the volume of bank loans to the economy still does not reach 50 % of GDP; the capitalization of the stock market and the turnover of corporate bonds show the modest market capacity. Enhance of the securities market, primarily corporate bonds market would facilitate the increase in contribution of the financial market to the national economic development of Armenia. Joint efforts of the authorities and the market have done much for the development of the trade and depository block, improvement of the regulatory framework, enlargement of the investors community. In the final part of the article the authors present their considerations on the essential components of a further work on the development of the Armenian stock market.
Keywords: Armenia, financial market, banks, insurance companies, pension funds, investment services, exchange, equity, bonds
JEL: G20, G21, G22, G23, N25
K. I. Alaverdyan, R. A. Aleksanyan, S. A. Tabalina
International Practice of Consolidated Financial Statements Presentation at Public Sector, p. 103-114
The article discusses the international standard requirements to the public sector consolidated financial statements. The main international standards guides for the public sector statements are the Government Finance Statistics Manual (GFSM) and the International Public Sector Accounting Standards (IPSAS). The article highlights that several countries use the approach to public sector financial statements that allows to comply both GFSM and IPSAS requirements. Most governments use step-by-step transfer to the consolidated financial statements presentation at the public sector.
Keywords: consolidated financial statements, public sector, International Public Sector Accounting Standards (IPSAS), public finance
JEL: H83, M48
E. A. Mkrtchyan, S. A. Harosyan, G. A. Hakobyan
Key Aspects of Program Budgeting Implementation in the World and in the Republic of Armenia, p. 115-120
The article focuses on Performance Budgeting (PB), one of the most common reforms of public finance management (PFM) in developing countries over the last years. Result based budgeting reforms aim to move from article control to objectives and results in order to increase accountability and operational efficiency. The introduction to the program budgeting preliminary procedures have started in Armenia since 2003. During 2005–2017 budget instruments and methods, conceptual and methodological issues and challenges have been repeatedly reviewed and approved.
Keywords: performance budgeting, budget reforms, result based budgeting, improvement of expenditure priorities, performance monitoring, budget process, objectives and results, accountability, transparency
JEL: H11, H50, H61
I. V. Nikonov, A. I. Votinov
The Theory of Economic Complexity: A Study of Armenia, p. 121-131
The article provides the analysis of the future prospects for the economic development in the Republic of Armenia. The authors choose the theory of economic complexity, developed by Cesar A. Hidalgo and Ricardo Hausmann, as the baseline for the research. Based on the theoretical premises, the economic complexity index (ECI) for Armenia was calculated and then compared to the ECI of other countries. This study further establishes how the development of economic sectors influences the complexity of the product space in the Armenian economy. The results reveal that in terms of economic complexity Armenia is ahead of some neighboring countries and some EAEU members. The original methodology of opportunity value index estimation was modified for research purposes. This methodology was used to assess the most promising areas of development of the Armenian economy. The authors suppose that manufacturing can contribute significantly to the long-term economic growth in the Republic of Armenia; however, in order to create the necessary conditions for the growth enormous efforts are required for this sector development.
Keywords: economic complexity, Armenian economy, economic growth, national income, growth diagnostics, competitive advantage, Balassa’s model, economic competitiveness
JEL: F43, O11, O47
G. G. Gevorgyan, L. R. Farmanyan
Ministry of Finance of the Republic of Armenia: Historical Overview and International Cooperation, p. 132-135