The real state of Armenia’s budget differs markedly from the official narrative on budget execution and economic growth. Economist Nairi Sargsyan argues that the reported figures fail to reflect actual economic conditions.
The Real State of Armenia’s Budget and a 200 Billion Dram Deficit
According to Sargsyan, problems of around 223 billion drams were already recorded in the revenue side of the 2024 state budget. During the planning of the 2025 budget, the revenue target was increased by an additional 190 billion drams.
“At the beginning of the year, we warned that the collection gap could reach about 400 billion drams. This estimate already included inflation and tax growth in certain sectors,” Sargsyan explains. He notes that a large share of the so-called “additional revenues” comes from construction projects launched three to four years ago. Tax obligations for these projects are fulfilled only after their legal completion.
“In this sense, there was also an element of luck for Nikol Pashinyan,” he adds.
In the economist’s view, even under optimistic assumptions the authorities may secure the declared 190 billion drams. However, avoiding an additional deficit of roughly 200 billion drams will be impossible. This outcome once again exposes the real state of Armenia’s budget.
VAT Practices and the Real State of Armenia’s Budget
Despite these risks, the authorities continue to claim that the budget has been fully executed. According to Sargsyan, this claim is misleading.
He explains that a significant portion of value-added tax represents state liabilities to businesses. VAT is paid in advance.
“Let me give a simple example,” he says. “If a consumer pays 20,000 drams in a store, that amount is later deducted from subsequent settlements. This is how VAT operates.”
Sargsyan notes that tax authorities often suggest businesses temporarily avoid adjusting reports. As a result, conditional amounts — such as 100 million or even 1 million drams — appear as budget revenue in January. These sums are later refunded.
“This creates an illusion,” he stresses. “The budget looks fulfilled, but it becomes empty again in January.” Such practices distort the real state of Armenia’s budget.
Questionable GDP Growth
Sargsyan also questions the official narrative on economic growth. According to him, GDP growth is based on the combined volume of domestic and foreign trade. Yet Armenia’s foreign trade turnover, by his estimates, will shrink by nearly 50 percent by the end of the year.
He links this decline to re-export processes that emerged during the Russia–Ukraine war. These processes have now largely ceased. Domestic consumption, he adds, can grow only if the population increases or tourist inflows rise.
Official data show that about 1.7 million tourists visited Armenia. This figure is almost unchanged from the previous year.
“There is no growth in tourism and no population growth,” Sargsyan says. “Under these conditions, consumption cannot increase. So where does the reported growth come from?” He describes this as another illusion masking the real state of Armenia’s budget.
Worsening Socio-Economic Conditions and the Disappearance of the Middle Class
The economist emphasizes that Armenia’s socio-economic situation is deteriorating. Official data show that poverty exceeds 40 percent when the upper poverty threshold is considered. This threshold includes monthly incomes of up to 63,000 drams. At the same time, the cost of the consumer basket is around 80,000 drams.
“Social polarization has reached a disgraceful level,” Sargsyan states. “We effectively no longer have a middle class.”
In his view, government policy is aimed at eliminating the middle class. Despite declarations about supporting small and medium-sized businesses, taxes are rising. Administrative pressure is also increasing. What he calls “aggressive tax administration” is being implemented.
High and inaccessible lending rates further undermine small and medium enterprises. The growth of online commerce adds pressure. Large businesses continue to dominate the market. Supermarket chains expand and push smaller players out. They begin to dictate pricing policies and create anti-competitive conditions.
Sargsyan argues that the concentration of big business in the hands of a limited number of families has political consequences. It allows the authorities to control workforces and electoral processes.
“On the one hand, an independently thinking middle class is being eliminated,” he concludes. “On the other, a new mechanism of power reproduction is being formed.”