David Sargsyan: Macroeconomic and financial stability are the most important achievements of the 2016

ArmInfo.Macroeconomic and financial stability are the most important achievements of the Central Bank and the Government of the Republic of Armenia  in 2016, David Sargsyan, ex-Finance Minister of Armenia, Chief Financial Officer of Ardshinbank, one of the leading banks  in Armenia, says in an interview with ArmInfo.  

“This is the most significant achievement of our economic and financial authorities in 2016 due to the notable improvement of the country’s balance of payments. In 2016, the deficit of the current account of the balance of payments dropped to 3%, and this considerably reduced the risks of further depreciation of the national currency,” Sargsyan stresses. He thinks the notable decline in imports caused by the decrease in consumption neutralized the decline of the private remittances to the country, while a significant growth in exports considerably improved the balance of payments and removed the depreciation risks. “As a matter of fact, this achievement is a very important when the matter concerns the prospects for 2017-2018. These favorable macroeconomic factors have increased the overall market liquidity and created  grounds to overcome the stagnation. If there is liquidity, the rest is just a matter of time. The most important thing is that there is a good fundamental for the future,” he notes.

When asked how he assesses the monetary policy of the regulator, Sargsyan replies that it is hard to overestimate the Central Bank’s role in ensuring stability. “Given the CBA’s decisions on the key interest rate, which I think is politically speculated upon, the policy aimed at reducing the rates was launched as early as in Q4 2015. Let’s recall the previous events. In late 2014, Armenian dram experienced sudden devaluation (mainly due to situation with the Russian ruble), the market was panic-stricken and the regulator  considerably increased the rates, toughened the reserve requirement and took some other measures, thereby ensuring stability within a short time. Shortly after, measures were taken to ensure that there's enough liquidity. In Q4 2015, the CBA made its first decision to reduce the refinancing rate. Q1 and Q2 of 2016 saw a considerable economic growth and it seemed there was no need to keep reducing the rates. However, the regulator realized that the growth potential would run out by the end of the year.  This happened in Q3, but since the decision to reduce the rate had been taken half a year before, the situation was mitigated to the extent possible. In this regard, the CBA’s work was quite adequate and correct. Now the refinancing rate has reached 6%. The reduction of the key interest rate, along with the decision to increase the minimum regulatory capital (30 bln AMD starting from 1 Jan 2017), resulted in the increase of the liquidity in the banking system. nd high liquidity stimulates growth,” the expert says.

At the same time, Sargsyan thinks that the CBA has recently sent a message, saying that now its capacities of using monetary policy tools are limited. “This does not mean that the CBA has faded away its capacities to use the tools and is now washing its hands of the affair. The latest decisions demonstrate that the regulator is going to use more delicate tools to maintain growth. I mean the decision to reduce the  risk weights  for some borrowers when calculating the capital adequacy ratio if the state supervisory bodies consider the borrower is a bona fide taxpayer without “hidden” bookkeeping and having all prerequisites to be considered a reliable business entity. If you remember, the State Revenue Committee has recently awarded “certificates of disciplined taxpayers” to 20 enterprises of Armenia. The CBA, in turn, is going to reduce the standard load of the banks, which lend to the enterprises with adequate and accurate accountability. I think the regulator has found a good method to motivate not only the banks, but also business entities, encouraging them to evade shadow bookkeeping and enhancing the affordability of loans. I believe the CBA will increase the number of new and non-standard tools to expand the lending market within the bounds of admissible risks and to stimulate growth,” Sargsyan says.

Remindersince late 2015 the CB has been regularly reducing the refinancing rate from 9.75% to 6%. The latest decision to reduce the rate by 0.25 pct points was taken on 14 Feb 2017.