We Are Facing Very Serious and Existential Challenges: Pashinyan's Speech at the Central Bank

Prime Minister Nikol Pashinyan visited the Central Bank and attended a reception organized on the occasion of the upcoming New Year and Christmas. This was reported by the press service of the Government of Armenia.

The event was attended by President Vahagn Khachaturyan, Speaker of the National Assembly Alen Simonyan, Deputy Prime Ministers Mher Grigoryan and Tigran Khachtryan, Chief of the Prime Minister's Staff Arayik Harutyunyan, government members, National Assembly deputies, and representatives of the Central Bank and the financial-p banking system.

Prime Minister Pashinyan delivered a speech in which he stated:

“Dear Mr. President of the Republic of Armenia, Honorable Speaker of the National Assembly, Dear colleagues, Dear attendees, it is natural that this year has been very difficult and contradictory, filled with challenges, but since we are at the Central Bank, I would like to summarize the year strictly in the logic of the financial-banking system. If we summarize the results of our financial, banking system, we can essentially state that we have had an unprecedented year; the growth in all indicators can be characterized with one word: unprecedented in the history of the Third Republic.

As of today, the deposit portfolio of our banking system has reached 5 trillion, and this is a very serious indicator. I must also note that we have a quite serious and high level of crediting in the economy. Moreover, this year's indicators are not unprecedented; I was curious about which year we had the highest level of crediting in the history of the Third Republic, and I was surprised to find that it was 2020. This speaks to two very important things: first, that as a result of the policies pursued by the Government and the Central Bank, in 2020, despite the war and the COVID crisis, we managed to support the economy to such an extent that it could absorb an unprecedented volume of loans, which later became a foundation or, indeed, the most significant aspect that has prevented our economy from collapsing due to the war and COVID; on the contrary, it has become a very important basis for our future resilience. And I believe that our unprecedented economic growth in 2022 is also connected to this policy because that crediting, after all, has circulated, gained momentum, and yielded concrete results.

This year is also unprecedented in terms of the profits of the banking system; this year, the banking system generated around 187 billion drams in profit. Different reasons arise to address this topic because it is said that it is the result of unforeseen situations. The responsibility of the Government, the Central Bank, and generally any system is to be prepared for both the best and worst developments and to absorb and overcome the blows where they are inevitable, and to use the opportunity where it exists. Ultimately, that influx, which has come to the Republic of Armenia from around 200 countries, has certainly occurred in many places, but it is precisely the Republic of Armenia that so many people have chosen to engage in activities.

I believe that in 2022 we absorbed almost the maximum volume that we could absorb, because if there were greater potential, we would have had the opportunity to absorb more. I am very pleased that the Central Bank's approach is to use this year's generated resources to increase that potential so that we are better prepared for the next wave of crises, challenges, and opportunities.

In this respect, the year has indeed been very successful for the banking sector, but on the other hand, I would like to note something that we have seen in recent years. Unfortunately, the banking system has a certain tradition of forming a negative perception around itself due to known reasons, especially in the post-Soviet space. Because it is understandably very easy and pleasant to take money, and it is, of course, desirable that either it does not happen at all or happens under the best conditions.

And it is clear that as a result of this simple arithmetic, also due to certain political considerations, there are attempts from time to time to form a negative perception towards the banking system, which we must simply acknowledge and manage this situation correctly. I am pleased that this year the Government and the banking system are also jointly implementing social programs, and in this regard, I would like to highlight the cashback system for pensioners in contactless trading, which today we can already say is demonstrating unexpectedly good results for us, even showing intriguing behavioral changes that also have civilizational and developmental significance.

In this regard, I would like us to develop our collaboration with the banking system in two directions. First, finally, the public should increasingly visibly acknowledge the banking system’s social responsibilities, the manifestations of which, by the way, we have seen several times in large volumes over the past four years, including related to projects for the restructuring of hopeless loans, and so on. But this year, for example, we were also concerned about the quality and indicators of loan servicing, and I was pleased to see after discussions with the Central Bank that in terms of qualitative indicators of loan servicing, we are very close to or have at least crossed the historically best average, which is also a crucial indicator.

Of course, the President of the Central Bank addressed our concerns about inflation that we had in March-April-May. But by the end of the year, we also affirmed that the average salary has risen three times more than inflation. This, of course, does not mean that it applies to all cases, but from a macroeconomic perspective, I believe it is a very clear and visible indicator that we, the Government, the Central Bank, and of course, the private sector, have managed inflation in such a way that it should not have a significant impact on poverty indicators.

And returning to the 2020 peak crediting indicator, we often return on different occasions to the criticisms raised against the Government and the Central Bank regarding the management of the COVID crisis. Now, when we look retrospectively, we see that our policy in managing COVID can be evaluated as the best, because I want to remind again that when Armenia ranked 11th in the Global Economic Freedom Index, there were comments aimed at diminishing that indicator; it was said that many developed countries had their indicators decline so much after COVID that Armenia had a chance. This means that, compared to those same developed countries, Armenia managed the COVID crisis economically so well that it allowed us to achieve explosive growth in the Economic Freedom Index.

Of course, we will still have opportunities to summarize the year in economic terms. Regarding the banking system, I would like us to develop our cooperation with the Central Bank in two directions. Moreover, I must note that the term cooperation is very accurate because there are things that are simply not noticed, and it should be recorded. For example, it is very important today to note that the Government indeed does not interfere with the policies of the Central Bank; that is, the Central Bank makes its decisions precisely in the manner and logic determined by the Constitution and laws of Armenia, which does not mean that there is no communication between the Central Bank and the Government; contrariwise, it would be disastrous and catastrophic because we are implementing numerous programs together.

Moreover, now we are further delegating one function to the Central Bank, and I hope that the digitization agenda will truly advance with visible steps in this regard. We are talking about implementation because the development of policy is within the scope of the Government. In this case, we view the Central Bank and its capacities as operators to implement the policies determined by the Government.

In this regard, I would like us to also develop this collaboration publicly in two directions. First, banks should more actively participate in development programs, including social development programs because we need to reassess the effectiveness of purely social programs. The second direction, however, is still increasing the financial literacy of society and people, citizens. To be honest, I often face such situations, and we should be able to convey a logic to our dear compatriots, help establish a logic that is as follows: of course, it is understandable that sometimes borrowers may find themselves in force majeure situations, truly in such circumstances that should be discussed separately. But overall, the most important component of financial and political, civic literacy, and stability is that everyone should be ready to bear the responsibility arising from their actions. This is extremely important and holds civilizational significance, and this is not just a banking issue; I think it is a matter of deep socio-psychological significance for society, and we need to be guided by this logic. Everyone will benefit from this—the citizens, the economy, the banking system, and the beneficiaries themselves, the borrowers.

I wish us all success in the coming year, and I hope that through all these approaches, innovations, we will achieve progress. For example, perhaps it is not very good to speak publicly about this, but I think it is worth at least mentioning once: the institute of political or administrative crediting in the Republic of Armenia has disappeared. Today, no one can say that someone from the government or any high-ranking official has said that this person should be lent money, and this person should not. This is also an important factor, and I want us to appreciate this fact. Because it is often perceived as it should be this way, and this is normal. Yes, it should indeed be this way and will continue to be this way, but that does not mean we should not appreciate this fact. And a greater degree of mutual accountability should operate as a result.

I want to say that the resilience of the banking and financial system is extremely important for us. Yes, we are overcoming the consequences of the 2020 war and COVID, including thanks to the stability of the banking and financial system, and one is interconnected with the other. I want to remind that in January 2020, the issue of Eurobonds took place, which was the first very serious signal for everyone that the Republic of Armenia is a place where, yes, investments can be made. Sometimes we overlook, do not discuss, do not fix these facts, but they indicate a lot. This certainly does not mean that we should become detached from reality. It is clear that we are facing very serious and existential challenges, but there is no opportunity to exhibit one-dimensional resistance to those challenges; that is a mistaken approach. All systems, all institutions in the country must be established, become more and more successful and functional, and the culmination of the effectiveness of all institutions should become the mechanism and tool for overcoming the most important challenges.

I thank you all for your work. I congratulate you on the New Year and Christmas and express hope that when we summarize the results of 2023, we will not only be able to talk about the financial and banking system but also about higher indicators and successes overall. Thank you.”

During his visit, Prime Minister Pashinyan was also presented with the newly constructed rooftop of the Central Bank's administrative building, with its multifunctional hall capabilities.