Government Fails to Implement Key Defense Projects in Q1 2023: 'LUMIS' Foundation

The 'LUMIS' Foundation has analyzed the report on the implementation of the state budget of Armenia for the first quarter of 2023. The analysis of the report showed that there was a significant underperformance of budget expenditures in the first quarter of 2023, amounting to 23.5% or 130.1 billion AMD compared to the planned figures. Both current and capital expenditures were underperformed by 13.4% and 69.2%, respectively.

Of the total underperformance in the expenditures of the state budget against the adjusted program for the first quarter, 46.8% was attributed to current expenses while 53.2% was related to transactions involving non-financial assets.

In this context, it is important to note that capital expenditures in the first quarter of 2023 decreased by 18.2% compared to the same period in 2022 and amounted to 30.4 billion AMD. The performance of capital expenditures stood at merely 30.8%. Such a low indicator reflects that the management and implementation of capital programs continue to be a serious unresolved issue for the government.

The significant deviation from the program for capital expenditures, along with the decrease compared to the same period last year, is mainly due to the underperformance in expenses related to the improvement of the Ministry of Defense building conditions. In the first quarter of 2023, these amounted to 19.5 billion AMD, falling short of the planned figures by 67.9%. Furthermore, they were 28.9% lower than the indicators from the same period of the previous year.

Additionally, in the first quarter of 2023, the government also fell short in implementing the programs planned for that period in the state budget. Out of 164 planned programs, actual funds were utilized for only 154 programs, with a total expenditure deviation of around 130 billion AMD.

Moreover, analysis of the budget expenditures by program classification shows that the 'front-runner' in terms of deviation is the defense sector, with a significant deviation of 46.8% or 52.6 billion AMD recorded for the programs under the responsibility of the Ministry of Defense (instead of the planned expenditure of 112.3 billion AMD in the stated plan for the first quarter of 2023).

Not only has a very low performance been recorded for the implementation of programs under the Ministry of Defense's responsibility, but actual expenditures are even 12.8% lower than those from the same period last year. It is noteworthy that when presenting the 2023 state budget, the government repeatedly emphasized the unprecedented growth of defense expenditures allocated in the budget.

Despite the budget allocation for programs, it has been evident that they are not being fully or partially implemented, which primarily indicates the insufficient efficiency of the relevant authorities. In recent years, the underperformance of capital expenditures has become a common occurrence, reflecting the incapacity of the Armenian government to fully and timely meet its planned expenditures. This reality is particularly concerning in the context of the underperformance of projects under the responsibility of the Ministry of Defense.

Meanwhile, against the backdrop of the current sharp increase in domestic demand and security issues, the government is expected to implement measures aimed at increasing supply. This unequivocally implies the necessity for substantial targeted capital expenditures.

Moreover, the such underperformance of capital expenditures in the first quarter of 2023 is a dangerous signal; in particular, the recorded fact suggests that they are likely to be underperformed on an annual basis as well. While presenting the 2023 budget draft, the government highlighted the unprecedented volume of planned capital expenditures as one of its key merits.