Armenia to Assume Most Financial Obligations of the Artsakh Government and Citizens

The financial obligations of the Artsakh government, the funds established by it, and the obligations of legal and physical entities in Artsakh that are subject to restructuring (bonds and loans) towards the Armenian financial-banking system total approximately 315 billion AMD. The Armenian government is preparing to take on most of this burden. This was stated by Armenia’s Minister of Finance Vahé Hovhannisyan during a presentation of a draft amendment to the Law on the State Budget of the Republic of Armenia for 2023 at a special session of the National Assembly.

According to Hovhannisyan, as of December 29, 2023, the total obligations of the Artsakh government and the funds it established, as well as obligations from legal and physical persons in Artsakh, would amount to about 315 billion AMD, of which the servicing of the vast majority (principal and interest payments) has become impossible due to the situation surrounding Artsakh.

He noted that this situation leads to several negative risks, particularly significant losses to the capital of the Armenian financial-banking system and the disruption of financial stability, a substantial deterioration of financial indicators and bank ratings, as well as a decline in lending rates due to worsening financial indicators, which in turn leads to a decrease in economic activity and a critical deterioration in the creditworthiness of certain groups within the population of Artsakh in the existing difficult social conditions.

The draft proposal envisions restructuring the mentioned obligations of around 315 billion AMD between the Armenian government and financial organizations in a 70% to 30% ratio, respectively. It is noted that for the 70% of the obligations to be assumed by the Armenian government, it will issue state treasury bonds, acquiring the right to claim against all restructured obligations.

Furthermore, the draft proposes to allow the Armenian government to issue treasury bonds with a nominal value of up to 225 billion AMD. As a result, it is expected to significantly mitigate the risks that have arisen in the Armenian financial system and the associated economic risks, which will help maintain the financial stability that is crucial for the sustainable development of the economy,” said the minister.

Additionally, it is expected to restore the creditworthiness of certain groups within the population of Artsakh and to enable them to engage with the financial system without facing obstacles in their future operations. At the same time, it is proposed to establish regulations such that this transaction will not incur tax consequences (income and profit increases and decreases) for Armenian financial organizations.

The government has expressed its readiness to take on most of the burden. As a result, all the rights to the obligations are being restructured, meaning they are being transferred to the government. In exchange, the banking system will receive state treasury bonds. We are alleviating the risk that banks would otherwise have to bear, since the Artsakh government or the economic entities against whom there were claims will no longer be able to service those claims,” concluded Hovhannisyan.