On July 8, the RA Government first approved a strategic program of national debt control for 2011-2013. Under the program, Armenia’s foreign debt is to reach U.S. $4bn by 2013 against the present U.S. $3bn.

Last year, Armenia’s foreign debt considerably increased as compared with previous years. Specifically, the foreign debt/GDP ratio made 36.1% against 13.6% in 2008. RA Minister of Finance Tigran Davtyan thinks that this increase in the country’s foreign debt can still be controlled and cannot disturb the country’s economic balance. The Government forecasts a higher-rate GDP growth for the following three years. As a result, the foreign debt/GDP ratio will be 39.7%.

The Government also decided to change its debt policy. The country’s internal debt is expected to increase at a higher rate than foreign debt. Minister Davtyan explained that the internal debt reduces the probability of default and USD exchange rate-related risks, enables the involvement and effective utilization of national funds. Priority will be given to 3-20-year bonds. The Minister did not say anything about the bond yield.

With the present interest annual interest rate (13-15 per cent), this increase of the internal debt will increase, rather than reduce, the probability of default. Under the Government’s program, in attracting external loans, the Government will give priority to freely convertible funds with a fixed interest rate, as the share of loans with floating interest rate increased under the 2009 credit attraction program. Specifically, the interest rate of the U.S. $500m is linked with Libor. The Government believes that the annual interest rate of 6-month Libor will remain 3% during the next three years.

One more of the Government’s fundamental decisions is that, in attracting external loans the Government will give priority to funds with a grace period of at least five years.