Fiscal policies directed to poverty reduction in Armenia

Abstract

The 1990s can be viewed as a decade of triumph of democracy and democratic principles all over the world. The breakup of the Soviet Union caused drastic changes in political, economic, and social lives and structures of almost all former communist countries of the world. Some countries have succeeded in adopting, elaborating, and implementing reforms while others still have not. Armenia was not an exception and is among those countries that still bear harsh consequences of transition. After fifteen years of reconstructions and reforms in various spheres of the country, it still faces higher rates of poverty, shadow economy, and unemployment. Some scholars argue that today’s unfavorable socio-economic conditions are “due to” shocking therapy approach to reforms and state that the gradual approach was the best option for Armenia. Others state that whatever approach is chosen, the main reason is in existing higher rates of corruption and shadow economy in the country. However, what is worth noting is that country has steadily growing GDP rates. Hence, one can draw an assumption that if economy is growing steadily but poverty rates are still high in the country, then the gains from aggregate economic expansion are not equally distributed among all segments of the population. The most vulnerable groups are still denied from benefits of economic growth, which include those households that live in rural areas, earthquake zones, or borders. Seen in these terms, economic growth is an important and necessary but not sufficient factor for poverty reduction. The purpose of this policy paper is to examine the current poverty situation in Armenia and what are the steps undertaken by the government for fighting poverty. More precisely, to find out whether poverty reduction keeps pace with economic growth in the country, and if not, what mechanisms can be performed to make growth more pro-poor. The first section discusses main theoretical approaches to the problem and addresses the experience of operationalizing pro-poor growth in Moldova and Romania. Second section refers to the poverty situation in Armenia and underlines the structure of public and governmental expenditures towards education, health care, and social assistance. The final section will summarize the paper from the perspective of assessments on to what extent economic growth in Armenia is pro-poor and what policies can be performed to make the latter more poor-directed.