The Republic of Armenia suffered severe economic hardships at the beginning of the 1990s. Economic recovery has now started, aided by a reasonably low level of international debt. The financing of biodiversity conservation programmes is supported by a number of mechanisms, including the State budget and foreign contributions to projects. While environmental problems are recognised, the environment is not considered as a national priority for public expenditure. According to the Ministry for Finance and Economics, the priorities for investment include: (1) the provision of a secure energy supply; (2) maintenance of basic social services (health, education and poverty alleviation); (3) maintenance of existing infrastructure (energy, transport, communications etc.); and (4) capital investments likely to generate economic growth.

State budget

Limited State resources, and the low priority placed on environmental issues, have meant that public expenditure in this sector has been minimal to date. At present, State expenditure on the environment is effectively restricted to covering the operating costs of the Ministry of Nature Protection and its affiliated agencies. In 1998 expenditure was approximately US$980,000 or 0.3% of total public expenditure (0.06% of GDP). The current State budget meets less than 35% of the basic needs for biodiversity conservation funding, and the existing expenditure is primarily for payment of staff salaries. Almost no investment is made into equipment or other capital costs, and there is inadequate support for scientific research on biodiversity.

Environmental spending is focused on three principal areas: (1) Fisheries; (2) Forestry; and (3) Protected areas. Additional activities covered include the funding of the Environmental Inspectorate which is responsible for the enforcement of relevant legislation and regulations, and for the collection of payments for natural resource use.

Fisheries

Direct expenditure for protection and regeneration of fish stocks represents around US$34,000 annually, financed via the Ministries for Nature Protection and Agriculture. The level of expenditure is currently insufficient to make effective assessments of fish stocks, and to set sustainable levels of fishing to ensure recovery of stocks.

Forestry

Forest protection activities are financed both from the State budget (c. US$200,000 in 1998) and from the profit from selective (sanitary) felling (c. US$664,400 in 1998). Of a total income of around US$864,000 in 1998, expenditure equalled US$804,000. However, the costs of sustainable forest protection are estimated to be 4-5 times greater than current expenditures, and are likely to grow substantially.

At present the average salary for forestry personnel is equivalent to US$16 per month, which undermines effective protection activities. Levels of illegal felling have been estimated to be 4-5 times higher than legal felling. Appropriate enforcement could help protect these valuable forest assets, and potentially increase income from legal felling by a factor of three or four. However, this argument is balanced by concerns about whether such extensive felling can be sustainable, without reducing forest cover further.

Protected areas

The State budgets for the various protected areas operated under the Ministry for Nature Protection are shown in Table 2.5.

Table 2.5 State budget to protected areas in 1998

The protected areas expenditure can be broken down into 56% for salaries, 43% for other operational costs and less than 1% (c. US$3,260) for capital expenditure, including equipment. Despite the proportion of the budget spent on personnel, average salaries in 1998 were equivalent to US$20. Such low wages inevitably affect the capacity for effective conservation of protected areas. The amount available for capital expenditure is minimal, and underlies the current lack of technical material and equipment.

Public expenditure

Public investments in environmental protection and mitigation (including pollution control and restoration, water and energy efficiency measures) declined from US$4 million (0.25% GDP) in 1996 to US$1.6 million (0.11% GDP) in 1997. Within these figures, funding for biodiversity conservation activities is not specifically indicated.

Internationally funded programmes

At a government level, international projects requiring co-financing and loans are focused on national priorities, and have not previously included environment programmes. At present, only grant-based environmental projects have been adopted, and donors have generally dealt directly with the Ministry of Nature Protection (rather than going through the co-ordination of the Ministry of Finance and Economy). A number of internationally funded projects have been conducted through the Ministry of Nature Protection (Table 2.6), most of which were initiated by donor organisations, although the MNP has produced its own project proposals aimed and multi- and bi-lateral donors. External funding of environmental projects is relatively recent (the first project was agreed in 1995). Since then these projects (mainly focusing on capacity building and policy development) have provided environment-related funding equivalent to approximately US$ 600,000 per annum between 1996 and 1997, roughly equivalent to the total State budget for those years (US$584,000 and US$656,000).

Table 2.6 Donor-financed environmental projects managed by the Ministry of Nature Protection

Donor assistance tends to support immediate national priorities, and as a result environmental projects are not currently a high priority for donor agencies (excepting UNDP and related organisations), and few other international donors are interested in environmental projects. Relative to overall donor assistance in Armenia, relatively little funding has been provided for environmental issues (less than 0.2% of a total of US$354 million in 1996).

Direct economic value of biodiversity

Biodiversity provides direct and indirect economic benefits to Armenia. At present such values are not recognised or included in economic forecasts and decision making. Information on the direct use value of biodiversity (Table 2.7) suggests that the revenue from biological resources is in the region of US$ 3 million per year. This does not include indirect costs, such as revenue from tourism and recreation linked to protected areas.

Table 2.7 Assessments of potential revenue per annum from direct use of various biological resources.

The revenue generated from sustainable use of biological resources could be greatly enhanced through adoption of market pricing strategies. At present, pricing policy is generally driven by the need to raise revenue rather than by market forces. For example, timber prices are currently determined by the costs of extraction and the need to generate specific revenues, and as a result timber products are undervalued, and are sold well below international prices. It has been suggested that the introduction of modern technologies, along with revised pricing and effective marketing of timber, could increase income from forestry by 650% (to around US$7,900,000). In general, there is a need for an integrated economic policy and pricing mechanism with regard to forest and biodiversity management, which relates market values to revenue generation.

Conclusion

Current State budgets are insufficient to support the needs of biodiversity conservation in Armenia. At present government budgets are supplemented by funds from international donors. The biological diversity of Armenia represents an important economic asset, although the true values of biological resources are rarely considered in economic policy and pricing structures. Armenia is clearly on the way to developing a market economy and, sooner or later, the pricing of biological resources is likely to be determined by market forces.