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FITCH ASSIGNS ARMENIA FOREIGN, LOCAL CURRENCY RATINGS OF 'BB-'
Interfax News Agency
Russia & CIS Business and Financial Newswire
June 5, 2006 Monday 6:38 PM MSK
Fitch assigned the Republic of Armenia foreign and local currency
Issuer Default ratings ("IDR") of 'BB-' (BB minus) with a Stable
Outlook, the agency said in a press release.
At the same time Fitch has assigned a Short-term rating of 'B' and
a Country Ceiling of 'BB-' (BB minus), the release says.
"Armenia's sovereign credit ratings are supported by prudent
macroeconomic policies and a declining public and external debt
burden that compares favorably with rated peers," said David Riley,
Managing Director of Fitch's Sovereigns Group.
Impressive economic performance has been underpinned by a robust and
coherent macroeconomic policy framework and wide-ranging structural
reforms that have enhanced the capacity of the economy to absorb
adverse shocks.
Armenia's public finances are a rating strength. Fiscal deficits have
been contained at below 3% of GDP since 2002 and are forecast to remain
so, aiding a continued reduction in the general government debt burden,
which at 21% of GDP in 2005 already compares well with its rated peers.
The Central Bank of Armenia ("CBA") has a demonstrated commitment
to low inflation - which has averaged 3.3% per year since 2000 -
and a flexible exchange rate regime, helping to insulate the economy
from adverse external price shocks. Moderate fiscal and external
financing needs are comfortably met with concessional loans from
the international financial institutions ("IFIs"), and external debt
servicing costs are correspondingly low and below those of peers.
Nonetheless, the importance of maintaining prudent fiscal and
monetary policies and building confidence in the CBA's new inflation
targeting regime and economic stability are underscored by low levels
of monetization and financial intermediation that, combined with high
dollarization, continue to render the economy vulnerable to shocks.
With income per capita rising rapidly, official financing flows will
become less concessional and the government will need to broaden its
financing sources, including by developing the domestic government bond
market. Substantial inflows of remittances - estimated at around $750
million (15% of GDP) - help narrow the domestic savings-investment
gap and are an important source of external finance, but they are
also potentially susceptible to exogenous shocks.
And while the scorecard in terms of economic reform and liberalization
since independence is impressive, further measures to strengthen
governance and the still relatively immature political system, as
well as reduce the high level of corruption, would enhance long-term
investment and growth prospects.
Despite strong economic growth, Armenia's ratings are constrained
by its low per capita income, which stood at just $1,500 in 2005
compared to the 'BB' group median of $2,500. Armenia subsequently
has a lower debt tolerance than wealthier economies. The government
also faces the challenge of increasing its tax take as social and
infrastructure spending needs rise over the short-to medium-term. At
just 14% of GDP, the government's tax base is among the lowest of all
sovereigns rated by Fitch and constrains overall revenue generation,
in turn limiting fiscal flexibility.
A further important rating consideration is the country's challenging
geopolitical situation, notably with respect to the absence of a
permanent resolution on the status of Nagorno-Karabakh and the
normalization of relations with Turkey. Fitch judges the risk
of renewed violent conflict between Azerbaijan and Armenia over
Nagorno-Karabakh to be low over the near to medium term. Nonetheless,
the absence of a permanent political resolution continues to pose a
threat to regional stability over the long term.
In Fitch's judgment substantive changes in economic policies are
unlikely, despite national assembly and presidential elections in
2007 and 2008, respectively. Improving the business environment and
raising domestic savings and investment, including the development
of local capital markets that would enhance the government's domestic
financing capability, would be positive for Armenia's ratings.
Negative economic or political shocks, including increased tensions
over Nagorno-Karabakh or the results of forthcoming elections, would
bring negative pressure to bear on the ratings.
From: Emil Lazarian | Ararat NewsPress
Interfax News Agency
Russia & CIS Business and Financial Newswire
June 5, 2006 Monday 6:38 PM MSK
Fitch assigned the Republic of Armenia foreign and local currency
Issuer Default ratings ("IDR") of 'BB-' (BB minus) with a Stable
Outlook, the agency said in a press release.
At the same time Fitch has assigned a Short-term rating of 'B' and
a Country Ceiling of 'BB-' (BB minus), the release says.
"Armenia's sovereign credit ratings are supported by prudent
macroeconomic policies and a declining public and external debt
burden that compares favorably with rated peers," said David Riley,
Managing Director of Fitch's Sovereigns Group.
Impressive economic performance has been underpinned by a robust and
coherent macroeconomic policy framework and wide-ranging structural
reforms that have enhanced the capacity of the economy to absorb
adverse shocks.
Armenia's public finances are a rating strength. Fiscal deficits have
been contained at below 3% of GDP since 2002 and are forecast to remain
so, aiding a continued reduction in the general government debt burden,
which at 21% of GDP in 2005 already compares well with its rated peers.
The Central Bank of Armenia ("CBA") has a demonstrated commitment
to low inflation - which has averaged 3.3% per year since 2000 -
and a flexible exchange rate regime, helping to insulate the economy
from adverse external price shocks. Moderate fiscal and external
financing needs are comfortably met with concessional loans from
the international financial institutions ("IFIs"), and external debt
servicing costs are correspondingly low and below those of peers.
Nonetheless, the importance of maintaining prudent fiscal and
monetary policies and building confidence in the CBA's new inflation
targeting regime and economic stability are underscored by low levels
of monetization and financial intermediation that, combined with high
dollarization, continue to render the economy vulnerable to shocks.
With income per capita rising rapidly, official financing flows will
become less concessional and the government will need to broaden its
financing sources, including by developing the domestic government bond
market. Substantial inflows of remittances - estimated at around $750
million (15% of GDP) - help narrow the domestic savings-investment
gap and are an important source of external finance, but they are
also potentially susceptible to exogenous shocks.
And while the scorecard in terms of economic reform and liberalization
since independence is impressive, further measures to strengthen
governance and the still relatively immature political system, as
well as reduce the high level of corruption, would enhance long-term
investment and growth prospects.
Despite strong economic growth, Armenia's ratings are constrained
by its low per capita income, which stood at just $1,500 in 2005
compared to the 'BB' group median of $2,500. Armenia subsequently
has a lower debt tolerance than wealthier economies. The government
also faces the challenge of increasing its tax take as social and
infrastructure spending needs rise over the short-to medium-term. At
just 14% of GDP, the government's tax base is among the lowest of all
sovereigns rated by Fitch and constrains overall revenue generation,
in turn limiting fiscal flexibility.
A further important rating consideration is the country's challenging
geopolitical situation, notably with respect to the absence of a
permanent resolution on the status of Nagorno-Karabakh and the
normalization of relations with Turkey. Fitch judges the risk
of renewed violent conflict between Azerbaijan and Armenia over
Nagorno-Karabakh to be low over the near to medium term. Nonetheless,
the absence of a permanent political resolution continues to pose a
threat to regional stability over the long term.
In Fitch's judgment substantive changes in economic policies are
unlikely, despite national assembly and presidential elections in
2007 and 2008, respectively. Improving the business environment and
raising domestic savings and investment, including the development
of local capital markets that would enhance the government's domestic
financing capability, would be positive for Armenia's ratings.
Negative economic or political shocks, including increased tensions
over Nagorno-Karabakh or the results of forthcoming elections, would
bring negative pressure to bear on the ratings.
From: Emil Lazarian | Ararat NewsPress