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FOREIGN INVESTMENT, EXTERNAL DEBT POST STRONG GROWTH IN ARMENIA DURING Q1
Venla Sipila
World Markets Research Center
Global Insight
June 3, 2008
According to data from the Armenian Statistical Service, foreign
investment attracted by the country (excluding government bodies
and the banking sector) totalled $15US.9 million in the first
quarter of the year, increasing by 20.5% year-on-year (y/y), ARKA
News reports. This growth brought the cumulative amount of foreign
investment to $165US.9 million. Specifically, growth of 2.3% y/y
over the first quarter resulted in the total amount of FDI reaching
$91US.7 million.
The share of FDI of total foreign investment thus stood at some
55%, falling compared with the year-ago ratio of around 65%. The
communication sector attracted nearly 43% of total foreign investment
and some 32% of FDI, while also the utility and air transport fields
fared well in this respect. Russia remained by far the largest investor
country. Further, it was reported that Armenia's total foreign debt
at the end of the first quarter reached $1US.55 billion, having risen
by 26.9% y/y. With a share of 88.6%, government debt forms the major
part of Armenia's external obligations. New loans received over the
first quarter amounted to $42US.7 million, while Armenia repaid
$8US.9 million of debt, and interest payments amounted to $2US.5
million. International financial organisations are Armenia's main
creditors, having provided a share of 82.5% of the country's external
debt as of end of the first quarter. Notably, debt to the World
Bank rose by 21.1% y/y over the first quarter, reaching some $1US.05
billion. Germany and Japan are the most important bilateral creditors.
Significance:Good progress with economic reforms has secured
unproblematic access to soft loans from international financial
institutions for Armenia. However, Armenia's creditworthiness is still
characterised by high payments risk. Indeed, its total debt burden is
relatively heavy, especially compared with its still rather weak export
revenue earnings capacity. The current-account deficit remains deep
and Armenia's reliance on private transfers and remittances leaves the
country vulnerable to external shocks. Investment to Armenia is also
restricted by, for example, geopolitical risks. Nevertheless, debt
servicing is not likely to pose any difficulties for the sovereign in
the medium term. Importantly, even though they only form a relatively
modest part of total foreign investment, FDI inflows finance a large
part of the deep external deficit, reducing the need to increase
foreign borrowing. However, in order to achieve continued improvement
in its sovereign creditworthiness in the medium-to-long term, Armenia
needs to progress further in economic restructuring to diversify
its economy, especially the production base of its export sector,
and to strengthen its export earnings capacity.
Venla Sipila
World Markets Research Center
Global Insight
June 3, 2008
According to data from the Armenian Statistical Service, foreign
investment attracted by the country (excluding government bodies
and the banking sector) totalled $15US.9 million in the first
quarter of the year, increasing by 20.5% year-on-year (y/y), ARKA
News reports. This growth brought the cumulative amount of foreign
investment to $165US.9 million. Specifically, growth of 2.3% y/y
over the first quarter resulted in the total amount of FDI reaching
$91US.7 million.
The share of FDI of total foreign investment thus stood at some
55%, falling compared with the year-ago ratio of around 65%. The
communication sector attracted nearly 43% of total foreign investment
and some 32% of FDI, while also the utility and air transport fields
fared well in this respect. Russia remained by far the largest investor
country. Further, it was reported that Armenia's total foreign debt
at the end of the first quarter reached $1US.55 billion, having risen
by 26.9% y/y. With a share of 88.6%, government debt forms the major
part of Armenia's external obligations. New loans received over the
first quarter amounted to $42US.7 million, while Armenia repaid
$8US.9 million of debt, and interest payments amounted to $2US.5
million. International financial organisations are Armenia's main
creditors, having provided a share of 82.5% of the country's external
debt as of end of the first quarter. Notably, debt to the World
Bank rose by 21.1% y/y over the first quarter, reaching some $1US.05
billion. Germany and Japan are the most important bilateral creditors.
Significance:Good progress with economic reforms has secured
unproblematic access to soft loans from international financial
institutions for Armenia. However, Armenia's creditworthiness is still
characterised by high payments risk. Indeed, its total debt burden is
relatively heavy, especially compared with its still rather weak export
revenue earnings capacity. The current-account deficit remains deep
and Armenia's reliance on private transfers and remittances leaves the
country vulnerable to external shocks. Investment to Armenia is also
restricted by, for example, geopolitical risks. Nevertheless, debt
servicing is not likely to pose any difficulties for the sovereign in
the medium term. Importantly, even though they only form a relatively
modest part of total foreign investment, FDI inflows finance a large
part of the deep external deficit, reducing the need to increase
foreign borrowing. However, in order to achieve continued improvement
in its sovereign creditworthiness in the medium-to-long term, Armenia
needs to progress further in economic restructuring to diversify
its economy, especially the production base of its export sector,
and to strengthen its export earnings capacity.