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POLITICAL RISK RISING IN ARMENIA - FITCH
Interfax News Agency
Russia & CIS
March 4, 2008
Russia
The recent political turmoil in Armenia could threaten the Positive
Outlook on the sovereign's Long-term foreign currency and local
currency Issuer Default ratings (IDR) of 'BB-' (BB minus), if unrest
were to persist or intensify, Fitch Ratings said in a comment.
"The political unrest witnessed in Armenia over the past fortnight
need not de-rail the country's improving economic fundamentals.
However, if the situation were to escalate or persist then it could
risk damaging domestic and international confidence, and undermining
the authorities' focus on sound economic policy management," said
Andrew Colquhoun, Director in Fitch's Sovereigns group.
Incumbent Prime Minister Serzh Sarkisian won a presidential election
on 19 February with 53% of the vote, according to official results,
against 22% for second-placed Levon Ter-Petrosian.
International observers broadly endorsed the vote, while noting
some shortcomings. This sparked off protests by Ter-Petrosian's
supporters, which were later quelled by security forces. The country's
Constitutional Court is set to rule on complaints against the handling
of the elections in the next few days. Should the Court uphold the
results, adding to the qualified endorsement of the international
community, there is a risk that the opposition could resort to extra-
legal action. An escalation of violence would be strongly negative
for Armenia's basic political stability and sovereign ratings.
The turmoil follows steady improvement in Armenia's economic
fundamentals, in particular, rapid growth and improving external
liquidity, which have supported Fitch's Positive Outlook.
GDP grew 13.7% in 2007, helping to boost average income to around
USD3,200 or 94% of the 'BB' range median, up from just 44% in 2002.
The country's external liquidity position is improving, buoyed by
foreign capital inflows.
Fitch projects the current account deficit at a moderate 3% of GDP in
2007. Reserves were USD1.6bn by end-January 2008, some 17% of 2007 GDP.
Fitch projects Armenia's external liquidity ratio at 293% for 2008,
well above the 'BB' range median of 254%.
Foreign investment in marketable securities remains minimal, and the
liquidity ratio would still be 160% even after counting USD0.6bn of FX
deposits in the banking system as a short-term liability, indicating
the external finances are reasonably robust to international investor
sentiment.
A domestic loss of confidence in the AMD and the banking system leading
to a bank run and/or capital flight would be strongly negative, but
there is little sign of this so far and the AMD has remained stable.
General government debt was low at about 18% of GDP at end-2007.
With general government external debt maturities projected at just
USD39m in 2008, there is little prospect that the sovereign itself
will face near-term external liquidity difficulties.
Interfax News Agency
Russia & CIS
March 4, 2008
Russia
The recent political turmoil in Armenia could threaten the Positive
Outlook on the sovereign's Long-term foreign currency and local
currency Issuer Default ratings (IDR) of 'BB-' (BB minus), if unrest
were to persist or intensify, Fitch Ratings said in a comment.
"The political unrest witnessed in Armenia over the past fortnight
need not de-rail the country's improving economic fundamentals.
However, if the situation were to escalate or persist then it could
risk damaging domestic and international confidence, and undermining
the authorities' focus on sound economic policy management," said
Andrew Colquhoun, Director in Fitch's Sovereigns group.
Incumbent Prime Minister Serzh Sarkisian won a presidential election
on 19 February with 53% of the vote, according to official results,
against 22% for second-placed Levon Ter-Petrosian.
International observers broadly endorsed the vote, while noting
some shortcomings. This sparked off protests by Ter-Petrosian's
supporters, which were later quelled by security forces. The country's
Constitutional Court is set to rule on complaints against the handling
of the elections in the next few days. Should the Court uphold the
results, adding to the qualified endorsement of the international
community, there is a risk that the opposition could resort to extra-
legal action. An escalation of violence would be strongly negative
for Armenia's basic political stability and sovereign ratings.
The turmoil follows steady improvement in Armenia's economic
fundamentals, in particular, rapid growth and improving external
liquidity, which have supported Fitch's Positive Outlook.
GDP grew 13.7% in 2007, helping to boost average income to around
USD3,200 or 94% of the 'BB' range median, up from just 44% in 2002.
The country's external liquidity position is improving, buoyed by
foreign capital inflows.
Fitch projects the current account deficit at a moderate 3% of GDP in
2007. Reserves were USD1.6bn by end-January 2008, some 17% of 2007 GDP.
Fitch projects Armenia's external liquidity ratio at 293% for 2008,
well above the 'BB' range median of 254%.
Foreign investment in marketable securities remains minimal, and the
liquidity ratio would still be 160% even after counting USD0.6bn of FX
deposits in the banking system as a short-term liability, indicating
the external finances are reasonably robust to international investor
sentiment.
A domestic loss of confidence in the AMD and the banking system leading
to a bank run and/or capital flight would be strongly negative, but
there is little sign of this so far and the AMD has remained stable.
General government debt was low at about 18% of GDP at end-2007.
With general government external debt maturities projected at just
USD39m in 2008, there is little prospect that the sovereign itself
will face near-term external liquidity difficulties.