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MOODY'S CHANGES ARMENIA'S SOVEREIGN OUTLOOK TO NEGATIVE
CBonds. Info
http://www.cbonds.info/cis/eng/news/index.phtml/params/id/533809
Nov 22 2011
London, 21 November 2011 -- Moody's Investors Service has today
changed to negative from stable the outlook on Armenia's Ba2 government
foreign and local currency issuer ratings.
Today's outlook change reflects:
(i) Risks to Armenia's growth outlook in the coming years given the
anticipated economic slowdown in Europe and Russia, its main trading
partners, and the impact of potentially weaker commodity prices for
the country's mining and metals industries.
(ii) Concerns about the deterioration of Armenia's debt metrics and
external position following the 2009 recession and its impact on the
country's shock-absorption capacity as it enters another period of
heightened economic uncertainty.
RATINGS RATIONALE
Moody's decision to change the outlook on Armenia's sovereign
ratings to negative is primarily driven by the country's ongoing
economic vulnerability to the weaker growth prospects in Europe
and Russia, which together account for 58% of Armenia's export
market. In particular, Armenia's reliance on exports to, as well as
remittances and foreign direct investment from, Russia poses risks to
its external position. In addition, potentially lower commodity prices
could further affect the Armenian economy as exports are concentrated
on mining, precious stones and metals (representing 73% of exports
in 2010). Although Moody's currently still expects moderate growth
in the next two years, the rating agency believes that the downside
risks are significant given the weak global economic growth outlook.
The second driver of the outlook change is the risk to Armenia's
shock-absorption capacity as the country enters another economically
challenging period with weakened debt metrics and a more vulnerable
external position. Moody's notes that the country is now faced with
a large current account deficit (estimated to be 11% GDP in 2011)
and a government external debt ratio that has doubled to 35% in 2011
from 14% of GDP in 2008. Its total debt burden in relation of GDP is
now 39% compared with 16% in 2008.
Despite the change in outlook, Moody's notes the government's
commitment to fiscal consolidation, as illustrated by the measures
contained in the draft 2012 budget law which are aimed at reducing the
general government deficit to 3.1% of GDP next year. These measures are
in addition to the government's efforts to enhance the efficiency of
tax collection. The impact of such measures however will remain unclear
for some time and the implementation risks to the fiscal consolidation
plan are significant, particularly given the uncertainty surrounding
Armenia's growth prospects. As discussed above, the expecteed economic
slowdown in Europe and Russia poses risks to Armenia's growth outlook.
Concurrent with this action, we have revised to negative the outlook
on the Ba3 country ceiling for foreign-currency deposits. At the same
time, the country ceiling for local-currency debt was downgraded
to Baa1 from A3, bringing it in line with the country ceiling for
local-currency deposits, which was affirmed at Baa1. The country
ceiling for foreign-currency debt was affirmed at Baa3 and its outlook
remains stable.
WHAT COULD CHANGE THE RATING UP/DOWN
Although unlikely in the short-to-medium term, Moody's would consider
changing the rating outlook on Armenia back to stable in the event of a
dissipation of the risks posed by the country's external vulnerability
to low growth prospects among its main trading partners.
Moody's would consider downgrading Armenia's sovereign ratings in
the event of (i) a failure to achieve its fiscal deficits reduction
plan; and/or (ii) a continued large current account deficit caused
by prolonged weakness in commodity prices and/or remittances; and/or
(iii) a decline in FDIs, thereby eroding the sustainability of the
country's external position.
From: A. Papazian
CBonds. Info
http://www.cbonds.info/cis/eng/news/index.phtml/params/id/533809
Nov 22 2011
London, 21 November 2011 -- Moody's Investors Service has today
changed to negative from stable the outlook on Armenia's Ba2 government
foreign and local currency issuer ratings.
Today's outlook change reflects:
(i) Risks to Armenia's growth outlook in the coming years given the
anticipated economic slowdown in Europe and Russia, its main trading
partners, and the impact of potentially weaker commodity prices for
the country's mining and metals industries.
(ii) Concerns about the deterioration of Armenia's debt metrics and
external position following the 2009 recession and its impact on the
country's shock-absorption capacity as it enters another period of
heightened economic uncertainty.
RATINGS RATIONALE
Moody's decision to change the outlook on Armenia's sovereign
ratings to negative is primarily driven by the country's ongoing
economic vulnerability to the weaker growth prospects in Europe
and Russia, which together account for 58% of Armenia's export
market. In particular, Armenia's reliance on exports to, as well as
remittances and foreign direct investment from, Russia poses risks to
its external position. In addition, potentially lower commodity prices
could further affect the Armenian economy as exports are concentrated
on mining, precious stones and metals (representing 73% of exports
in 2010). Although Moody's currently still expects moderate growth
in the next two years, the rating agency believes that the downside
risks are significant given the weak global economic growth outlook.
The second driver of the outlook change is the risk to Armenia's
shock-absorption capacity as the country enters another economically
challenging period with weakened debt metrics and a more vulnerable
external position. Moody's notes that the country is now faced with
a large current account deficit (estimated to be 11% GDP in 2011)
and a government external debt ratio that has doubled to 35% in 2011
from 14% of GDP in 2008. Its total debt burden in relation of GDP is
now 39% compared with 16% in 2008.
Despite the change in outlook, Moody's notes the government's
commitment to fiscal consolidation, as illustrated by the measures
contained in the draft 2012 budget law which are aimed at reducing the
general government deficit to 3.1% of GDP next year. These measures are
in addition to the government's efforts to enhance the efficiency of
tax collection. The impact of such measures however will remain unclear
for some time and the implementation risks to the fiscal consolidation
plan are significant, particularly given the uncertainty surrounding
Armenia's growth prospects. As discussed above, the expecteed economic
slowdown in Europe and Russia poses risks to Armenia's growth outlook.
Concurrent with this action, we have revised to negative the outlook
on the Ba3 country ceiling for foreign-currency deposits. At the same
time, the country ceiling for local-currency debt was downgraded
to Baa1 from A3, bringing it in line with the country ceiling for
local-currency deposits, which was affirmed at Baa1. The country
ceiling for foreign-currency debt was affirmed at Baa3 and its outlook
remains stable.
WHAT COULD CHANGE THE RATING UP/DOWN
Although unlikely in the short-to-medium term, Moody's would consider
changing the rating outlook on Armenia back to stable in the event of a
dissipation of the risks posed by the country's external vulnerability
to low growth prospects among its main trading partners.
Moody's would consider downgrading Armenia's sovereign ratings in
the event of (i) a failure to achieve its fiscal deficits reduction
plan; and/or (ii) a continued large current account deficit caused
by prolonged weakness in commodity prices and/or remittances; and/or
(iii) a decline in FDIs, thereby eroding the sustainability of the
country's external position.
From: A. Papazian