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FITCH AFFIRMS ARMENIA'S RATING WITH STABLE OUTLOOK
Mediamax
Sept 2 2011
Armenia
Yerevan/Mediamax/. Fitch Ratings international rating agency has
affirmed Armenia's Long-term foreign and local currency Issuer
Default Ratings (IDR) at 'BB-' level. The Outlook on the Long-term
IDRs is Stable.
At the same time, Fitch has affirmed the Short-term local currency IDR
at 'B' and Country Ceiling at 'BB' on September 1, Mediamax reports
quoting Fitch
"The affirmation of Armenia's ratings reflects the fact that the
authorities are reducing fiscal and external imbalances in line with
their IMF-backed economic policy program," says Charles Seville,
Director in Fitch's Sovereign group, adding that the Armenian
economy is vulnerable to external shocks as the government debt and
gross external debt are materially higher than they were before the
2008-2009 crisis.
Fitch expects the government to reduce the fiscal deficit to 3.9% of
GDP in 2011. Withdrawing fiscal stimulus, the government narrowed the
deficit to 5% of GDP in 2010. Consolidation plans rely on a mixture
of restraining spending and increasing tax collection - a perennial
challenge. The government is targeting further reduction to 3.2%
of GDP in 2012, an election year.
Fitch also notes that the current account deficit (CAD) has narrowed
in 2010-2011, driven by a revival in exports. This trend is expected
to continue in 2012-2013. A forecast deficit of 12% of GDP in 2011
will be financed by external borrowing and FDI of around 6% of GDP.
Fitch forecasts real GDP growth of 4%-5% in 2011-2013, close to
medium-term potential growth. According to Charles Seville, the
CB is currently reducing dollarization and strengthens the role of
Armenian dram.
Fitch notes that emerging from the 2009 recession without requiring
solvency support the small, well-capitalized Armenian financial sector
does not pose a major risk to sovereign creditworthiness. Write-offs
have reduced non-performing loans to 3% of assets from a 2009 peak
of over 10%. CBA is tightening regulation and encouraging local
currency lending.
"Pressure on reserves or the dram - following a global slowdown or
shock to Russian growth - would weaken the external balance sheet
and could lead to negative rating action. Armenia's ability to absorb
further external shocks has been weakened by the crisis, which pushed
up government debt to 40% of GDP (in line with the 'BB' median) and
GXD. Renewed domestic or external (surrounding Nagorno-Karabakh)
political tension could also lead to negative rating action",
notes Fitch.
The agency also notes that if Armenia follows through with fiscal
reforms and narrow the twin deficits this would put upward pressure
on the ratings. A sustained reduction in dollarization would also
be positive.
Mediamax
Sept 2 2011
Armenia
Yerevan/Mediamax/. Fitch Ratings international rating agency has
affirmed Armenia's Long-term foreign and local currency Issuer
Default Ratings (IDR) at 'BB-' level. The Outlook on the Long-term
IDRs is Stable.
At the same time, Fitch has affirmed the Short-term local currency IDR
at 'B' and Country Ceiling at 'BB' on September 1, Mediamax reports
quoting Fitch
"The affirmation of Armenia's ratings reflects the fact that the
authorities are reducing fiscal and external imbalances in line with
their IMF-backed economic policy program," says Charles Seville,
Director in Fitch's Sovereign group, adding that the Armenian
economy is vulnerable to external shocks as the government debt and
gross external debt are materially higher than they were before the
2008-2009 crisis.
Fitch expects the government to reduce the fiscal deficit to 3.9% of
GDP in 2011. Withdrawing fiscal stimulus, the government narrowed the
deficit to 5% of GDP in 2010. Consolidation plans rely on a mixture
of restraining spending and increasing tax collection - a perennial
challenge. The government is targeting further reduction to 3.2%
of GDP in 2012, an election year.
Fitch also notes that the current account deficit (CAD) has narrowed
in 2010-2011, driven by a revival in exports. This trend is expected
to continue in 2012-2013. A forecast deficit of 12% of GDP in 2011
will be financed by external borrowing and FDI of around 6% of GDP.
Fitch forecasts real GDP growth of 4%-5% in 2011-2013, close to
medium-term potential growth. According to Charles Seville, the
CB is currently reducing dollarization and strengthens the role of
Armenian dram.
Fitch notes that emerging from the 2009 recession without requiring
solvency support the small, well-capitalized Armenian financial sector
does not pose a major risk to sovereign creditworthiness. Write-offs
have reduced non-performing loans to 3% of assets from a 2009 peak
of over 10%. CBA is tightening regulation and encouraging local
currency lending.
"Pressure on reserves or the dram - following a global slowdown or
shock to Russian growth - would weaken the external balance sheet
and could lead to negative rating action. Armenia's ability to absorb
further external shocks has been weakened by the crisis, which pushed
up government debt to 40% of GDP (in line with the 'BB' median) and
GXD. Renewed domestic or external (surrounding Nagorno-Karabakh)
political tension could also lead to negative rating action",
notes Fitch.
The agency also notes that if Armenia follows through with fiscal
reforms and narrow the twin deficits this would put upward pressure
on the ratings. A sustained reduction in dollarization would also
be positive.