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Business & Economy: Fitch Affirms Armenia's Rating With Stable Outlo

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  • Business & Economy: Fitch Affirms Armenia's Rating With Stable Outlo

    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.

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