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OVERALL STRENGTHENING OF ARMENIA'S EXTERNAL FINANCES DRIVES IHS GLOBAL INSIGHT'S IMPROVED SOVEREIGN OUTLOOK
Global Insight
September 13, 2011
In our third-quarter sovereign rating review round, IHS Global Insight
has lifted the outlook on our Armenian sovereign rating to Positive
from Stable. The medium-term rating was retained at 60 (equivalent to
B- on the generic rating scale) and the short-term rating at 40. This
improvement comes after the outlook had been lifted to Stable from
Negative in the previous quarter, and derives from a somewhat better
outlook on most of Armenia's key financial indicators relating to
both solvency and liquidity. Mainly reflecting the strengthening
of the current account, the overall liquidity gap now is expected
to narrow somewhat more rapidly than previously projected. The debt
load profile has also strengthened, and the recent clear deteriorating
trend in the debt service ratio has now clearly halted, and this turn
for the better seems to have materialised somewhat earlier than we
previously expected.
Significance:The strengthening of the current-account outlook is
connected to improvement in the trade balance; exports have benefited
from high international market prices for mining products, while the
recent economic downturn has also guided imports to a more sustainable
path. The recent global recovery has also encouraged private transfers,
on which Armenia heavily relies. An upgrade in the rating could result
from major further improvement in solvency or liquidity, Nevertheless,
the Armenian sovereign credit rating still signals a very high
payments risk. The strength of important remittances from abroad are
threatened, together with the increasingly clear headwinds to global
growth. Weakened external economic activity naturally also marks risks
to export performance. Thus, it remains very important that Armenia
makes further progress on its reform path and keeps macroeconomic
policies responsible. This will secure continued assistance from
international financial institutions. Their support, further, will
aid in keeping external solvency on an improving trend, because the
concessionary nature of this lending will mean that the debt burden
remains manageable, while Armenia concentrates on further reforms
that boost its competitiveness and improve its investment environment.
Global Insight
September 13, 2011
In our third-quarter sovereign rating review round, IHS Global Insight
has lifted the outlook on our Armenian sovereign rating to Positive
from Stable. The medium-term rating was retained at 60 (equivalent to
B- on the generic rating scale) and the short-term rating at 40. This
improvement comes after the outlook had been lifted to Stable from
Negative in the previous quarter, and derives from a somewhat better
outlook on most of Armenia's key financial indicators relating to
both solvency and liquidity. Mainly reflecting the strengthening
of the current account, the overall liquidity gap now is expected
to narrow somewhat more rapidly than previously projected. The debt
load profile has also strengthened, and the recent clear deteriorating
trend in the debt service ratio has now clearly halted, and this turn
for the better seems to have materialised somewhat earlier than we
previously expected.
Significance:The strengthening of the current-account outlook is
connected to improvement in the trade balance; exports have benefited
from high international market prices for mining products, while the
recent economic downturn has also guided imports to a more sustainable
path. The recent global recovery has also encouraged private transfers,
on which Armenia heavily relies. An upgrade in the rating could result
from major further improvement in solvency or liquidity, Nevertheless,
the Armenian sovereign credit rating still signals a very high
payments risk. The strength of important remittances from abroad are
threatened, together with the increasingly clear headwinds to global
growth. Weakened external economic activity naturally also marks risks
to export performance. Thus, it remains very important that Armenia
makes further progress on its reform path and keeps macroeconomic
policies responsible. This will secure continued assistance from
international financial institutions. Their support, further, will
aid in keeping external solvency on an improving trend, because the
concessionary nature of this lending will mean that the debt burden
remains manageable, while Armenia concentrates on further reforms
that boost its competitiveness and improve its investment environment.