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IPR Strategic Business Information Database
December 8, 2013 Sunday
ARMENIA'S PROGRESS IN FISCAL AND EXTERNAL ADJUSTMENT IS
COUNTERBALANCED BY CONSTRAINED TRADE DIVERSIFICATION
In a report published today, Moody's Investors Service says that
Armenia's Ba2 rating with a stable outlook is supported by its prudent
fiscal policy track record and by the significant reduction in the
current account deficit from its 2010 peak. Conversely, Armenia's
credit challenges relate to the economy's small size and its reliance
on commodity exports and on remittances. Moreover, Armenia's already
high economic and financial exposure to Russia is set to intensify
within the Customs Union of Russia, Belarus and Kazakhstan, in
contrast to the previously considered EU Deep and Comprehensive Free
Trade Area (DCFTA). The rating agency's report is an annual update to
the markets and does not constitute a rating action. Moody's notes
that Armenia's rating is supported by its prudent fiscal policy, which
is reflected in recent deficit reduction from 7.5% in 2009 to 1.5% in
2012, which has partly been achieved through cuts in capital
expenditure and gradual revenue mobilization.
The latter is underpinned by reforms to broaden the tax base and the
introduction of a funded multi-pillar pension system from 2014
onwards. Other credit-positive factors include the successful
first-time Eurobond issuance in September 2013, as well as its
favourable cost of funding due to borrowings from official lenders.
Moreover, the combination of higher exports, stagnating imports and a
resumption of remittance inflows has fueled a sharp reduction in the
current account deficit this year from the 11.2% of GDP in 2012 to
8.7% of GDP as of Q2 2013. Moody's expects the external adjustment to
continue over the medium term, albeit at a reduced pace in view of (1)
an expected increase in imports alongside greater economic activity
from 2014; and (2) the uncertain economic outlook in Russia, Armenia's
main bilateral trading partner and where the vast majority of its
remittances originate. Moody's also notes the resumption of bilateral
talks between the presidents of Armenia and Azerbaijan under the
auspices of the Co-Chairs of the OSCE Minsk Group (the Russian
Federation, France, and the US). These talks are aimed at achieving a
peaceful resolution to the Nagorno-Karabakh conflict, which remains a
source of geo-political risk in the region. Armenia's credit
challenges relate to the economy's small size and its reliance on
commodity exports and on remittances. In this regard, Armenia's
already high economic and financial exposure to Russia is set to
intensify within the Customs Union of Russia, Belarus and Kazakhstan.
Moreover, the country's limited tax take and relatively high
corruption level also represent credit challenges. Despite the
significant adjustment in the current account, the economy remains
highly dollarized in light of a sufficient, but limited
foreign-currency reserve buffer of 3.9 months of imports as of June
2013. The stable outlook balances fiscal and external credit metric
improvements with the higher exposure to economic and financial
spillovers from Russia. Moody's would consider assigning a positive
outlook and eventually upgrading Armenia's rating if the initiated
structural reforms propel the economy towards more balanced economic
growth and a structural reduction in the current account deficit. On
the other hand, negative rating pressure could develop following a
sustained deterioration in fiscal and external buffers, or if the
current economic slowdown in Russia were to be sustained and mirrored
by a sharp slowdown in remittance inflows to Armenia.
From: Emil Lazarian | Ararat NewsPress
December 8, 2013 Sunday
ARMENIA'S PROGRESS IN FISCAL AND EXTERNAL ADJUSTMENT IS
COUNTERBALANCED BY CONSTRAINED TRADE DIVERSIFICATION
In a report published today, Moody's Investors Service says that
Armenia's Ba2 rating with a stable outlook is supported by its prudent
fiscal policy track record and by the significant reduction in the
current account deficit from its 2010 peak. Conversely, Armenia's
credit challenges relate to the economy's small size and its reliance
on commodity exports and on remittances. Moreover, Armenia's already
high economic and financial exposure to Russia is set to intensify
within the Customs Union of Russia, Belarus and Kazakhstan, in
contrast to the previously considered EU Deep and Comprehensive Free
Trade Area (DCFTA). The rating agency's report is an annual update to
the markets and does not constitute a rating action. Moody's notes
that Armenia's rating is supported by its prudent fiscal policy, which
is reflected in recent deficit reduction from 7.5% in 2009 to 1.5% in
2012, which has partly been achieved through cuts in capital
expenditure and gradual revenue mobilization.
The latter is underpinned by reforms to broaden the tax base and the
introduction of a funded multi-pillar pension system from 2014
onwards. Other credit-positive factors include the successful
first-time Eurobond issuance in September 2013, as well as its
favourable cost of funding due to borrowings from official lenders.
Moreover, the combination of higher exports, stagnating imports and a
resumption of remittance inflows has fueled a sharp reduction in the
current account deficit this year from the 11.2% of GDP in 2012 to
8.7% of GDP as of Q2 2013. Moody's expects the external adjustment to
continue over the medium term, albeit at a reduced pace in view of (1)
an expected increase in imports alongside greater economic activity
from 2014; and (2) the uncertain economic outlook in Russia, Armenia's
main bilateral trading partner and where the vast majority of its
remittances originate. Moody's also notes the resumption of bilateral
talks between the presidents of Armenia and Azerbaijan under the
auspices of the Co-Chairs of the OSCE Minsk Group (the Russian
Federation, France, and the US). These talks are aimed at achieving a
peaceful resolution to the Nagorno-Karabakh conflict, which remains a
source of geo-political risk in the region. Armenia's credit
challenges relate to the economy's small size and its reliance on
commodity exports and on remittances. In this regard, Armenia's
already high economic and financial exposure to Russia is set to
intensify within the Customs Union of Russia, Belarus and Kazakhstan.
Moreover, the country's limited tax take and relatively high
corruption level also represent credit challenges. Despite the
significant adjustment in the current account, the economy remains
highly dollarized in light of a sufficient, but limited
foreign-currency reserve buffer of 3.9 months of imports as of June
2013. The stable outlook balances fiscal and external credit metric
improvements with the higher exposure to economic and financial
spillovers from Russia. Moody's would consider assigning a positive
outlook and eventually upgrading Armenia's rating if the initiated
structural reforms propel the economy towards more balanced economic
growth and a structural reduction in the current account deficit. On
the other hand, negative rating pressure could develop following a
sustained deterioration in fiscal and external buffers, or if the
current economic slowdown in Russia were to be sustained and mirrored
by a sharp slowdown in remittance inflows to Armenia.
From: Emil Lazarian | Ararat NewsPress