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ARMENIAN SHORT-TERM CREDIT RISK EASES SOMEWHAT IN IHS GLOBAL INSIGHT'S LATEST SOVEREIGN REVIEW
Global Insight
March 27, 2013
by: Venla Sipila
IHS Global Insight has upgraded Armenia's short-term sovereign rating
by one notch to 20 (A on the generic scale) in its first-quarter 2013
review. The improvement mainly reflects eased pressure on external
balances from interest payments, while the overall external position
has somewhat strengthened. Before this, the rating had been lowered
by 15 points a year previously, reflecting Armenia's narrowing
current-account deficit and strong inflows of foreign direct
investment, which helps finance the country's remaining external
shortfall. Meanwhile, the medium-term rating still signals a very
high payments risk; it was maintained at 60 (equivalent to B- on the
generic rating scale), with a Stable outlook.
Significance:Armenia's short-term sovereign credit now is categorised
as "good quality". However, the interest payment metric only just
crossed to the non-scoring category, and while we expect some
further strengthening in this measure in our baseline scenario,
financial pressures from this source may arise again, especially
if overall exchange-rate earnings prove weaker than expected. The
Armenian economy and its external balances remain very dependent on
private capital inflows such as workers' remittances, and these remain
under risk given the uncertainty in the overall economic environment,
especially taking into account the persistent European credit crisis.
Meanwhile, debt servicing requirements still act as a component on
the medium-term sovereign credit profile, although the risks from
these should remain manageable, assuming that the current account
continues to stabilise, and Armenia's relationship with international
financial institutions remains good.
Global Insight
March 27, 2013
by: Venla Sipila
IHS Global Insight has upgraded Armenia's short-term sovereign rating
by one notch to 20 (A on the generic scale) in its first-quarter 2013
review. The improvement mainly reflects eased pressure on external
balances from interest payments, while the overall external position
has somewhat strengthened. Before this, the rating had been lowered
by 15 points a year previously, reflecting Armenia's narrowing
current-account deficit and strong inflows of foreign direct
investment, which helps finance the country's remaining external
shortfall. Meanwhile, the medium-term rating still signals a very
high payments risk; it was maintained at 60 (equivalent to B- on the
generic rating scale), with a Stable outlook.
Significance:Armenia's short-term sovereign credit now is categorised
as "good quality". However, the interest payment metric only just
crossed to the non-scoring category, and while we expect some
further strengthening in this measure in our baseline scenario,
financial pressures from this source may arise again, especially
if overall exchange-rate earnings prove weaker than expected. The
Armenian economy and its external balances remain very dependent on
private capital inflows such as workers' remittances, and these remain
under risk given the uncertainty in the overall economic environment,
especially taking into account the persistent European credit crisis.
Meanwhile, debt servicing requirements still act as a component on
the medium-term sovereign credit profile, although the risks from
these should remain manageable, assuming that the current account
continues to stabilise, and Armenia's relationship with international
financial institutions remains good.