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RPT-FITCH RATES ARMENIA'S BOND 'BB-(EXP)'
Reuters
Sept 6 2013
(Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned the Republic of Armenia's potential upcoming
USD-denominated notes an expected 'BB-(EXP)' rating. The final rating
is contingent on the receipt of final documentation conforming to
information already received.
The expected rating is in line with Armenia's Long-Term foreign
currency Issuer Default Rating (IDR) of 'BB-'. The Outlook on the
rating is Stable.
KEY RATING DRIVERS
Fitch affirmed Armenia's ratings on 16 August 2013, reflecting the
following factors:
The consolidated general government deficit fell to 1.4% of GDP in
2012, down from 2.8% of GDP in 2011, outperforming the target for
the second successive year. The government succeeded in meeting its
goal of increasing tax revenues, although under-execution of capital
spending also contributed, by 1.2pp of GDP. The deficit will increase
again in 2014 due to the costs of introducing a pension reform,
estimated at 0.5% of GDP in the first year.
General government debt rose 1.8pp of GDP to 44.1% of GDP in 2012, but
Fitch expects it to stabilise from 2013 onwards. Currency depreciation
is a risk to solvency given that over 80% of government debt is foreign
currency-denominated. External sovereign debt service is modest,
but rising. The government aims to deepen the local capital market.
Real GDP grew by 7.2% in 2012, faster than in any other rated sovereign
in Emerging Europe, driven by agriculture, mining and services. Faster
growth has accompanied a government drive to improve the business
climate, although qualitative weaknesses persist. Growth slowed
in Q213, but Fitch expects it to reach 5% in 2013-15, higher than
its previous forecasts. Consumption and net trade are contributing,
while investment is weak. Headwinds will come from higher gas prices
and slower growth in Russia.
A current account deficit (CAD) above 10% of GDP is still a rating
weakness, although it is gradually narrowing, driven by exports. The
CAD is forecast to fall below 10% of GDP in 2014, with FDI accounting
for an increasing share of CAD financing. Reserves will be flat
as Armenia starts to repay IMF lending. Governance indicators are
slightly below 'BB' medians. Serzh Sargsyan won a second term as
president in February 2013, completing a smooth election cycle and
pointing to policy continuity. However, an angry popular response
to a proposed rise in public transport fares in Yerevan suggests
dissatisfaction and latent political risks.
Armenia's rating is supported by a relatively strong macroeconomic
framework and a good inflation track record in comparison with the
peer group of 'BB' rated sovereigns. However, rising food prices
and a 15.1% rise in energy tariffs (stemming from higher gas import
costs) pushed up inflation to 8.5% year on year, in July 2013. By 2014
inflation should return to the target range, below 5.5%. The Central
Bank of Armenia (CBA) is allowing greater exchange rate flexibility,
although dollarisation is high at 63%.
Fitch previously highlighted the risks to the banking sector from
strong lending growth, albeit from a low base. Headline growth in
bank lending to the private sector slowed to 16% year on year in May
2013, from 27% at end-2012. The CBA has moved to dampen growth in
foreign currency lending. Bank risks to sovereign creditworthiness
are mitigated by loss absorption capacity and predominantly foreign
ownership of the banks.
RATING SENSITIVITIES
The Stable Outlook reflects Fitch's assessment that upside and downside
risks to the rating are currently well balanced.
Consequently, Fitch's sensitivity analysis does not currently
anticipate developments with a high likelihood of leading to a
rating change.
The main factors that, individually or collectively, could lead to
positive rating action are:
Ongoing improvement in the CAD and a stronger reserve position.
Setting the debt/GDP ratio on a downward path. A track record of
sustainably low fiscal deficits while navigating the challenges of
the pension reform would improve creditworthiness, especially given
the forecast rise in sovereign external funding costs.
The main factors that, individually or collectively, could lead to
negative rating action are:
A fall in reserves and pressure on the dram originating from an
external shock or inconsistent economic policies. A sharp depreciation
would worsen solvency risks given the government's largely foreign
currency-denominated debt, and pose risks to the financial system in
view of the high level of dollarisation. An upswing in political risk,
which is less likely now that the election cycle is complete.
Material slippage in the performance of public finances that led to
a rise in the debt/GDP ratio
http://www.reuters.com/article/2013/09/06/fitch-rates-armenias-bond-bb-idUSFit66892120130906
From: Emil Lazarian | Ararat NewsPress
Reuters
Sept 6 2013
(Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned the Republic of Armenia's potential upcoming
USD-denominated notes an expected 'BB-(EXP)' rating. The final rating
is contingent on the receipt of final documentation conforming to
information already received.
The expected rating is in line with Armenia's Long-Term foreign
currency Issuer Default Rating (IDR) of 'BB-'. The Outlook on the
rating is Stable.
KEY RATING DRIVERS
Fitch affirmed Armenia's ratings on 16 August 2013, reflecting the
following factors:
The consolidated general government deficit fell to 1.4% of GDP in
2012, down from 2.8% of GDP in 2011, outperforming the target for
the second successive year. The government succeeded in meeting its
goal of increasing tax revenues, although under-execution of capital
spending also contributed, by 1.2pp of GDP. The deficit will increase
again in 2014 due to the costs of introducing a pension reform,
estimated at 0.5% of GDP in the first year.
General government debt rose 1.8pp of GDP to 44.1% of GDP in 2012, but
Fitch expects it to stabilise from 2013 onwards. Currency depreciation
is a risk to solvency given that over 80% of government debt is foreign
currency-denominated. External sovereign debt service is modest,
but rising. The government aims to deepen the local capital market.
Real GDP grew by 7.2% in 2012, faster than in any other rated sovereign
in Emerging Europe, driven by agriculture, mining and services. Faster
growth has accompanied a government drive to improve the business
climate, although qualitative weaknesses persist. Growth slowed
in Q213, but Fitch expects it to reach 5% in 2013-15, higher than
its previous forecasts. Consumption and net trade are contributing,
while investment is weak. Headwinds will come from higher gas prices
and slower growth in Russia.
A current account deficit (CAD) above 10% of GDP is still a rating
weakness, although it is gradually narrowing, driven by exports. The
CAD is forecast to fall below 10% of GDP in 2014, with FDI accounting
for an increasing share of CAD financing. Reserves will be flat
as Armenia starts to repay IMF lending. Governance indicators are
slightly below 'BB' medians. Serzh Sargsyan won a second term as
president in February 2013, completing a smooth election cycle and
pointing to policy continuity. However, an angry popular response
to a proposed rise in public transport fares in Yerevan suggests
dissatisfaction and latent political risks.
Armenia's rating is supported by a relatively strong macroeconomic
framework and a good inflation track record in comparison with the
peer group of 'BB' rated sovereigns. However, rising food prices
and a 15.1% rise in energy tariffs (stemming from higher gas import
costs) pushed up inflation to 8.5% year on year, in July 2013. By 2014
inflation should return to the target range, below 5.5%. The Central
Bank of Armenia (CBA) is allowing greater exchange rate flexibility,
although dollarisation is high at 63%.
Fitch previously highlighted the risks to the banking sector from
strong lending growth, albeit from a low base. Headline growth in
bank lending to the private sector slowed to 16% year on year in May
2013, from 27% at end-2012. The CBA has moved to dampen growth in
foreign currency lending. Bank risks to sovereign creditworthiness
are mitigated by loss absorption capacity and predominantly foreign
ownership of the banks.
RATING SENSITIVITIES
The Stable Outlook reflects Fitch's assessment that upside and downside
risks to the rating are currently well balanced.
Consequently, Fitch's sensitivity analysis does not currently
anticipate developments with a high likelihood of leading to a
rating change.
The main factors that, individually or collectively, could lead to
positive rating action are:
Ongoing improvement in the CAD and a stronger reserve position.
Setting the debt/GDP ratio on a downward path. A track record of
sustainably low fiscal deficits while navigating the challenges of
the pension reform would improve creditworthiness, especially given
the forecast rise in sovereign external funding costs.
The main factors that, individually or collectively, could lead to
negative rating action are:
A fall in reserves and pressure on the dram originating from an
external shock or inconsistent economic policies. A sharp depreciation
would worsen solvency risks given the government's largely foreign
currency-denominated debt, and pose risks to the financial system in
view of the high level of dollarisation. An upswing in political risk,
which is less likely now that the election cycle is complete.
Material slippage in the performance of public finances that led to
a rise in the debt/GDP ratio
http://www.reuters.com/article/2013/09/06/fitch-rates-armenias-bond-bb-idUSFit66892120130906
From: Emil Lazarian | Ararat NewsPress