Announcement

Collapse
No announcement yet.

Fitch Affirms Armenia At 'BB-'; Outlook Stable - Report

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Fitch Affirms Armenia At 'BB-'; Outlook Stable - Report

    FITCH AFFIRMS ARMENIA AT 'BB-'; OUTLOOK STABLE - REPORT

    YEREVAN, February 14. /ARKA/. Fitch Ratings has affirmed Armenia's
    long-term foreign and local currency Issuer Default Ratings (IDRs)
    national currency ratings at 'BB-', the press service of the agency
    told ARKA.

    "The issue ratings on Armenia's senior unsecured foreign and local
    currency bonds are also affirmed at 'BB-'. The Outlooks on the
    Long-term IDRs are Stable. The Country Ceiling is affirmed at 'BB'
    and the Short-term foreign currency IDR at 'B', the outlook stable",
    says the report.

    Key rating drivers

    The affirmation of Armenia's sovereign ratings reflects several
    factors, according to the report. In particular, it shows fiscal
    outturns came in below budget for the second consecutive year in 2013.

    "Due to higher-than-expected tax revenue and under-spending on large
    foreign-financed projects, Fitch estimates that the fiscal deficit
    remained virtually unchanged from 2012 at about 1.6% of GDP in 2013,
    compared with a projected 2.6% in the budget law", Fitch says.

    Another factor is the debt dynamics that are likely to remain fairly
    favourable. Fitch expects the debt/GDP to fall slightly in 2014 and
    remain broadly stable thereafter. However, because 84% of public debt
    is foreign-currency denominated, Armenia's debt profile is vulnerable
    to exchange rate shocks. The pension reform currently being passed
    should help to develop the domestic financial market, although this
    will take time.

    According to Fitch, GDP growth has fallen to about 3% in 2013, down
    from 7.2% in 2012, mainly because of a slowdown in public investment,
    a poor agricultural season and a temporary rise in gas prices. Fitch
    expects growth to recover gradually, to about 4% in 2014 and 5%
    over the longer term.

    The budget law projected a 6.2% GDP growth for 2013 and 5.2% for 2014.

    Fitch estimates the current account deficit (CAD) to have narrowed to
    a still-high 8.2% of GDP in 2013, from 11.2% in 2012, and is expected
    to shrink gradually over the forecast period. The improvement was
    primarily due to a significant rise in the income and transfers
    surpluses. A narrowing of the CAD, together with Armenia's first
    sovereign eurobond issue, helped to generate a modest increase in
    foreign currency reserves.

    Fitch says the Central Bank of Armenia is allowing exchange rate
    flexibility, despite high dollarisation. "Armenia's ratings are
    supported by a fairly strong macroeconomic framework and an inflation
    track record in line with 'BB'-rated sovereigns. Macroeconomic policy
    management has benefitted from a series of IMF programmes dating back
    to 2005 and Armenia recently agreed a further USD125m extended fund
    facility for 2014-17", according to the report.

    Fitch experts believe bank risks to sovereign creditworthiness are
    mitigated by a strong loss absorption capacity and by predominantly
    foreign ownership of banks. Despite having slowed in 1H13, lending
    growth remains high, notwithstanding CBA's attempts to dampen growth
    in foreign currency lending.

    The report says Armenia's recent agreement to join the Russian-led
    customs union instead of the EU Eastern Partnership Programme
    underlined its strong ties with Russia.

    "Entering the customs union will allow for a reduction in gas prices,
    thereby reducing the import bill and improving Armenia's terms of
    trade. However, given the already predominant share of Russia in
    Armenian external trade, joining the customs union is unlikely to
    affect trade flows significantly", according to the document.

    Rating sensitivities

    The Stable Outlook reflects Fitch's assessment that upside and downside
    risks to the ratings 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 current account
    deficit and a stronger reserve position, reducing public debt/GDP at
    a faster rate than Fitch's baseline. Apart from this, a track record
    of sustainably low fiscal deficits without affecting GDP growth would
    improve creditworthiness, especially given a forecast rise in sovereign
    external funding costs.

    Among the main factors that, individually or collectively, could lead
    to negative rating action is material slippage in the performance of
    public finances leading to a rise in the debt/GDP ratio.

    A sharp depreciation in the exchange rate worsening solvency risks,
    given the government's largely foreign currency-denominated debt,
    would pose risks to the financial system in view of the high level
    of dollarization, says the report.

    An escalation of tensions with Armenia's neighbours is another factor
    that may lead to negative rating action.

    Key assumptions

    The ratings and Outlooks are sensitive to a number of assumptions.

    Fitch assumes that: - real GDP growth and fiscal outturns do not
    deviate greatly from its forecast, and that any spillover from
    slowing growth in Russia is contained; - there is no material shift
    in Russia's policy towards Armenia; - a sharp downswing in metals
    prices is avoided. Mining exports, especially copper, account for
    nearly half of Armenia's goods exports; - Armenia continues to enjoy
    broad social and political stability, and that there is no significant
    worsening in tensions with Azerbaijan surrounding Nagorno-Karabakh -
    the gradual progress in deepening fiscal and financial integration at
    the eurozone level will continue; key macroeconomic imbalances within
    the currency union will be slowly unwound; and eurozone governments
    will tighten fiscal policy over the medium term. Fitch also assumes
    that the risk of fragmentation of the eurozone remains low.

    Previously, Fitch Ratings affirmed Armenia's long-term foreign and
    local currency Issuer Default Ratings (IDRs) national currency ratings
    at 'BB-', outlook stable, in August 2013. -0--

    - See more at:
    http://arka.am/en/news/economy/fitch_affirms_armenia_at_bb_outlook_stable_report/#sthash.ivhJrI0D.dpuf

Working...
X