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Fitch downgrades Armenia
10:16 * 31.01.15
Fitch Ratings has downgraded Armenia's Long-term foreign and local
currency Issuer Default Ratings (IDRs) to 'B+' from 'BB-', Reuters
reported.
The Outlook is said to be Stable. The issue ratings on Armenia's
senior unsecured foreign and local currency bonds have also been
downgraded to 'B+' from 'BB-'. The Country Ceiling has been revised to
'BB-' from 'BB' and the Short-term foreign currency IDR affirmed at
'B'. KEY RATING DRIVERS The downgrade of Armenia's Long-term IDRs
reflects the following key rating drivers and their relative weights:
High Armenia is highly exposed to the severe economic downturn
inRussia (BBB-/Negative), which will weigh heavily on Armenia's
balance of payment and growth prospects.
The economy is expected to fall into a mild recession in 2015, with
risks tilted to the downside given the worsening economic situation in
Russiaand likely negative impact on external imbalances and further
depreciation pressures. The current account deficit is expected to
widen again in 2015 as a result of a sharp reduction in both
remittances inflows and export demand from Russia. Remittances amount
to about 15% of GDP and fell by about 30% during the last months of
2014 as 90% of the total come fromRussia. The impact of the fall in
oil prices on imports will be largely outweighed by the strengthening
of the dollar and a decline in international prices of key Armenian
exports. Mining exports, especially copper, account for about half of
Armenia's goods exports. Foreign currency reserves at the Central Bank
of Armenia (CBA) are expected to continue their downward trend from a
relatively low level of USD1.49bn in December 2014. The decline in
reserves is primarily due to lower current account receipts and FDI
inflows, but also, to a lesser extent, to market intervention by the
CBA to limit the depreciation of the Armenian dram.
Foreign currency reserves are expected to represent about three months
of current account payments in 2015-16, compared with more than four
months on average in 2010-13. Medium Public debt dynamics are highly
sensitive to depreciation risks, as about 80% of public debt is
foreign currency denominated. The debt-to-GDP ratio rose to nearly 50%
in 2014, primarily as a result of exchange rate depreciation. The
ratio is expected to remain broadly stable in the coming years but
this assumes a stabilisation of the exchange rate. Risks are to the
downside. Fiscal policy has been prudent since 2010, and we expect the
government to maintain the fiscal deficit below 3% of GDP. Armenia is
highly reliant on Russian gas supplies, remittances and military
support, leaving it particularly vulnerable to economic and policy
changes in Russia. Armenia's accession to the Eurasian Economic Union
in January 2015 will further deepen its economic, financial, political
and institutional ties with Russia. Despite recent events in Gyumri,
we expect the close bilateral relationship to remain and to continue
weighing on Armenia's economic and institutional setting. The
financial sector is highly dollarised and will therefore be negatively
impacted by the depreciation of the Armenian dram. The depreciation
and economic downturn are likely to bring about an increase in
non-performing loans and to dent the currently robust capital adequacy
ratios. The CBA has increased the minimum capital requirements for
banks, which could trigger some consolidation in the sector. Armenia's
'B+' IDRs also reflect the following key rating drivers: The CBA
raised its refinancing rate twice in recent months to 9.5%. The
Armenian dram depreciated by 17% in 2014. Inflation is expected to
pick up to 6.5% in 2015 (CBA target range: 2.5%-5.5%) as a result of
higher import prices, although relatively moderate pass-through
effects should contain the impact.
Armenia benefits from an IMF Extended Fund Facility for 2014-17 worth
USD119.1m, which acts as a policy anchor. Armenia is expected to
continue fulfilling the performance criteria and to continue to enjoy
support from major international financial institutions, primarily to
finance large infrastructure projects. Armenia's business environment
compares favourably with rating peers, as illustrated by the World
Bank's ease of doing business indicators. Armenia's geopolitical
environment is a constraint on the rating. The latent conflict with
Azerbaijan over the disputed Nagorno-Karabakh region entails the risk
of escalating into a full-scale conflict. No resolution is expected in
the short term.
http://www.tert.am/en/news/2015/01/31/fitch/1575198
10:16 * 31.01.15
Fitch Ratings has downgraded Armenia's Long-term foreign and local
currency Issuer Default Ratings (IDRs) to 'B+' from 'BB-', Reuters
reported.
The Outlook is said to be Stable. The issue ratings on Armenia's
senior unsecured foreign and local currency bonds have also been
downgraded to 'B+' from 'BB-'. The Country Ceiling has been revised to
'BB-' from 'BB' and the Short-term foreign currency IDR affirmed at
'B'. KEY RATING DRIVERS The downgrade of Armenia's Long-term IDRs
reflects the following key rating drivers and their relative weights:
High Armenia is highly exposed to the severe economic downturn
inRussia (BBB-/Negative), which will weigh heavily on Armenia's
balance of payment and growth prospects.
The economy is expected to fall into a mild recession in 2015, with
risks tilted to the downside given the worsening economic situation in
Russiaand likely negative impact on external imbalances and further
depreciation pressures. The current account deficit is expected to
widen again in 2015 as a result of a sharp reduction in both
remittances inflows and export demand from Russia. Remittances amount
to about 15% of GDP and fell by about 30% during the last months of
2014 as 90% of the total come fromRussia. The impact of the fall in
oil prices on imports will be largely outweighed by the strengthening
of the dollar and a decline in international prices of key Armenian
exports. Mining exports, especially copper, account for about half of
Armenia's goods exports. Foreign currency reserves at the Central Bank
of Armenia (CBA) are expected to continue their downward trend from a
relatively low level of USD1.49bn in December 2014. The decline in
reserves is primarily due to lower current account receipts and FDI
inflows, but also, to a lesser extent, to market intervention by the
CBA to limit the depreciation of the Armenian dram.
Foreign currency reserves are expected to represent about three months
of current account payments in 2015-16, compared with more than four
months on average in 2010-13. Medium Public debt dynamics are highly
sensitive to depreciation risks, as about 80% of public debt is
foreign currency denominated. The debt-to-GDP ratio rose to nearly 50%
in 2014, primarily as a result of exchange rate depreciation. The
ratio is expected to remain broadly stable in the coming years but
this assumes a stabilisation of the exchange rate. Risks are to the
downside. Fiscal policy has been prudent since 2010, and we expect the
government to maintain the fiscal deficit below 3% of GDP. Armenia is
highly reliant on Russian gas supplies, remittances and military
support, leaving it particularly vulnerable to economic and policy
changes in Russia. Armenia's accession to the Eurasian Economic Union
in January 2015 will further deepen its economic, financial, political
and institutional ties with Russia. Despite recent events in Gyumri,
we expect the close bilateral relationship to remain and to continue
weighing on Armenia's economic and institutional setting. The
financial sector is highly dollarised and will therefore be negatively
impacted by the depreciation of the Armenian dram. The depreciation
and economic downturn are likely to bring about an increase in
non-performing loans and to dent the currently robust capital adequacy
ratios. The CBA has increased the minimum capital requirements for
banks, which could trigger some consolidation in the sector. Armenia's
'B+' IDRs also reflect the following key rating drivers: The CBA
raised its refinancing rate twice in recent months to 9.5%. The
Armenian dram depreciated by 17% in 2014. Inflation is expected to
pick up to 6.5% in 2015 (CBA target range: 2.5%-5.5%) as a result of
higher import prices, although relatively moderate pass-through
effects should contain the impact.
Armenia benefits from an IMF Extended Fund Facility for 2014-17 worth
USD119.1m, which acts as a policy anchor. Armenia is expected to
continue fulfilling the performance criteria and to continue to enjoy
support from major international financial institutions, primarily to
finance large infrastructure projects. Armenia's business environment
compares favourably with rating peers, as illustrated by the World
Bank's ease of doing business indicators. Armenia's geopolitical
environment is a constraint on the rating. The latent conflict with
Azerbaijan over the disputed Nagorno-Karabakh region entails the risk
of escalating into a full-scale conflict. No resolution is expected in
the short term.
http://www.tert.am/en/news/2015/01/31/fitch/1575198