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MOODY'S DOWNGRADES ARMENIA'S BOND RATING TO BA3 AND CHANGES OUTLOOK TO NEGATIVE
January 16, 2015 09:44
Photo: http://www.english.rfi.fr
Yerevan /Mediamax/. Moody's Investors Service has today downgraded
Armenia's issuer and government bond rating to Ba3 from Ba2, and
changed the outlook to negative from stable.
"The key drivers for the downgrade are the following:
1) Armenia's increased external vulnerability due to declining
remittances from Russia, an uncertain outlook for foreign direct
investment (FDI), an elevated susceptibility to exchange rate
volatility, and expected pressure on foreign exchange (FX) reserves;
2) The country's impaired growth outlook, compounded by negative growth
spillovers from Russia, weak investment activity, and constraints
on trade with countries outside the Eurasian Economic Union (EEU)
that are expected from Armenia's recent EEU accession.
In a related action, Moody's has also lowered the local-currency
bond and deposit ceilings to Ba1 from Baa3, the foreign-currency
bond ceiling to Ba2 from Ba1, as well as the foreign-currency deposit
ceiling to B1 from Ba3. The short-term foreign-currency bond ceiling
and the foreign-currency deposit ceiling remain at NP", Moody's
Investors Service press release says.
"The first driver of the downgrade is Armenia's increased external
vulnerability driven by declining remittances from Russia and risks
to expected FDI inflows. Remittances represent about 15% of GDP, with
over 90% of the total stemming from Russia. Given the sharp recession
expected in Russia, the adverse impact of reduced remittance inflows
on the country's balance of payments will potentially put pressure
on Armenia's FX reserves, which were at 4.5 months of import cover
at the end of 2014.
Moreover, Armenia's position as a significant net international
borrower exposes the currency to elevated depreciation risk.
Approximately 83% of Armenia's government debt is denominated in
foreign currency, mostly in Special Drawing Rights (SDR) and US
dollars. The Armenian dram's depreciation of over 15% since November
2014 has the potential to put additional pressure on Armenia's FX
reserves, which remain subject to intervention by the Central Bank
of Armenia to counteract excessive volatility.
The second driver of the downgrade is pressure on Armenia's economic
growth prospects, which is compounded by the negative growth spillovers
from Russia's economic downturn. Moody's expects that Russia's GDP
will contract by 5.5% in 2015, weakening Armenia's economic activity
given its historically strong correlation with Russia's growth cycle
via remittances and trade channels, with Russia accounting for 23%
of total Armenian exports.
Further exacerbating the slowing dynamics for potential growth --
excepting some more active sectors such as the information technology
industry -- are Armenia's weak investment activity and its slow
productivity growth since the global financial crisis, in addition
to its adverse net migration dynamics', Moody's Investors Service
press release says.
http://www.mediamax.am/en/news/society/12838/#sthash.FhucL7XV.dpuf
January 16, 2015 09:44
Photo: http://www.english.rfi.fr
Yerevan /Mediamax/. Moody's Investors Service has today downgraded
Armenia's issuer and government bond rating to Ba3 from Ba2, and
changed the outlook to negative from stable.
"The key drivers for the downgrade are the following:
1) Armenia's increased external vulnerability due to declining
remittances from Russia, an uncertain outlook for foreign direct
investment (FDI), an elevated susceptibility to exchange rate
volatility, and expected pressure on foreign exchange (FX) reserves;
2) The country's impaired growth outlook, compounded by negative growth
spillovers from Russia, weak investment activity, and constraints
on trade with countries outside the Eurasian Economic Union (EEU)
that are expected from Armenia's recent EEU accession.
In a related action, Moody's has also lowered the local-currency
bond and deposit ceilings to Ba1 from Baa3, the foreign-currency
bond ceiling to Ba2 from Ba1, as well as the foreign-currency deposit
ceiling to B1 from Ba3. The short-term foreign-currency bond ceiling
and the foreign-currency deposit ceiling remain at NP", Moody's
Investors Service press release says.
"The first driver of the downgrade is Armenia's increased external
vulnerability driven by declining remittances from Russia and risks
to expected FDI inflows. Remittances represent about 15% of GDP, with
over 90% of the total stemming from Russia. Given the sharp recession
expected in Russia, the adverse impact of reduced remittance inflows
on the country's balance of payments will potentially put pressure
on Armenia's FX reserves, which were at 4.5 months of import cover
at the end of 2014.
Moreover, Armenia's position as a significant net international
borrower exposes the currency to elevated depreciation risk.
Approximately 83% of Armenia's government debt is denominated in
foreign currency, mostly in Special Drawing Rights (SDR) and US
dollars. The Armenian dram's depreciation of over 15% since November
2014 has the potential to put additional pressure on Armenia's FX
reserves, which remain subject to intervention by the Central Bank
of Armenia to counteract excessive volatility.
The second driver of the downgrade is pressure on Armenia's economic
growth prospects, which is compounded by the negative growth spillovers
from Russia's economic downturn. Moody's expects that Russia's GDP
will contract by 5.5% in 2015, weakening Armenia's economic activity
given its historically strong correlation with Russia's growth cycle
via remittances and trade channels, with Russia accounting for 23%
of total Armenian exports.
Further exacerbating the slowing dynamics for potential growth --
excepting some more active sectors such as the information technology
industry -- are Armenia's weak investment activity and its slow
productivity growth since the global financial crisis, in addition
to its adverse net migration dynamics', Moody's Investors Service
press release says.
http://www.mediamax.am/en/news/society/12838/#sthash.FhucL7XV.dpuf