Tweet
Downgrading of Armenia's rating to make foreign loans more expensive
by Gayane Isahakyan
Monday, January 19, 17:08
The downgrading of Armenia's rating by Moody's Investors Service will
make foreign loans a bit more expensive, Chairman of the Board of
Director s of Anelik Bank Nerses Karamanyan told journalists on
Monday.
He said that as a result some banks will increase the rates of their
loans. "I think this will be the only negative effect on Armenia's
banking system," Karamanukyan said.
Moody's Investors Service downgraded Armenia's issuer and government
bond rating to Ba3 from Ba2, and changed the outlook to negative from
stable. Moody's reports that 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.
According to Moody's, 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. In addition, trade constraints with respect to non-EEU
countries likely as a result from Armenia's EEU accession in January
2015 also affect the country's medium-term growth outlook. In this
context, Moody's expects Armenia's integration process into the EEU to
be more challenging than for Belarus, Kazakhstan or Russia, owing to
(1) the lack of a common border to establish trade routes without
customs checkpoints, even as "pass-through" rules with Georgia as
Armenia's main transit route are being negotiated; and (2) the
imposition of higher tariffs for non-EEU country imports, taking into
account that temporary exemptions have been negotiated for a series of
products, such as cars, medicines, basic food items, and agricultural
and industrial inputs for a total of about 800 exemptions for the next
five years.
http://www.arminfo.am/index.cfm?objectidª3B7260-9FE4-11E4-A6D20EB7C0D21663
by Gayane Isahakyan
Monday, January 19, 17:08
The downgrading of Armenia's rating by Moody's Investors Service will
make foreign loans a bit more expensive, Chairman of the Board of
Director s of Anelik Bank Nerses Karamanyan told journalists on
Monday.
He said that as a result some banks will increase the rates of their
loans. "I think this will be the only negative effect on Armenia's
banking system," Karamanukyan said.
Moody's Investors Service downgraded Armenia's issuer and government
bond rating to Ba3 from Ba2, and changed the outlook to negative from
stable. Moody's reports that 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.
According to Moody's, 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. In addition, trade constraints with respect to non-EEU
countries likely as a result from Armenia's EEU accession in January
2015 also affect the country's medium-term growth outlook. In this
context, Moody's expects Armenia's integration process into the EEU to
be more challenging than for Belarus, Kazakhstan or Russia, owing to
(1) the lack of a common border to establish trade routes without
customs checkpoints, even as "pass-through" rules with Georgia as
Armenia's main transit route are being negotiated; and (2) the
imposition of higher tariffs for non-EEU country imports, taking into
account that temporary exemptions have been negotiated for a series of
products, such as cars, medicines, basic food items, and agricultural
and industrial inputs for a total of about 800 exemptions for the next
five years.
http://www.arminfo.am/index.cfm?objectidª3B7260-9FE4-11E4-A6D20EB7C0D21663