Fitch Upgrades Armenia to 'BB-'; Outlook Stable

23/11/2019 17:47

Fitch Upgrades Armenia to 'BB-'; Outlook Stable

Fitch Ratings has upgraded Armenia's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to 'BB-' from 'B+'  - The Outlook is Stable.

According to the organization, Armenia's institutions have facilitated a peaceful and orderly political transition and could strengthen further through structural reforms. The majority government under Prime Minister Nikol Pashynian has demonstrated its commitment towards a stable macroeconomic policy agenda and to the implementation of structural reforms, including the fight against corruption and monopolies and enhanced institutions and governance. Armenia's composite World Bank governance indicator improved substantially in 2018 to a 46% ranking, from 42.2% in 2017, reflecting a marked improvement in the 'Control of Corruption' (to 42.8% from 32.7%), 'Political Stability', 'Government Effectiveness', and 'Voice and Accountability' sub-indicators.

In spite of external volatility, domestic political shocks, and a period of rapid growth, Armenia has preserved macroeconomic and financial stability with inflation (3.8% in October) remaining below the Central Bank of Armenia (CBA) target of 4%, versus 3.4% for the current 'BB' median, due partly to the contractionary impact of public demand in 1H19 and a stable exchange rate. The CBA cut its refinancing rate by a cumulative 50bp in 2019 to 5.5%, after keeping rates stable since February 2017. Fitch expects inflation to pick up to 2.5% in 2020 and 3.3% in 2021, from 1.7% in 2019, supported by a more expansionary monetary policy.

Fitch has greater confidence in the government's commitment to put debt on a downward trajectory, as reflected by the adoption of a revised fiscal rule in 2018 aimed at bringing central government debt to below 50% of GDP by 2023. We forecast gross general government debt (GGGD) to decrease to 51.2% of GDP in 2019, and 48.4% in 2021, from a peak of 58.9% in 2017, supported by a prudent fiscal policy and low effective interest rates. Debt is exposed to exchange rate risk with 82% of government debt being foreign currency-denominated, versus a 'BB' median
of 55.6%.

Fitch expects fiscal policy to remain prudent in line with the principles underpinning the updated fiscal rule. The fiscal deficit is on track to be better than budgeted at a projected 1% of GDP in 2019, versus 2.2% in the 2019 State Budget and well below the current 'BB' median of 3%.

Improved tax efficiency and strong nominal economic growth will lift revenues by a forecast 1pp to 24.1% of GDP, while capex under-execution will contain expenditure growth. The fiscal deficit will likely widen to 2.2% in 2020 and 2.1% in 2021 as the Medium-Term Expenditure Framework entails a 2.2% of GDP increase in capex (to 5% of GDP), in line with the objective of shifting the structure of spending towards a more growth-friendly composition.

The tax reform adopted in June 2019 provides for the introduction of flat income tax rates and lower corporate tax. Revenue measures, including an increase in excise taxes and gambling and financial sector licence fees and removal of tax exemptions will compensate for the estimated impact of about 1% of GDP annual revenue losses in the near-term. Higher-than-expected GDP growth over 9M19, at 7.1% yoy driven by robust credit-led private consumption and dynamic private investment in the construction sector, led us to revise upwards our forecast for 2019 to 6.5% (from 4.6% previously), versus a five-year average of 4.5% and a 'BB' median of 3%.

Fitch forecasts growth to decelerate thereafter, as decreasing remittances inflows weigh on private spending. Robust service and industry sectors, recovery in mining supported by the re-opening of the Teghut copper mine, and pick-up in public investment will still support growth at an average of 4.7% in 2020-2021. The possible resumption of the foreign-owned Almusar gold mine exploitation provides upside to our forecast. Armenia's 'BB-' IDRs also reflect the following key rating drivers: Armenia's income per capita is weaker than similarly rated peers', and the country faces tense relations with some neighbouring countries.

Borders are closed with two neighbours and a longstanding conflict with Azerbaijan over Nagorno-Karabakh has the potential to escalate. Reliance on Russia is high for security, energy, trade, foreign direct investments (FDI) and remittances, while Russia provides 83% of Armenia's natural gas imports at a 30% discount rate, and an increase in gas tariffs is possible after the expiry of the gas price agreement with Armenia in December 2019. External vulnerabilities remain a key rating weakness, with a structurally large current account deficit, not fully financed by FDI, and high external indebtedness. Fitch forecasts the deficit to narrow to 7.8% of GDP in 2019 (9.4% in 2018), supported by a pick-up in mining exports, and of 8 dynamic tourism, agriculture and manufacturing sectors.

Statistical discrepancies and re-exports currently captured in net errors and omissions accounted for 3% of GDP in 2018. FDI is low, forecast at 2% of GDP in 2019, and financing 26% of the current account deficit, the remainder being filled by debt-creating flows. Net external debt accounts for a forecast 49% of GDP in 2019, almost three times the current 'BB' median. External liquidity is weaker than peers', with the international liquidity ratio projected at 102.5% at end-2019, below the 168% current peer median.

Yet, international reserves increased to USD2.5billion at end-October 2019 (3.6 months of current account payments, versus a 'BB' median of 4.5 months) from USD2.3billion at end-2018, as the CBA purchased foreign currencies to curb appreciation pressures on the dram. Access to external financing and improved exchange-rate flexibility mitigate low external liquidity in case of an external shock. External financing risks are mitigated by the precautionary Stand-By Arrangement of USD248million signed with the IMF in May 2019 and support from official creditors. The government issued a 10-year USD500million Eurobond in September with a 4.2% yield and bought back 80% (USD400million) of the Eurobond maturities coming due next year, hence removing short-term refinancing risk.

The banking sector is well-capitalised but profitability is low and loan growth remains high, at 15.4% yoy at September-end 2019, boosted by mortgage loan and consumer lending. This partly reflected a decrease in the informal economy, higher household real income and increased risk appetite from banks given pressures on profitability. Asset quality is strong, however, with nonperforming loans (from one day past due, as per the CBA classification) accounting for 5% of total loans. Dollarisation is still high at 50% of deposits and credit, despite the recent introduction of targeted macro-prudential measures.

In case you have found a mistake in the text, please send a message to the editor by selecting the mistake and pressing Ctrl-Enter.


Today, 10:53 Number of coronavirus cases grows by 233 in Armenia in 24 hours, 2 new deaths reported Today, 10:15 Beirut explosion death toll rises to 135 — media 05/08/2020 21:19 Situation at Amulsar tense again, police apprehend few protestors 05/08/2020 21:16 Armenia's PM receives textile industry representatives 05/08/2020 18:55 State of Emergency to be extended for another month with essential changes: Deputy PM 05/08/2020 18:30 Armenia’s health minister says coronavirus situation in Armenia stabilizes 05/08/2020 18:22 Armenia’s PM: Coronavirus situation in Armenia continues to improve 05/08/2020 17:01 Lives of Armenian peacekeepers in Lebanon not in danger: MFA spokesperson 05/08/2020 16:48 Yesterday's Beirut blast result of negligence of local authorities: expert 05/08/2020 16:32 Armenia's PM holds phone conversation with Lebanese President Michel Aoun 05/08/2020 15:31 Cyclone Isaias reaches Canada after killing at least five in US 05/08/2020 14:43 Ukraine reports record high number of daily coronavirus cases 05/08/2020 14:03 Russia reports over 5,200 COVID-19 cases in the past day 05/08/2020 13:49 Viva-MTS increases the number of service centers 05/08/2020 12:28 Arevelk: Delia Papazian another Armenian victim of Beirut blast 05/08/2020 12:17 Armenia’s MFA reports about six Armenians killed in Beirut blast 05/08/2020 12:11 Armenia ready to provide assistance to Lebanon and its people: FM 05/08/2020 12:02 Total number of coronavirus-infected in Artsakh reaches 248 05/08/2020 11:20 Armenian Church Catholicosate of Cilicia badly damaged after huge blast in Beirut (photos) 05/08/2020 10:52 Number of coronavirus cases grows by 288 in Armenia in 24 hours, 2 new deaths reported 05/08/2020 10:46 Three Armenians killed, 100 injured as a result of huge explosion in Beirut port: MFA 05/08/2020 10:26 Young Armenian nurse killed in Beirut explosion 05/08/2020 07:51 Lebanon’s military council declares Beirut a disaster-stricken city 05/08/2020 07:43 Armenian PM says he is shocked by the deadly blast in fraternal Lebanon 05/08/2020 07:38 Secretary-general of Lebanese Kataeb Party Najarian dies in Beirut blast 04/08/2020 20:19 Beirut blast: Explosion rocks city ahead of Hariri verdict (video) 04/08/2020 18:37 Tensed situation at Amulsar, police apprehends protesters 04/08/2020 17:08 We too were worried about these people: Yuri Khachaturov on March 2, 2008 developments 04/08/2020 16:37 Donald Trump: US Treasury should get cut of TikTok deal 04/08/2020 15:15 NASA Jet Propulsion Lab grants license to Armenian company to make VITAL ventilators 04/08/2020 14:50 Flights of Turkish, Azerbaijani air forces within scope of Armenia, Artsakh’s respective systems: Tigran Abrahamyan 04/08/2020 14:20 Yerevan mayor says Mashtots square victory yet incomplete 04/08/2020 14:08 Armenia’s President nominates Artur Vagharshyan’s candidacy in post of CC judge 04/08/2020 14:01 Viva-MTS: Free calls for your clients 04/08/2020 13:09 Tatul Margaryan recalled from post of ambassador to Belgium and Luxemburg 04/08/2020 12:55 There is no better solution for the community: Yerevan mayor on developments over Mashtots square 04/08/2020 12:08 Russia records lowest number of coronavirus cases since April 23 04/08/2020 11:19 Artsakh reports 4 new coronavirus case, condition of 7 assessed severe 04/08/2020 10:56 Number of coronavirus cases grows by 196 in Armenia in 24 hours, 6 new deaths reported 04/08/2020 10:38 Lukashenko suggests amending Belarusian Constitution at referendum 03/08/2020 19:46 Mashots square activists keep silence because now they occupy positions: PAP Yerevan Council of Elders faction member 03/08/2020 17:15 Polish regulator imposes $57 mln penalty on Gazprom over Nord Stream 2 investigation 03/08/2020 16:36 Three Russian firms to start serial production of COVID-19 vaccine in September 03/08/2020 15:28 Cutting even one tree in conditions of global warming is crime: environmentalist 03/08/2020 14:42 Islamic State group claims deadly attack on Afghanistan prison 03/08/2020 13:37 Sergey Bagratyan should reasoned leaving the faction with more grounded and frank explanation: Gevorg Petrosyan 03/08/2020 12:43 Microsoft to continue talks to buy TikTok's US operations 03/08/2020 11:52 Coronavirus: Iran cover-up of deaths revealed by data leak 03/08/2020 11:17 Incident between Armenians and Azerbaijanis recorded in Canada 03/08/2020 11:08 Turkish-Azerbaijani drills accompanied with false and exaggerated information: Tigran Abrahamyan 03/08/2020 10:44 Number of coronavirus cases grow by 52 in Armenia in a day, 8 new deaths are reported 03/08/2020 10:06 Situation on Armenian-Azerbaijani state border relatively calm: MOD 02/08/2020 10:57 Armenia’s coronavirus cases exceeds 39 thousand, 5 new deaths reported 01/08/2020 15:03 “Ameria Tour” Draw: Chance to Explore Armenia with Us (video) 01/08/2020 14:30 Urgent cleaning works necessary to save Lake Sevan: leader of environment initiative 01/08/2020 14:15 Azerbaijan violates ceasefire 170 times during past week 01/08/2020 13:24 TikTok: Trump says he will ban Chinese video app in the US 01/08/2020 12:44 Artsakh reports 1 new coronavirus case, 167 people recovered 01/08/2020 12:11 Ukraine seems to have complex to perceive the essence of NK conflict: Armenia’s FM 01/08/2020 11:40 Armenia’s FM: There will be no concession, no unbalanced resolution to Karabakh conflict 01/08/2020 11:01 Number of coronavirus cases grows by 291 in Armenia in 24 hours, 11 new deaths reported 01/08/2020 10:57 Armenia’s FM expects new Azerbaijani minister to be constructive and responsible 01/08/2020 10:12 President of Court of Cassation elected candidate for position of CC president 31/07/2020 19:11 Government to help restaurant business maintain jobs 31/07/2020 19:08 Armenian, Artsakh FMs discuss situation in Armenian Tavush 31/07/2020 19:07 Bodies of four people, including child, found at tourist camp in Russian Altai Region 31/07/2020 14:55 Armenia’s DM: Actions in Tavush showed the failure of adversary in short period of time despite usage of super new technology 31/07/2020 14:25 Belarus opposition rally attracts thousands despite crackdown 31/07/2020 13:45 Afghanistan: At least 17 killed in Eid car blast 31/07/2020 13:14 Trump proposes postponing presidential elections over COVID-19 spread 31/07/2020 12:56 In Russia 5,482 cases of COVID-19 detected over 24 hours 31/07/2020 12:09 Former PAP faction MP explains reason of leaving the faction with disagreements in approaches 31/07/2020 11:36 Artsakh reports 4 new coronavirus cases 31/07/2020 11:15 Instead of working Armenian authorities are trying to silence political opponents: Homeland party leader 31/07/2020 11:00 Armenia’s political authorities, current NSS director have issues with understanding the law: Artur Vanetsyan 31/07/2020 10:50 Authorities attempt to initiate criminal persecution to stop my political activity: ex-director of NSS 31/07/2020 10:41 Number of coronavirus cases grows by 354 in Armenia in 24 hours, 13 new deaths reported 31/07/2020 09:51 Armenia’s Armed Forces go on high alert in snap combat readiness check 31/07/2020 09:40 Situation on Armenian-Azerbaijani state border relatively calm: MOD 30/07/2020 19:45 Romanos Petrosyan appointed Environment Minister 30/07/2020 18:49 Criminal case filed against ex-director of NSS Artur Vanetsyan (Armlur) 30/07/2020 18:11 Medical worker dies from coronavirus in Armenia 30/07/2020 18:07 Russia stops arrest warrant for ex-MP Ruben Hayrapetyan 30/07/2020 16:25 Soldiers wounded on Armenian-Azerbaijani border feel good: MOD 30/07/2020 15:23 Killer of Rafiki, Uganda's rare silverback mountain gorilla, jailed 30/07/2020 14:48 Portland protests: Federal forces ready for phased pullout 30/07/2020 14:05 Global COVID-19 cases surpass 17 mln 30/07/2020 12:38 Over 215,000 coronavirus cases recorded worldwide in 24 hours, says WHO 30/07/2020 11:55 Ex-governor of Kotayk Romanos Petrosyan to be appointed Environment Protection minister 30/07/2020 11:35 Armenia has chance to break the back of the pandemic: PM 30/07/2020 11:19 Artsakh reports 4 new coronavirus cases 30/07/2020 10:49 Number of coronavirus cases grows by 259 in Armenia in 24 hours, 5 new deaths reported 30/07/2020 10:12 Adversary opens ineffective fire from Igla-S and OSA-AK complexes in direction of Armenian positions: MOD 29/07/2020 23:01 People got used to changing power by closing streets and may do the same: ex-president 29/07/2020 22:47 This state of emergency seems to have no relation with pandemic: ex-president 29/07/2020 22:44 Ex-president: Armenia’s government must confess conduction of wrong policy and accept having more dangerous situation of resumption of war 29/07/2020 22:18 Armenia will not face famine, but serious economic decline: ex-president 29/07/2020 22:07 Authorities gave wrong assessment to coronavirus from the very beginning: Kocharyan on fighting coronavirus 29/07/2020 21:53 Authorities started to realize that they are doing something wrong: ex-president 29/07/2020 21:50 Negotiations better than any war, but there can be no blackmailing: Robert Kocharyan

Recent news of this section